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Where the bilateral relationship is now?

The relationship between the U.S. and China was at a historic low due to trade, high tech, and other issues when COVID-19 broke out in Wuhan, China, in late 2019 and early 2020. It might have been a great opportunity for Beijing and Washington to switch gears and find new ground to cooperate.

Unfortunately, leaders in both nations failed to seize the moment. The notorious “decouplers” close to the White House – represented by Peter Navarro, a trade adviser to Trump, and Michael Pillsbury, a China watcher favored by Trump – saw the outbreak as a golden opportunity to increase the pace of disconnecting with China. Other administration officials chimed in. Secretary of Commerce Wilbur Ross declared it would create momentum for the U.S. manufacturing sector to bring jobs from China back to the U.S.  Secretary of State Mike Pompeo used a domestic and international lecture tour to castigate China for attacking American democracy, stealing American intellectual property, using debt to entrap developing countries, and applying coercive diplomacy to its neighbors. The State Department began to treat Chinese media outlets in the U.S. as hostile entities and later sharply reduced the number of their employees in the country.

When Wuhan locked down, the U.S. offered no official moral or material support. On the contrary, it sent a high-caliber delegation to Germany to lobby allies and others at the Munich Security Conference against using Huawei technologies or products.  The U.S. Navy continued to conduct freedom of navigation patrols in the South China Sea. The USS McCampbell (DDG 85), a guided-missile destroyer, passed through the Taiwan Strait on March 25, something an American ship has not done since the Cross-Strait crisis in 1996 before Taiwan’s first direct presidential election. A Wall Street Journal op-ed entitled “China, the Real Sick Man of Asia” seemed to crystalize the American reaction to China’s suffering and touched a raw nerve in China’s national psyche. Even worse, on March 26 President Trump signed the TAIPEI Act into law, the third act passed by Congress since 2017 that was designed to change the status quo in the Cross-Strait relations.

China has responded tit for tat to the perceived American slight and humiliation. It lashed out at the U.S. for being one of the first nations to ban Chinese citizens from entering the country. It expelled several Wall Street Journal reporters after the aforementioned op-ed was published. It then sent other American reporters packing. It refused a proposed shipment of personal protective equipment organized by the USAID in early March when the COVID-19 situation came under control in Wuhan. The Chinese ambassador to the U.S. began to complain that the political virus was as destructive as the coronavirus. In mid-March, when the outbreak began to spread in the U.S. and the American death toll began rising, Zhao Lijian, China’s newly appointed Foreign Ministry spokesman, declared an information war on the U.S. via Twitter. He wondered whether the U.S. military brought the virus to Wuhan during the World Military Games in October 2019 and demanded that the U.S. identify its own patient zero.

In response to Zhao’s provocative tweets, U.S. leaders began to use either “Chinese virus” or “Wuhan virus” when referring to COVID-19. Secretary Pompeo’s insistence on using the term made it impossible for the G-7 Summit to issue a communique after an online consultation. Bilateral insults escalated until President Donald Trump and President Xi Jinping talked over the phone on March 26. A temporary truce was violated toward the end of April when President Trump decided to withhold payment to the World Health Organization (WHO) because of its alleged China-centric behavior. Soon after, the administration began to talk about holding China accountable for the disastrous spread of COVID-19 in America and elsewhere. U.S. intelligence agencies were ordered to seek evidence about whether the virus came out of a lab in Wuhan. Members of Congress accused China of concealing the outbreak and hoarding PPE. American allies have joined the chorus. Lawsuits against China were filed in the U.S. and ways to punish China became a daily discussion point during the White House coronavirus task force briefings. A GOP campaign strategy paper was leaked, revealing advice to all GOP candidates to blame China for America’s lack of effective response to COVID-19. More recently, Kevin McCarthy, Republican leader in the House of Representatives, formed a China task force with a mission to investigate China’s malign global activities. The Democrats in the House backed out of the task force because, in the words of Speaker Nancy Pelosi, the GOP’s fanatic effort to tie China to the failure of the administration to contain the virus effectively was an “interesting diversion.” Pelosi said Democrats would not provide justification for such scapegoating.

Then, a second truce appeared to be on the horizon. On May 4, Deputy National Security Adviser Matthew Pottinger told participants at a forum on U.S.-China relations held virtually at the University of Virginia that the U.S. would not seek punitive measures against China during the COVID-19 crisis. Interestingly his wife, Yen Pottinger, a virologist who used to work at the CDC on AIDS and TB, spoke at the same conference on the prospect of U.S.-China cooperation during the pandemic. Three days later, China’s top trade negotiator, Vice Premier Liu He, had a conference call with U.S. Trade Representative Robert Ligthizer and Treasury Secretary Steven Mnuchin. Both sides pledged to honor the first phase trade agreement hammered out earlier and emphasized the importance of U.S.-China cooperation during the pandemic. The positive turn in early May seemed to have collapsed by the middle of the month when China signaled that Beijing could scrap the trade deal due to America’s senseless pursuit of reparations from China for COVID-19 deaths and when Trump threatened to cut off all relations with China.

Forty-one years after the normalization of relations between the U.S. and China, one of the most consequential anchors for global peace and prosperity is now facing the prospect of a grand decoupling. If allowed to continue unchecked, the world will likely face a grave period of political uncertainty, economic disruption, and security vulnerability unseen in recent history. Although Chinese leaders have never openly challenged American supremacy and have always called for a win-win relationship with the U.S., Chinese media’s narrow focus on American failures in responding to the pandemic and sharp attacks on the American attempts to hold China accountable for the global spread of the coronavirus have presented a dastardly picture of the U.S. At the same time, ordinary Americans, who usually do not pay much attention to Chinese affairs, have been exposed to the vicious criticism of China. This mutual antagonism can only serve to drive the two nations further apart.

Could the U.S. and China still cooperate during the pandemic?

It is never too late for the two most consequential powers on earth to cooperate during the pandemic. In fact, the epic endeavor to contain the virus will face much more difficult prospects if the U.S. and China refuse to work together. Leaders in both countries during their phone calls have expressed their willingness to cooperate in fighting COVID-19. But what happens daily seems to indicate that mutual distrust is so deep that neither side is ready to enter into an effective partnership.

According to the Chinese Foreign Ministry, from March 1 to May 5, China supplied the U.S. with 6.6 billion masks, 344 million surgical gloves, 44 million protective garments, 6.75 million goggles, and 7,500 ventilators. Yet, the U.S. keeps talking about reducing the American dependence on China for pharmaceutical products and PPE, and allege PPE made in China are shoddy in quality. American officials constantly accuse the Chinese government of concealing the outbreak, but no one has publicly acknowledged that, as the New York Times reported, Dr. George Gao, director of the Chinese CDC called Dr. Robert Redfield, his counterpart in the U.S. CDC, during the New Year break and alerted him to the outbreak in Wuhan. In fact, by late February, according to the Chinese Foreign Ministry, there were more than 30 such communications from China to the U.S.  But months into the crisis, it seems that no one in either capital is focusing on a crucial need: that the U.S. and China must work together during this pandemic to return to any semblance of normalcy. How could the U.S and China coordinate, cooperate and collaborate in containing the virus?

First, official communication could be ramped up. China was ahead of every country in dealing with this brutal and pernicious virus. It has a lot of experience to share with the U.S. in treatment, methodology, drug application, and reopening. Professional staff from U.S. CDC and Chinese CDC are believed to be holding regular meetings on the outbreak and containment. NGOs, university entities, and research institutions in both countries have been conducting regular, small-scale online information sharing sessions. But there is no official organization of any of these activities. During the Obama Administration, there were close to 100 mechanisms of dialogue between agencies of the two governments. At this critical time when bilateral cooperation is most needed, communication at the top level of the country and central government agencies is reduced to a couple of phone calls.  There is almost zero inter-governmental consultation between the U.S. and China. This is a shame and should be corrected.

Second, considering where African, Latin American, and other developing regions are in their fight against COVID-19, it is crucial for the U.S. and China to work together to provide leadership, expertise, and assistance. No country will be safe if any other country has failed to contain the virus. As Ethiopian Prime Minister Abiy Ahmed noted in an op-ed in the Financial Times on March 25, “Momentary victory by a rich country in controlling the virus at a national level, coupled with travel bans and border closures, may give a semblance of accomplishment. But we all know this is a stopgap. Only global victory can bring this pandemic to an end.” No global victory could be declared if the U.S. and China refuse to enter into a partnership to work with developing countries to stop the virus. The two countries cooperated closely in stopping Ebola in West Africa in 2014-2016 and they need to do this again. In Africa exiting models for coordinating assistance around disease prevention show promise as models for U.S.-China coordination around COVID-19.  U.S. PEPFAR (President Emergency Plan for AIDS Relief) was instrumental in building African health capacity and infrastructure to fight against HIV/AIDS and other diseases, while Chinese medical teams have provided medical assistance and support in almost all African nations. The ongoing efforts of the African CDC—through support by the U.S, China, and other countries—has allowed member states to continue preparing for this new threat. Closer U.S.-China cooperation in Africa could turn the possible weakest link in the global defense against COVID-19 into a much stronger line of containment.

Third, both countries should and must work together in testing, producing, and eventually distributing a coronavirus vaccine. The virus will stop mankind from working and living normally absent an effective vaccine that is available to everyone in the world. The U.S., China, and other developed countries have engaged in a race to produce a viable vaccine, but as of now, there is no active cooperation between China and the West. China must be criticized for not providing a live virus sample to the U.S in the early stages of the outbreak, but blaming China for trying to steal Western secrets related to the vaccine without any hard evidence will simply prevent indispensable multilateral cooperation. Vaccines are not computer chips, and all involved need to pool their knowledge and share information. The U.S and China must take the lead in coordinating this scientific race against the constantly mutating virus.

Where will the Sino-American relationship be after the pandemic?

U.S.-China decoupling is not a matter of if but a question of how serious it is and where it is happening. According to the U.S.-China Investment Report released by the National Committee on U.S.-China Relations and the Rhodium group on May 9, Chinese FDI to the U.S. in 2019 was almost zero. An order from U.S. Department of Commerce on May 15 bars any company in the world that uses American machinery and software from supplying Huawei. Four U.S. senators wrote to President Trump and asked him to suspend a program that enables international students to stay in the U.S. for up to two years after graduation. The largest body of international students in the U.S. comes from China. The U.S. has stipulated that visas for Chinese media workers will be restricted to 90 days. Measures aimed at decoupling are taken daily by the Trump Administration.

This may be why Chinese Foreign Ministry spokesman Zhao Lijian expressed no surprise and showed no sign of nervousness when asked to comment on President Trump’s May14 declaration that he is considering cutting off the relationship with China. Zhao’s response was: “A steady and growing China-U.S. relationship serves the fundamental interests of the two peoples and is conducive to world peace and stability. At present, China and the U.S. should strengthen cooperation to prevail over the pandemic at an early date, and focus on saving lives, and resuming economic development and production. This, of course, calls for the U.S. and China working together towards the same goal.”

Compared to what official Chinese media outlets have heaped on Secretary of State Mike Pompeo and adviser Matthew Pottinger, this response is shockingly tame but also utterly terrifying. The China Institutes of Contemporary International Relations, a think tank affiliated with China’s Ministry of State Security, recently issued a report indicating that the U.S.-China relationship is at its lowest point since 1989 and that armed confrontation is not inconceivable. Hu Xijin, the outspoken editor in chief of the Global Times, has called the Chinese government to expand its nuclear arsenal arguing, “We are facing an increasingly irrational U.S., which only believes in strength.” Wang Haiyun, a retired major general, demanded the Chinese government dig out and punish “those traitors who have been bought out by the United States and do its bidding.” Others argue there is no need to react to the lunacy of the American administration. China simply needs to prepare for the worst. According to this line of thinking, the U.S. is deciding to decouple when it has the least in its toolbox. Time will be on China’s side. Cui Tiankai, the longest serving Chinese ambassador to the U.S., recently told a reporter that he does not care if the bilateral relationship does not return to where it was before the pandemic. He only cares about looking forward to a better and brighter framework of U.S.-China interaction. One Peking University professor told this author, “Not too long from now, there will be a raging debate in the U.S. on who has lost China, similar to the same debate that was launched in 1949.”

American aggressiveness and recklessness in decoupling and China’s response, characterized by a sense of resignation, seemingly well-planned preparedness and determination at playing the long game, all point to a bleaker prospect for the bilateral relationship. Businesses, academic and research institutions, NGOs, and ordinary people on both sides of the ocean should fasten their seat belts and be ready for a bumpy ride in the coming months, if not years. The bilateral breakup may be as disruptive as COVID-19.

How will U.S.-China rivalry change the landscape of global well-being?

Neither China nor the U.S. has fared well in its response to the pandemic. China’s initial effort to stifle the doctors and conceal the outbreak has proven costly and counterproductive. It is wrong and misleading to assume China will replace the U.S. and become dominant in world affairs. The U.S., after being alerted by China at least three weeks before the virus invaded the homeland, was ill-prepared and has been ineffective in containment, even months after declaring a national emergency. The mediocre, if not incompetent, performance of the U.S. government has disappointed and will continue to disillusion people from all over the world – people who used to believe in America’s supreme national will to respond to crises big and small, enviable resources, and dominating advances in biomedical research. As a result, the debate on which system of governance is more effective in alleviating national suffering and protecting people’s lives will continue inside and outside the two countries. But whatever edge China has gained in effectively containing the virus in a relatively short period of time has been compromised by its refusal to acknowledge initial deficiencies and to allow international experts to investigate the origins of the virus in Wuhan.

The ramifications for the U.S. and China are serious. Countries around the world will be asking two essential questions: First, can China be trusted, given how it mishandled the outbreak initially?  Second, can the U.S. be relied upon, considering how it has bungled the fight to contain the virus? China’s reluctance to make all information related to the virus available to the world and its own people makes it difficult for other countries to have confidence in it. The lackluster American response and its unilateralism in making decisions that will impact the world make other countries doubt its commitment to international responsibility in addressing future challenges. These uncertainties could lead to an era of shaky alliances and new partnerships. It is possible that the EU or another existing or newly created power bloc could seize global leadership.

The international system will face unprecedented challenges as long as the U.S. and China engage in zero-sum rivalry. The U.S. and other Western countries are determined to investigate whether WHO was involved in any “wrongdoing” in alerting the world about the outbreak in China in a timely and unbiased manner. If hard evidence emerges that points to China exercising undue influence on WHO for self-serving purposes, one potential consequence could be an exodus of the U.S. and its followers from the organization. Would a parallel but competitive WHO be created? Would WHO’s parent organization, the U.N., face the same challenge? Secretary Pompeo recently said that the U.S. may never return to the WHO. The U.S. has already withdrawn from UNESCO and the U.N. Human Rights Commission.

The possibility of China setting up a new international order bent on serving its own interests is remote. It will either leave the international system or stay put and call for reforms. The unity of the U.S.-led international system, if it still exists after the pandemic, may lead to two possible outcomes. First, as a new kid on the block, China could become a more mature and responsible stakeholder in the international community. But if China is again infected by the victimization mentality, it could decide to shut down its long-running reform and opening up. The second outcome, which is not impossible, would be bad for China, for the U.S., and for the world.  It would make the international system more vulnerable and responses to global challenges chaotic, sporadic, and ineffectual.

In conclusion, the post-pandemic world likely will be an era of deep uncertainty characterized by an escalating rivalry between the U.S. and China. A Sino-U.S. economic and financial disconnection could lead to another arms race and a disastrous global economic downturn.  Challenges to the international order and institutions would be more severe as both Beijing and Washington ramp up pressure.  Countries, particularly developing ones, would be forced to choose sides, leading to possible realignment of the international community unseen since the end of the Cold War. Finally, as U.S. and China both attempt to restore reputations tainted by their responses to the pandemic, numerous new power centers could emerge to either stabilize the situation and restore sanity to the management of international affairs or create even more uncertainty and disruption.

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According to the National Bureau of Statistics of China, Chinese GDP in the first quarter of 2020 declined by 6.8 percent from a year ago as the country battled coronavirus through large-scale shutdowns and quarantines to limit human interactions. This is the first time China has reported a negative growth rate in the first quarter since 1992 – the first year China started to report quarterly GDP data. Manufacture production and fixed investment fell 10.2 percent and 16.1 percent respectively in the first quarter from a year ago. In services sectors, wholesale and retail sales fell 17.8 percent, while online sales of physical goods rose 5.9 percent because people bought more online during the lockdowns. The hardest hit is in the hotel and restaurant sector with a 35.3 percent decline. The consumer price index (CPI) increased by 4.9 percent in the first quarter.

The growth forecast for China and the world economy varies. The IMF projects an average five percent growth rate in the next two years (1.2 percent in 2020 and 9.2 percent in 2021), compared to a -3 percent growth globally in 2020.¹ The World Bank is more optimistic, projecting a 5.9 percent, 5.8 percent, and 5.7 percent rate respectively in 2020, 2021, and 2022 for China but a 2.5 percent growth rate for the whole world in 2020.² Given the importance of China as a manufacturing center in the world and its continued growth momentum, most estimates predict a faster growth in China than in the rest of the world in the near future.

Nevertheless, this pandemic has already posed a tremendous challenge to China and will continue to be so over a long time. Three key factors stand out. First, China faces different challenges in the short run as compared with the long run but is more comfortable with handing the immediate crisis than more difficult but needed structural changes. Second, China’s economy will be hurt by potential decoupling from the global markets. And third, China’s experience of pandemic control does not suggest that China’s system at this point is a viable alternative to the Western democracies and market systems.

The recovery in the second quarter of 2020 will continue to face strong headwind. In the first quarter, production has always been a bit slower during the Chinese New Year holiday, so the effects of the lockdowns on production were muted relative to the effects on demand. In addition, despite the cancellation of some orders, many firms still had some previous orders to fulfill during the first quarter of 2020. The effect of the lack of new orders, especially international orders, will become more obvious starting from the second quarter, except for medical products. Therefore, the downturn in the economy during the rest of 2020 will likely continue. However, China has successfully joined global value chains in many industries and the rest of the world is highly dependent on China’s supply of parts and components, as well as many assembled final products. So, it is unlikely for the rest of the world to decouple with China immediately. In the short term, the Chinese economy will continue to supply the world as a global factory and will likely to do better than the rest of the world.

In the long term, however, China will face more uncertainties depending on the severity of the COVID-19 pandemic. If the rest of the world enters a severe recession, this will hurt the Chinese economy which depends heavily on international markets. Even worse, if the rest of the world forms an alliance against China, attempting to decouple from China by diversifying their global value chains, this will be painful for the Chinese economy. Decoupling is very unlikely if only one country like the U.S. takes actions by erecting trade barriers or withdrawing investment from China because such an attempt will eventually fail if all of the companies in other countries, such as Germany, Japan, and Korea, can take advantage of the cheaper labor in China and compete against American firms globally. However, if major Western economies can jointly take collective actions against China, this will hurt China even if such actions are somewhat against economic principles and the trend of globalization. Even though every country will suffer in the short run, policy makers in the western countries may be able to justify such a decoupling from a dynamic perspective for long run gains at the cost of some short run losses to social welfare. The Chinese government should prepare for the worst scenario and handle this global crisis properly to avoid this.

Unless an effective vaccine is found, the COVID-19 will likely stay for a while. Countries may have to prepare to work around this virus. For China in particular as the most populous country, employment is a national priority. With the sharp declining demand domestically and internationally, it is no longer practical to maintain the previously set GDP growth goals. To ensure an economic recovery and avoid mass unemployment, however, a decent economic growth rate is still needed. To achieve these goals, a set of comprehensive and coherent policies should be in place.

In the short run, a country cannot resume all jobs immediately while the risk of contagion still exists. More effective policy to help those hit hard by the pandemic is probably fiscal stimulus such as direct money transfers to citizens or wage subsidies to firms. At the same time, proper measures should be taken to ensure safety when reopening the economy and extreme caution should be used to prevent systematic risks that may arise during the time with slow growth. This is especially important to China where people and policy makers have become accustomed to fast growth for decades. These risks include but are not limited to financial risks, public, corporate or individual debt crises, inflation, and political uncertainty. In the short run, the Keynesian type of counter-cycle policies can help to address this crisis.

However, these kinds of against-wind policies will not be a proper choice in the long run. Instead, China should continue to push forward structural changes and institutional reforms. Continued efforts should be made to deepen economic and political reform, which has lagged since Xi Jinping took power. On employment, China needs to pay special attention to rural migrant workers who usually travel long distances from home for work, and were hit the hardest during the pandemic. A certain set of safety nets should be established to protect their jobs and health. Otherwise, this public health crisis can turn easily into a widespread social and economic crisis. Given the close ties of the Chinese economy with the world market, China should embrace candid and open-minded policies to rebuild the trust of the rest of the world. A large part of such trust has been lost in the recent several years, and especially so during this pandemic of COVID-19. The constitutional change to a lifetime presidency, increasing reliance on state-owned enterprises, tighter control of the government under Xi Jinping, and widespread nationalism are the true enemies of China.

Finally, what are the implications of this pandemic for the so-called “China model,” which features a heavy hand from government? China took swift actions to lock down cities and quickly controlled the spread of the virus, which contrasts sharply to what happened in the rest of the world, especially the Western world with market economies and democratic political regimes. Many people hail the success of the China approach and some claim its overall superiority over Western systems. This is unfortunately a misperception and may have serious consequences.

The control of contagious disease is a classic example of an “externality” in economics and is often used to explain “market failures.” Because the benefit of contagious disease control to an individual is far smaller than the benefit to the whole society, an individual tends to take less than optimal caution and measures to control its spread. In this case, government can help by forcing people to take vaccines, wear masks, or even tolerate locked downed cities. China’s regime with a strong central government and previous experience with the SARS is well-suited to address these kinds of crises. The same logic works for other types of market failures, including but not limited to public good provision and other types of activities with externalities such as high-speed trains. It is not surprising to see China’s success in these areas and indeed the Western world should learn from China to redesign policies to ensure quicker and more effective responses to these market failures or crises.

However, we cannot simply generalize it to all other areas where market and individual decisions should take control. Many decisions in society involve trade-offs, and no regime is perfect in all aspects. China’s regime does have advantages in some areas over Western democracies, but the inadequate response to this pandemic in the Western countries alone is certainly not sufficient to justify its overall inferiority to China’s regime.³ Such an awareness can help China to deepen the reforms and handle international conflicts. For instance, although the more centralized regime of China does give some advantages to Chinese firms when competing against companies in the Western world, this is not sustainable as shown by the current trade war between the U.S. and China. To fully integrate into the world economy, China will have to embrace more market reforms and institutional changes to ease the tension with the Western market economies, rather than commanding even more control over the economy and society as the current regime under Xi Jinping is doing. China’s economic miracle over the last several decades did not occur because there was more and more control from the government, but rather because of less and less control over time.

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COVID-19 has proven to be a great disruptor. First it caused the national shutdown of China as factory after factory turned the lights off, sending Western firms scrambling for goods of all kinds. Next the disruption spread globally, causing a shutdown of consumer spending in the West, and sowing confusion on all sides of the supply chain.

As China factories resume operations, the risks to the global supply chain and opportunities for reducing those risks have become clear.

Sourcing

The first phase of COVID-19 served as a wake-up call for Western firms that were overly dependent on China. As province after province and industry after industry shut down, it became clear that many Western firms could not manufacture their products without China, at least not in the quantities required. Supply sources that could easily be moved to other countries had mostly already relocated. Garments and consumer electronics were in this category.  Supply chain directors faced the challenge of finding alternative suppliers of critical parts overnight, in the midst of a growing global health crisis. We saw clients trying to relocate assembly lines to places like Vietnam or Thailand, only to discover that factories in Southeast Asia also depended on parts from China. Indeed, factories in that region are mostly owned by Chinese entities.

Most companies were ultimately unable to move production, other than for small parts, at such short notice. The lesson for supply chain directors is to build in contingency planning for critical parts during calmer times. Many Western firms are now lining up other manufacturing countries for their products and components. Some are even bringing manufacturing back home, and Japan has announced a $2.2 billion expenditure on companies relocating out of China.¹ Companies with security-related products are first in line, including face mask manufacturers and potentially also other medical components.

Quality

Another issue in the wake of COVID-19 is the lack of knowledge and control over the Chinese supply chain. As the crisis subsided in China and manufacturers were starting back up, we found that many factories were using alternate sub-suppliers for parts, often without informing their clients of the changes, and indeed without themselves understanding that they were changing specifications. On paper, replacement parts looked the same, but quality varied from the originals and indeed also varied within batches. The problem was compounded at this stage by the travel restrictions from the outside, as auditors were unable to visit factories themselves.

A further challenge for organizations of all sizes in many industries involves standardizing operations and processes. This is accomplished through initial alignment with international standards and then asking independent auditors to evaluate compliance and issue certifications. Yet, because operations continue after receipt of certifications, compliance often starts to slip – sometimes inviting high risks.

In these cases, we recommend a tried and true “trust but verify” method of due diligence to avoid losses and conflicts. It shouldn’t be difficult to determine which of the certified processes maintained by a partner company is most important to your organization. Due diligence then can be a one-time assessment and applied continually through process oversight. It is best not to wait for slipups because those could be costly financially, operationally, and from a reputation perspective. The same goes for quality control in the supply chain. The more complicated and high-value your product is, the more scrutiny you should apply. This is especially necessary when third-party manufacturers are returning to normal production volumes after widespread shutdowns. This “return” will likely entail a lot of scrambling and cutting corners.

Fraud

In the wake of COVID-19, the frequency of fraud and scams has gone up dramatically. The hook has mostly involved exploiting the general uncertainty in China.

Consider for example the so-called “CEO email” scam. This is when a finance person in an organization receives an email allegedly from their company’s senior executive with urgent instructions to immediately transfer funds to an outside party to help complete a commercial deal.

Scammers in these cases rely on the lack of redundant controls (secondary approvers) over the release of funds to outside parties. We have seen multiple cases of companies losing significant sums of money without much hope for recovery. It is prudent, therefore, to look at the fine details of financial management and redundant approval processes of the organization with which you plan to (or already) do business. Several governments recently issued guidance to businesses in an effort to strengthen internal controls and avoid such scams. However, application is inconsistent, and losses continue. The fix is easy, but verification is necessary.

The current situation unfortunately means an increased risk of fraud: from price gouging and online scams to deliberate and unjustified interruption of agreed payments or delivery of supplies. One of the new vulnerabilities stems from remote work arrangements for millions of people supporting supply chains. As teams and individual employees remain physically separated, isolated decision-making and degradation of compliance with existing policies and procedures should be expected.

Lessons

Make sure each manufacturer you’re relying on is aware of your concerns, and that concerns are forwarded downstream. Ask to see material bills and material samples. Don’t assume that suppliers are putting extra scrutiny on materials. Ask for estimated delivery times of key materials, and make sure you are aware of which regions your key materials are shipped from so you can try to verify independently how likely issues are to arise with a certain vendor. Please also make sure to direct questions not only to English-speaking representatives but also to top management of your vendors and suppliers in their native languages because that helps build trust and enhances collaboration in solving problems.

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China’s Public Health Systems

Public Health in Ancient China

It is debatable whether ancient China and other early civilizations had a systematic way of dealing with public health issues. However, ancient Chinese did discover primitive forms of strategies used today for infectious disease containment, including vaccination, quarantine, and prevention (IOM, 2007). The origin of vaccination can be traced back to the practice of variolation (smearing of a skin tear of someone with smallpox to confer immunity) in 17th century China (The Immunisation Advisory Centre, 2016). Isolation and quarantine of leprosy patients had been conducted in China, with the first house for leprosy patients in China built in 1518 in Fujian. Early forms of community hygiene had been used in large populations centers in ancient China, including the clearing of sewage (Chinese Academy of Science, 2003).

Culture is also relevant to public health. It is widely known that traditional Chinese medicine has emphasized the importance of prevention. At times, China’s social norms had improved the balance of nutrition and reduced the likelihood of epidemic gastrointestinal infections. Anecdotes suggested that Chinese laborers building the transcontinental railways in the U.S. were less likely to suffer from malnutrition and diarrhea because their diet included a mix of vegetables and meats, and they consumed little alcohol (PBS, Not dated).

Dawn of Western Medicine and Public Health in China

The last century of the Qing Dynasty (1636–1912) witnessed the introduction of Western medicine. Peter Parker (伯驾1804–1888), a Yale-trained missionary and physician, founded the first-ever Western-style hospital in China, the Ophthalmic Hospital in Canton, on November 4, 1835 (Wikipedia, 2020a). The hospital later became the Second Affiliated Hospital of Sun Yat-sen University. In 1844, Dr. Divie Bethune McCartee (麦嘉缔) established the first successful Presbyterian Church (USA) mission station in mainland China in Ningbo, where he practiced medicine (Wikipedia, 2020b). The introduction of Western medicine accelerated in the last decade of the Qing Dynasty. In 1906, several religious groups banded together to establish Peking Union Medical College (PUMC) Hospital,¹ which from 1916 was supported by the China Medical Board. In 1910, missionaries from the UK, Canada, and the U.S. founded the West China Union University Medical College, and in 1914, Xiangya Medical College was founded by the Hunan Yuqun Society and the Yale-China Association (雅礼学会).

With the growing acceptance of Western medicine, the idea of modern public health gradually gained a foothold. In 1905, the Qing court established a police department with its very own hygiene unit (Du, 2014), marking the start of modern public health practices. Supported by the China Medical Board, PUMC created China’s first academic department of public health, and actively promoted public health practice. PUMC collaborated with the Capital Police Department to create an Institute of Public Health on May 29, 1925. A major task of the institute was the training of public health nurses. In 1929, the Peking Municipal Government created possibly the first department of health by Chinese authorities. The pioneers of public health practices forged ahead while lamenting the lack of authority and funding. In 1934, health organizations in Peking started annual campaigns of vaccination against smallpox, cholera, diphtheria, scarlet fever, and typhus (Du, 2014). The war with Japan and the Chinese civil war ensued, hampering further development of public health. However, Chiang Kai Shek, leader of the Republic of China, promoted his signature New Life Movement during wartime. Hygiene was one of the pillars of the movement, sparking one of the earliest modern health education campaigns in China (Dirlik, 1975).

Public Health in the People’s Republic of China

With Chiang’s retreat to Taiwan and the establishment of the People’s Republic of China in 1949, the role of the private sector in providing health care in China has subdued. China’s then Ministry of Health, a responsible body for overseeing health care services and running of the country’s health care network, soon began transforming private hospitals into public ones, including the PUMC Hospital. By the late 1960s, government-funded and -run hospitals fully took over health care services in China. In rural areas, barefoot doctors (赤脚医生) took responsibility for public health. They were considered a new cadre of community-level health workers that brought basic curative care, health education, and a continuous public health approach to large swaths of the rural population in China. Barefoot doctors managed a village-level cooperative medical scheme, which some considered a successful model in improving primary care in rural settings (Blumenthal & Hsiao, 2015).

Public health was a high priority for the nascent government of the People’s Republic. Between 1950 and 1952, more than 512 million of China’s then roughly 600 million people were vaccinated against smallpox. When the last patient recovered in 1961, smallpox was eradicated in China, 16 years before global eradication (Wang, 2019). Of note is that China declared the elimination of sexually transmitted diseases (STDs) by 1964 with the efforts spearheaded by George Hatem (马海德), a Maronite American who was the first foreigner naturalized as a Chinese citizen in the People’s Republic. Dr. Hatem also served as a physician for Mao Zedong in Yan’an (Porter, 1997). Unfortunately, STDs reappeared in the 1980s with the liberalization of commerce and mobility and correspondent changes in social customs and sexual behaviors.

Indeed, as an unexpected consequence of China’s economic liberalization and the privatization of agriculture, the rural health system started to collapse in the late 1970s and early 1980s. Recent efforts have been made to re-establish a system of “village doctors,” who have again assumed responsibilities of public health.

China’s primary health agency had been reorganized several times. The Ministry of Health (1949-2013) merged with the Family Planning Commission to form the National Health and Family Planning Commission (2013-2018), a not-so-subtle hint of the change in the long-standing “one-child” policy. The Commission took the much-shortened name of the National Health Commission in 2018.

China’s health care reforms are relevant to public health as well. Several insurance and safety networks had been established for urban and rural residents, including a rural cooperative medical scheme and basic medical insurance for urban residents. These insurance schemes were merged (三保合一) and managed under the various levels of health care security agencies. One goal of the 2009 health care reform was to provide essential public health services to vulnerable populations.

China’s Lead Public Health Agency: The Chinese Center for Disease Control and Prevention

The Chinese Center for Disease Control and Prevention (China CDC) became the principal national-level public health agency, but disease prevention in the People’s Republic dates back to the Epidemic Prevention Stations (EPS) of the 1950s. In 1953, China modeled its health system on the Soviet Union’s and established EPSs to contain and eliminate infectious diseases. By 1957, more than two-thirds of China’s roughly 2,050 counties had an EPS. They vaccinated the population, with laudable achievements such as elimination of smallpox in 1960 and, to some extent, STDs by 1964 (Wang, 2019).

On December 23, 1983, then Ministry of Health created the China Center for Preventive Medicine, subsequently renamed the Chinese Academy of Preventive Medicine on January 19, 1986 (China CDC, 2018). In 2002, the Academy merged with several other institutes, including the Institute of Occupational Health and Institute for Health Education and formed the China CDC on January 23, 2002. (China CDC, 2012). As its name suggests, the China CDC considered the U.S. Centers for Disease Control and Prevention (U.S. CDC) a model for public health practice. The honor of the first provincial CDC in China earlier went to the Shanghai CDC, which was established in November 1998.

China CDC’s mission is “to create a safe and healthy environment, maintain social stability, ensure national security, and promote the health of people through prevention and control of disease, injury, and disability.” Under the auspices of China’s National Health Commission, China CDC takes leadership in disease prevention and control and provides technical guidance and support for China’s public health community. Shortly after China CDC’s creation, it took on the task of dealing with the 2002-2003 outbreak of the Severe Acute Respiratory Syndrome (SARS).

China ramped up investments in infectious disease control after the SARS outbreak. To address the need for enhanced disease surveillance systems identified after the SARS outbreak, China launched a nationwide system in 2004 that is capable of reporting infectious disease and emerging public health events via the internet. By 2013 the system had more than 70,000 reporting units, including CDCs at different levels and incorporating most of the medical providers in China.

During the 2009 round of health care reform in China, there were proposals to enable China’s CDC systems to take on the basic public health services. However, as the China CDC has been primarily a science and technical support agency, the plan did not materialize.

China CDC vs. U.S. CDC

COVID-19 has prompted numerous assessments of the public health systems across the world, including a comparison of the CDCs in China and the U.S. The following compares the two agencies in terms of workforce, budget, authority, and coordination with regional health authorities.

The China CDC is limited in terms of workforce with a total of 2,120 Full-time equivalents (FTEs) in 2016, compared with the 11,195 FTEs for its counterpart in the U.S., a figure that does not include several thousand of contractors (Frieden, 2020).² The Public Health Foundation put the U.S. government public health workforce at 403,323 in 2011, with county/city and state-level public health workers totaling 287,267 (University of Michigan/Center of Excellence in Public Health Workforce Studies, 2012). Meanwhile, statistics from the 2017 China Health Statistics Yearbook reported national, provincial, prefectural, and county CDC employees in China at about 193,000 FTEs.

Second, the U.S. CDC’s budget dwarfs that of the China CDC. In 2019, The U.S. CDC had a budget of $11 billion, while the total budget of the National Health Commission (which includes China CDC and many other units) in 2019 was just over $3 billion.³

Third, the U.S. CDC is a federal agency with a legal mandate to quarantine patients who may pose risks to public health across national or state borders. The China CDC serves as one of the supporting technical institutes but the legal mandate to quarantine patients resides in governments at the county level or higher. Successful efforts in epidemic detection and control require the strong leadership of the national public health institute.

Fourth, China CDC does not have authority over provincial, prefectural, and county-level CDCs, as many observers have assumed. Being a supporting agency of the central government, China CDC provides technical guidance to local CDCs. A local CDC, however, usually reports to the local health commission, which has the final say on operations, including financing and personnel. The China CDC merely works with local health commissions and local CDCs when outbreaks occur. As China CDC does not have strong influence in funding or personnel decisions, its recommendations may be brushed off, and it may not be provided with full information.

This comparison probably is made at an inconvenient time because the U.S. CDC faced sharp criticisms for its handling of the COVID-19 pandemic (Abutaleb, Dawsey, Nakashima, & Greg, 2020). CDC’s failure to produce an adequate test for COVID-19 was a black mark against the agency. An unintended implication is that more financial and human resources are not associated with better outcomes.  However, I argue that the mediocre performance of the U.S. CDC this time resulted from a combination of misfortunes, political interference, and possibly lack of political influence. As one of the most renowned public health agencies, the U.S. CDC remains a model for public health agencies worldwide. I relegate an in-depth examination of the performance of the U.S. DC in containing COVID-19 to future analysis.

COVID-19 and China’s Public Health System

As of May 26, 2020, there were 5,304,772 cases worldwide of COVID-19 and 342,029 deaths (WHO, 2020). Recent estimates put R0, the number of people a contagious COVID-19 patient might infect if no intervention is involved, at 5.7 (Li et al., 2020; Sanche et al., 2020; Xu et al., 2020). Note that the number is an estimate, and the true R0 is unknown, possibly not to be known. However, the estimated R0 does indicate that COVID-19 is highly contagious. Transmission by asymptomatic or presymptomatic people and an incubation period ranging from two to 14 days pose a serious challenge to public health communities (Bai et al., 2020).

China’s public health system faced initial vehement criticism for its presumed delay in detecting and communicating information about early cases of COVID-19. Early warning signs emerged in late December of 2019, but it took days for the China CDC to be informed. It was around this time that Dr. Wenliang Li, a doctor with the Central Hospital of Wuhan, posted an online message warning about the outbreak. A few days later, he was reprimanded by Wuhan authorities and forced to confess to making false statements. After Dr. Li died of COVID-19 he was hailed as a national hero.

It wasn’t until early January that central authorities disclosed information about the virus to the world, prompting more allegations, strongly denied by Beijing, that the central government had withheld vital information. In fact, it’s unclear what the central authorities knew about the coronavirus in late December and the first part of January.

But it is clear that other factors influenced the uproar over the reporting delay. First, after reading a paper published in the New England Journal of Medicine (Li et al., 2020) in late January, a popular blogger accused the authors, most of them China CDC scientists, of purposely delaying the reporting of their findings about the virus. It later turned out that the blogger had made a gross misinterpretation of the timeline that was retrospectively dated. Although the blogger retracted his post, the notion that China CDC delayed the reporting quickly spread. Second, many have been frustrated by the fact that the outbreak was not reported sooner via the direct report system. However, a delay in reporting early COVID-19 cases in the system indicates issues in enforcing reporting protocols. Dr. Sheng Hua, a prominent economist, later revealed that the director-general of China CDC learned of the outbreak through his social network instead of the reporting system, and a national-level investigation was quickly set up afterward.⁴ This incident points to an issue that has long pestered China (or any large country with powerful regional governments) – how the central government leads and coordinates with regional authorities.

The public also questioned China CDC’s management of risk communication during the epidemic, demanding timely reporting and transparency. To be fair, China CDC technically is not a government agency and does not have the authority to publish information related to outbreaks. Besides, China CDC may not be fully capable to function in health communication – the Center for Health Education was separated from China CDC after a short-lived marriage. An integrated approach emphasizing coordination between different agencies would better serve the public.

Nonetheless, China CDC has played a critical role in containing the COVID-19 outbreak in China. Along with other provincial and local CDCs, they have put field staff in Hubei province to conduct epidemiological investigations and contact tracing (The Novel Coronavirus Pneumonia Emergency Response Epidemiology Team, 2020). They have contributed to the understanding of the epidemiological features of COVID-19 (Li et al., 2020) and promptly advocated for international collaboration to contain the pandemic (Abutaleb et al., 2020).

We need to note that the China CDC comprises only a part of China’s public health system. To achieve its objectives, China CDC coordinates with provincial and local CDCs, as well as public health functions embedded in the health care systems, including hospitals and community health centers. At the height of the outbreak in Hubei, more than 40,000 health care providers from other provinces converged on Hubei province to offer much-needed assistance to the local health care systems. The contribution of all the parties to containing the COVID-19 outbreak should not be forgotten.

It is worth recalling the earlier section on the history of China’s public health efforts. The major approaches that China’s public health system used to contain COVID-19 continue to include old methods such as social distancing, quarantine, and sanitation. Social distancing and other measures to reduce mobility are effective in the containment of COVID-19 (Prem et al., 2020). Meanwhile, although Chinese scientists are making progress in developing vaccines for COVID-19, the take-up rate of flu vaccine in China has been poor, which may have led to hospital-acquired infections during the flu season. The lack of coverage of flu vaccination is partially attributed to the separation between the health care systems and public health. In China, the payers – various levels of the health care security administrations – are not allowed to cover flu vaccination, which is budgeted in the basic public health services provided by community health centers.

Looking Forward

Dr. Jeffrey Koplan, former director of U.S. CDC, and Dr. Yu Wang, former director of China CDC, together published an analysis 10 years after the 2002-2003 SARS outbreak. They highlighted the need for enhanced disease and symptom surveillance systems, effective infection control, and a central focus of public health for coordination and leadership with delegated responsibility and authority, among other things (Koplan, Butler-Jones, Tsang, & Yu, 2013). Seven years later, the call still stands true for China, and probably for the U.S. and the rest of the world as well. The COVID-19 pandemic further highlights the need for concerted multi-sectoral efforts (Chen, Cao, & Yang, 2020). The following offer food for thought and possible topics for more in-depth discussions on China’s public health system.

1. Strengthening the leadership of public health agencies deserves attention. Elevating the status of Chinese CDCs would help to facilitate timely communication and decision-making. Clarifying the legal authority of Chinese CDCs would be useful (Li et al., 2020).
2. Provincial and local public health systems, as essential components of the national public health system, need to be sustained. In addition to the China CDC, China’s provincial and local CDCs have also suffered workforce shortages (Wang et al., 2019). Capacity building at the regional and local levels is critical for successful epidemic control.
3. China’s public health system needs to coordinate between different levels of CDCs and collaborate with local hospitals. A world-class direct reporting system is fantastic, but it will function properly only with adequate training and a close working relationship with the staff members of health care providers.
4. To prevent transmission of infectious diseases, early identification of cases and their close contacts are crucial. Because asymptomatic and presymptomatic COVID-19 patients are both contagious, it is vital to identify close contacts of COVID-19 patients and to implement effective self-isolation and quarantine guidelines. Massive efforts in contact tracing have paid off in containing the epidemic in the Chinese City of Ningbo (Chen et al., 2020).
5. China’s public health system needs to recruit and retain talent. Current wage levels for the workers in China’s CDC systems are not comparable to those with equivalent qualifications in health care, fueling a recent exodus of people from the CDC system. It is not too late to examine the pay scale of the CDC workforce nationwide and assess alternative mechanisms of recruiting and retaining talent.
6. Improving risk communication is critical. Health communication is a burgeoning field that involves multidisciplinary collaboration among behavioral science, communication, and public health. China’s public health system needs to build up its capacity in health communication, not just for the prevention and control of infectious diseases but also for chronic diseases.

Concluding Remarks

Policymakers have competing priorities. Resources and attention are often directed to projects that show quick and certain returns at the price of reduced investment in public health. COVID-19 proves such a tactic to be risky and provides an opportunity to reflect and revise our approaches. In times of uncertainty, prevention and preparedness is key to avoiding a future redux of the COVID-19 pandemic. We must strengthen public health institutions by providing sufficient financial and human resources and conferring them concrete and implementable authorities. We also need to improve collaboration between central and regional authorities, and most importantly, trust the expertise of public health workers.

If a bull is near a china shop, it is better to lead it by holding its nose ring. Failing to prevent or detect an epidemic is the same as grabbing the bull’s tail – imagine what might happen to the china shop.

Acknowledgments and Disclaimer

The author acknowledges Ms. Yeran (Cynthia) Deng for excellent research assistance. I learned about the enlightening metaphor of bull’s nose ring vs. tail from Professor Zuofeng Zhang, who attributed the metaphor to Professor Guangwen Cao. I thank Professors Penny Prime and Hanchao Lu for the invitation to present this material at the China Research Center seminar series and to submit it to this journal. The thorough editing of Drs. Betty Feng and James Schiffman is much appreciated. Any remaining errors are undoubtedly and totally my own.

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The post Public Health in China: Bull’s Nose Ring Or Tail? appeared first on China Research Center.

Ethiopia has emerged as one of China’s closest political and economic partners in China’s wider engagement in Africa. In exchange for infrastructure development and support in its ambitions for industrialization, Ethiopia offers business contracts for Chinese firms and has been a loyal supporter of Beijing in international forums. Although a close strategic partnership between the countries was established after the 2005 elections, Prime Minister Abiy Ahmed’s reform agenda appears to be drawing him back to Western actors.  Far from representing a shift in alliances, this move is consistent with Ethiopia’s historic pattern of balancing external powers against each other to reaffirm its own independence.

It is too early to say how the COVID-19 pandemic will impact this relationship, but Chinese humanitarian aid is unlikely to appease African states’ desire for comprehensive debt relief. Beijing has stated it will help resolve debt difficulties, but on a bilateral basis. This most likely will not include write-offs and may ultimately serve to increase Ethiopia’s as well as the broader continent’s dependence on China.

China in Ethiopia

Ethiopia has been a key destination for China’s expanding construction and telecommunications companies. Under the framework of “resources for development,” Beijing typically mobilizes its vast financial reserves to invest broadly in infrastructure projects across Africa in order to receive natural resources in return. However, with its growing populations, Africa has increasingly provided an opportunity for China’s burgeoning firms to find new markets as declining infrastructure contracts in China are forcing firms abroad. Furthermore, Africa acts as a “testing ground” for Chinese companies, while the expansion of Chinese businesses abroad also provides opportunities for better paid work and offsets pressure on the domestic labor market.

China is particularly attracted to Ethiopia because of the diplomatic clout Ethiopia holds in Africa. This is due not only to the various multinational institutions based in Addis Ababa such as the African Union (A.U.), but also the symbolism of Ethiopia as one of the only African states not to have been colonized. As President Hu Jintao stated in 2004, “Ethiopia could play a pivotal role in enabling China to consolidate its cooperation with other African countries.” Historically, African states have been instrumental in securing China’s United Nations Security Council seat and strengthening China’s position in international relations. Cooperation with China demands recognition of its One-China policy and there is an implicit expectation of diplomatic support when China is criticized internationally. This is reflected in the A.U.’s support of China’s position in the South China Sea dispute. However, China’s presence would not be possible without Ethiopia’s own enthusiastic embrace of Beijing.

Ethiopia’s Realignment to China

With the brief exception of Italian occupation 1936-1941, Ethiopia takes pride in its longstanding independence. This has been a challenging project historically, which Ethiopia achieved by playing off rival powers against each other to strengthen its own position. Meles Zenawi, whose Ethiopian People’s Revolutionary Democratic Front (EPRDF) overthrew the communist Derg regime in 1991 and who stayed in power until his death in 2012, demonstrated the continuity of this longstanding policy. He successfully ushered in the post-Cold War era by strategically realigning to China as a way to leverage against U.S. hegemony.

Although the U.S. helped the EPRDF come to power in 1991, Meles did not wish to remain within the American sphere of influence. Meles was fundamentally at odds with the neoliberal economic paradigm promoted by the U.S. Arguing that the proposals from the IMF and World Bank would not solve the problem of endemic poverty in Ethiopia, Meles once wrote that “development is a political process first and a socioeconomic process second.” He believed in state monopolies over key sectors of the economy, a heavily regulated private sector, non-interference of foreign direct investment (FDI) in the state’s policies, and a top-down approach to development. This statist emphasis on sovereignty in its economic development was inspired by Meles’s Marxism, and his admiration of East Asia’s rapid economic growth.

Meles consequently felt that Ethiopia’s economic growth would be secured by collaboration with China. While South Korea and Taiwan were his favored examples, China’s rise represented a serious political challenge to American development hegemony and the concomitant loan conditionality that Meles had tried to resist. This began with Meles’s visit to China in October 1995 and Chinese President Jiang Zemin’s reciprocal visit to Ethiopia in May 1996. Ethiopia was closely involved in the first Forum on China-Africa Cooperation (FOCAC) in 2000 and was the first African country to host the meeting in 2003.

However, Sino-Ethiopian relations only seriously intensified following Meles’s violent suppression of protests over the disputed 2005 election results and resulting Western criticism of the crackdown. When the European Commission suspended general budget support and the World Bank froze new lending programs, Meles was pushed closer to China. At the 2006 FOCAC summit in Beijing, Meles stated that “China was always at the side of Africans, which created mutual trust between us. China also deserves credit for never interfering in the political affairs of the continent.” Meles seemingly ignored or overlooked the fact that only a few years earlier, China sold more than $1 billion in arms to both sides during the Ethiopia-Eritrea War (1998-2000), bypassing the U.N. embargo.  Furthermore, as a member of the U.N. Human Rights Council, Ethiopia helped defeat all motions criticizing China in 2007. Crucially, party-to-party relations were significantly expanded and in 2010, a Memorandum of Understanding was signed between the EPRDF and the CCP. Economic ties also increased rapidly. According to a 2012 World Bank survey, Chinese FDI increased “from virtually zero” in 2004 to $74 million annually in 2009. During this time, the EPRDF reestablished a single-party state, securing 99.6 percent of seats in Parliament in 2010, and 100 percent in 2015.

Ethiopia’s realignment appeared all but complete when the foreign ministers of Ethiopia and China published an article in 2014 which expressed the aim to “upgrade our cooperation to a fully-fledged strategic partnership.” However, this strategic partnership was primarily focused on the party-to-party relationship between the EPRDF and the CCP which contributed to the development of a ruling-party oriented capitalism in Ethiopia. This is illustrated by EFFORT, an endowment run by EPRDF officials that owns more than 60 companies in major industries, and routinely receives preferential treatment when entering joint ventures with Chinese firms.

Ethiopia consequently saw the consolidation of political power and economic assets by the former revolutionary leadership, as inequalities and dissatisfaction widened. China thus became enmeshed in the EPRDF regime at the expense of Ethiopia’s private-sector and democratic institutions. It should nonetheless be noted that Addis Ababa used its alliance with Washington in the Global War on Terror to strengthen Ethiopia’s authoritarian turn by justifying draconian anti-terror legislation that severely curtailed freedom of speech. Before delving into the more recent political ramifications of this partnership, an overview of China’s impact on Ethiopia’s infrastructure and industrialization development will be provided.

Infrastructure

Ethiopian and Chinese officials typically depict their economic relations as “win-win,” most notably with regard to the vast investment in infrastructure. For example, the completion of the Chinese-funded Addis Ababa–Djibouti Railway in 2018 reduced a week-long journey to a 12-hour ride, facilitating goods transport and cutting costs for 90 percent of Ethiopia’s external trade. Even though the railway has been beset by major issues, such as a lack of supporting infrastructure and insufficient revenue, it still strengthens Ethiopia’s prospects for economic growth.

While these infrastructure projects are benefiting Ethiopia in important ways, they are designed to serve Chinese interests first. China’s infrastructure projects are largely funded by concessional loans which have low interest, a five-year grace period and a grant component of more than 35 percent, making them extremely attractive. Whereas these loans do not contain any political conditionality, they are heavily tied to stipulations requiring the use of Chinese companies, labor (especially at the managerial level), and materials. This, in combination with political ties, low bidding prices, and the ability to outcompete Ethiopian firms, explains the success of Chinese firms in Ethiopia.

This success is most visible in road construction, where the Chinese share of the total in Ethiopia in 2011 was between 70 and 80 percent. Although the majority of the permanent Chinese-employed workforce in Ethiopia is in fact Ethiopian, they are normally employed in low-skilled jobs, which prevents transfer of expertise and creates resentment. Furthermore, the equipment used to build roads is often outdated, stopping effective transfer of technology. This, in combination with the low bidding prices offered by Chinese firms, results in poor-quality construction.

Additionally, a significant proportion of road projects create losses. In some cases, Chinese contractors lose 40 percent of the contract price. This is only made possible because Chinese state-owned enterprises (SOEs) are backed by company savings and state bank loans, meaning that the Chinese taxpayer is effectively footing the bill for Ethiopia’s infrastructure development. This demonstrates how China’s SOEs act as instruments of Chinese foreign policy in that they are helping establish Beijing’s diplomatic foothold in Ethiopia.

China has also been heavily involved in constructing Ethiopia’s telecommunications. In 2006, China’s ZTE was granted a monopoly over the market as the Ethiopian government seemed to ignore its own procurement rules requiring competitive bidding. Government control and poor quality have resulted in some of the lowest fixed-line and internet access rates in Africa. Monopoly profits are in turn used to fund Chinese infrastructure projects, creating a circular flow of money. Moreover, Ethiopia is dependent on China for after sales. This dependency only seems to be intensifying as a $1.6 billion agreement was signed in 2013 with Huawei and ZTE to upgrade existing infrastructure.

Activists have claimed that Chinese authorities have provided the Ethiopian government with technologies that can be used for political repression, such as surveillance cameras and satellite jamming equipment. Moreover, a 2018 Le Monde Afrique report claimed that China had bugged the African Union headquarters in Addis Ababa. In addition to hiding microphones in desks and walls, China had allegedly been transferring confidential data to a server in Shanghai between 2012 and 2017. Although both the African Union and the Chinese government denied the accusations, observers say the incident demonstrates the lack of leverage African states have over China and warn against relying too heavily on China for their development. The A.U. now uses its own servers, and information no longer passes through Ethio Telecom, Ethiopia’s state-run operator built by China’s ZTE. This incident strengthened the U.S. government’s long-held belief that China uses its telecommunications firms, Huawei and ZTE, to spy on foreign governments and citizens.

The greater concern for Ethiopians is how Chinese loans have placed an enormous debt burden on the country, causing economic volatility. Ethiopia is the second-largest recipient of Chinese loans in Africa with more than $13.7 billion provided between 2000 and 2017. Government debt currently stands at 59 percent of GDP, with some 50 percent owed to China while foreign exchange is drained as imports outrank exports by as much as 400 percent. This unsustainable situation reveals the persistent structural weakness of the Ethiopian economy and has fueled public outrage in recent years. A Chinese Foreign Ministry spokesperson recently stated that China is open to restructuring loans to African countries, but the long-term health of the economy will depend on whether the government’s efforts to industrialize succeed.

Industrialization

In response to its chronic foreign exchange shortage, which predates its partnership with China, Ethiopia hopes to spur its industrialization by encouraging its comparative advantage in the leather industry and by emulating the successful East Asian industrial parks. China has played a mixed role in both efforts but with mostly positive results for industrialization prospects.

Despite initial fears that cheap Chinese imports would displace local manufacturers, the Ethiopian footwear industry responded by becoming more competitive and implementing effective industrial policies. Chinese footwear began flooding the Ethiopian market in the early 2000s, after economic liberalization in the 1990s opened a once-closed market, leading to fears of deindustrialization. However, a 2007 study of small and medium footwear enterprises by Tegegne Gebre-Eghziaber showed that while Chinese imports had been highly disruptive, the Ethiopian footwear industry had responded by either undercutting these imports or focusing on better quality. After several years of adjustment, 82 percent of the firms Gebre-Egziabher spoke to told him that they were now competitive against Chinese imports and that the leather sector in Ethiopia was booming. Furthermore, while Chinese imports were initially attractive for their cheap price, they declined in popularity after being revealed to have poor quality.

The Ethiopian government also intervened to protect the footwear industry. It listed a number of areas of investment reserved for domestic investors only, including leather hides and skins. Furthermore, in November 2011, the export of semi-finished skins destined for footwear production was banned to further encourage domestic industry. In response to the poor quality of many Chinese products, the government established the Joint Committee on Quality Control, which demands Chinese exports be given a certificate by an inspector agency.

In addition to defending its leather industry, Ethiopia has embarked on an ambitious policy of opening industrial parks to attract foreign manufacturers and benefit from the spillover effects including skills and technology transfer. While China has been the most avid investor, many local firms do not benefit from subcontracting as happened in East Asia. This is seen in the fact that in 2011, 61 percent of total material inputs and supplies used in factories were imported. This is because many goods could be imported at a cheaper price from China than they could be sourced locally. This nonetheless contradicts a fundamental goal of FDI, which is to boost local competitiveness through active interaction with advanced foreign businesses. Whereas Ethiopian firms would like to see more joint ventures, Chinese firms have largely been unwilling, further hindering managerial skill and tech transfer. There have also been reports of rampant labor abuse and exploitative wages. Average wages at Chinese firms are nonetheless above the Ethiopian average.

China has responded to these criticisms and is increasingly encouraging spillover benefits. The Huajin International Light Industry City was built in cooperation with the Ethiopian government in 2017 and aims to serve as an Ethiopian supply chain cluster. To counteract the issue of China’s employment practices, Huajin has selected graduates from Ethiopian universities to receive training in China to become the future managers of its Ethiopian factories. This builds on previous efforts, most notably when China built Africa’s largest vocational training school in Addis Ababa in 2008. In addition, many of the issues associated with low spillover from Chinese firms have more to do with underlying conditions than discriminatory practices. This suggests that as expanding infrastructure development cuts costs and more Ethiopians receive qualified training, Ethiopian ownership of its industrialization will increase. A $1.8 billion deal signed in 2018 with the State Grid Corporation of China to secure power lines to cities, 16 industrial parks, and the Addis-Djibouti railway is a step in the right direction.

Progress is slow, however, as Ethiopia failed to reach its targeted 15-fold increase in textile and leather exports in 2015. Combined, they still only account for a fraction of total exports. Ethiopia’s traditional dependency on agriculture has not changed and Chinese investments have not significantly helped agricultural development. Nonetheless, Ethiopia has benefitted from this investment and the prospect of increased Ethiopian ownership bodes well for the country’s economic growth.  Unfortunately, the global economic stillstand induced by COVID-19 will undoubtedly impact this development.

The Abiy Era

Despite all the advances in the Ethiopian economy that the strategic partnership with China enabled, it also contributed to growing political and economic instability which came to a breaking point when Prime Minister Abiy Ahmed came to power in April 2018. His predecessor, Hailemariam Desalegn, was forced to resign two months prior after years of protests eroded his legitimacy and that of the EPRDF. Although protests began over corrupt land deals, they quickly turned into a wider uprising against corruption, repression and ethnic discrimination. Between 2015 and 2017, more than 1,000 protesters were killed and 21,000 were arrested in a predominantly Oromo revolt against the Tigray-dominated regime.

In response, Abiy, who is Oromo, has enacted wide-ranging political reforms to appease protesters and mend ethnic relations. Since coming to power, the young prime minister has released thousands of prisoners, moved toward democratization, and even brokered a peace agreement with Eritrea for which he was awarded the 2019 Nobel Peace Prize. In November 2019, Abiy dismantled the EPRDF and created a pan-Ethiopian coalition called the Prosperity Party (PP), which includes formerly marginalized ethnic groups. This move threw into question the future of Ethiopia’s strategic partnership with China as it was increasingly based on party-to-party relations between the EPRDF and CCP.

While China has not expressed concerns regarding this political development, it has greatly reduced its willingness to invest in the country. Less than two months after Abiy came to power in April 2018, China announced it was scaling back its investments in Ethiopia. Beijing also expressed frustration after major investments, such as the Addis-Djibouti Railway, failed to generate sufficient revenues. Abiy was seemingly able to win back China’s confidence when he renegotiated the repayment period for some loans from 10 to 30 years at the September 2018 FOCAC in Beijing.

China’s move does, however, come in response to years of growing economic volatility. Despite averaging 10 percent GDP growth since the early 2000s, Ethiopia’s economic situation is deteriorating as foreign exchange dries up and its trade deficit grows. In December 2016, the Ethiopian parliament demanded to ascertain the country’s external debt repayment capacity before ratifying new concessional loan agreements with China due to rising Chinese interest rates and shorter repayment periods. In addition, the IMF raised its debt distress rating to “moderate” in 2017 and then to “high” in 2018.

In response to decreasing Chinese willingness to extend new loans, Abiy appealed to Western donors who were more than happy to step in. Western actors are throwing their support behind the new Prime Minister who is hailed for his pro-democracy and pro-market reform agenda. In December 2019, the IMF and World Bank pledged over $5 billion to the country to cover about 60 percent of the total financial need for Abiy’s three-year Homegrown Economic Reform Program. The United Arab Emirates also entered the fray with a $3 billion aid and investment package in 2018 revealing interest from Gulf States as well. Far from signaling the end of Chinese involvement in Ethiopia, these recent developments demonstrate Ethiopia’s rising importance in international politics and its increasing ability to find the best deal to further its own development.

That said, the COVID-19 pandemic complicates this picture. While Ethiopia has not yet registered a large number of confirmed cases which would confirm a widespread outbreak, the country and Africa broadly are struggling to face the global crisis. Although China is doing commendable work in fighting the virus (e.g. cooperating with Ethiopian Airlines to distribute much-needed medical supplies to 12 African countries), humanitarian aid will not substitute for debt relief. African debt to China stands at $143 billion with $8 billion due this year, creating an untenable situation for countries like Ethiopia that could lose up to 10 percent of GDP with the world economy brought to a standstill. African leaders such as Ghana’s finance minister therefore believe China is not doing enough and are calling for a moratorium on all external debt as well as debt write-offs. Prime Minister Abiy recently published an article on Project Syndicate in which he called on “developed countries (including China)” to help Africa and match their rhetoric with action.

However, observers do not expect China to go far beyond its support for multilateral efforts such as the World Bank’s $160 billion emergency economic program of which Ethiopia is an initial project country. Instead, China will continue to review its bilateral loans on a case by case basis and is unlikely to stray far from its historical approach of suspending loan payments, restructuring debt, and debt/equity swaps. Beijing has only forgiven five percent of its loans to Africa, but these were largely zero-interest and with its own economy to worry about it will not start now unless other states do so as well.

After already having much of its debt restructured in recent years, Ethiopia may be forced to hand over greater ownership of infrastructure projects such as dams and the Addis-Djibouti Railway. Although this is not necessarily a bad thing and can provide much needed foreign exchange, the greater cost could be political. With Chinese loans already being so dependent on diplomatic support for Beijing’s policies, Prime Minister Abiy may yet be forced to align closer to China, which could impact his own domestic reform program. On the other hand, the crisis presents an opportunity for African states to leverage their unity in multilateral negotiations with China and break with Beijing’s insistence on bilateralism. China’s Foreign Ministry has stated that it will help resolve African governments’ debt difficulties but in the absence of American leadership and with Europe preoccupied at home, China is better placed to resolve the issue on its own terms.

Conclusion

Ethiopia gained much in terms of infrastructure and industrialization from its 15 years of close cooperation with China. However, Ethiopia’s unsustainable debt levels force it to reduce its dependency on Chinese loans for its growth, just as Beijing does not want to overexpose itself to Addis Ababa’s volatility. Meanwhile, Abiy’s pro-democracy and pro-market reforms have resulted in renewed Western engagement. Combined, these developments have halted further intensification of Sino-Ethiopian relations and reasserted Ethiopia’s historic ability to balance external powers against each other in its own interest. Yet in the absence of sufficient multilateral mobilization and uncertain Chinese debt relief, COVID-19 may seriously challenge this foreign policy dictum.

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The post Sino-Ethiopian Relations from Meles Zenawi to Abiy Ahmed: The Political Economy of a Strategic Partnership appeared first on China Research Center.

Dr. Barry Naughton is the So Kwanlok Professor at the School of Global Policy and Strategy, University of California, San Diego.  Naughton’s work on the Chinese economy focuses on market transition; industry and technology; foreign trade; and political economy. His first book, Growing Out of the Plan, won the Ohira Prize in 1996, and a new edition of his popular survey and textbook, The Chinese Economy: Adaptation and Growth, appeared in 2018.

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Prime:  Dr. Barry Naughton is the China Research Center’s 2020 Annual Lecturer.  We are very pleased to have him here today.  Dr. Li Qi from Agnes Scott College and Dr. John Garver from Georgia Tech are also joining us. 

Dr. Naughton, what inspired you to earn a Ph.D. in economics and how did you come about your interest in China?

My interest in China came about first, unlike probably a lot of economists who study China. I became very interested in China and Chinese language in the 1970s for a lot of the wrong reasons really.  I had romantic illusions, both about the nature of Mao’s socialism in China and about the idea that China could present an alternative way of thinking.  So, I like to say I was attracted to both Maoism and Taoism at the same time. 

Prime:  Interesting, and why Economics?

In some sense econ had always seemed like a powerful way to look at the world and so once I decided to get serious about studying China, for me it was natural to go do further study in economics.

Prime:  What have been the most significant changes you have seen in Chinese society going back to your first visit?

My first visit was in 1982 and of course, tremendous differences in all areas, but I guess two dimensions seem most significant to me.  One is just the level of human capital and awareness and skills–at that time China was still so far behind the world in everything and now it’s caught up in most things.  But the other thing that was most striking to me when I first arrived in China was it became clear pretty quickly that people were still scared, that they had to watch carefully what they said and their interactions with foreigners.  And that surprised me: not the fact of it, but how clear and palpable it was.  And then in the 20 years after that, you saw that fear disappear and young people in particular became self-confident, interested, open-minded, exploring and it was such a wonderful change to see and I hope we don’t lose that.  I don’t think we’ve lost it yet but there has been some regression lately in the ability of the Chinese government and society to tolerate open-minded free thinking.

Prime:  Your topic today at the annual lecture focused on innovation and technological change in China.  What drew you to this topic and what have been the big takeaways?

Well, I’ve always been interested in the interaction between the government and the market in China and, of course, for so many decades that movement was toward more market and less government.  Then about 10 years ago the pendulum started to swing the other direction as the government found new instruments for intervening in the market and a new desire to shape China’s development in more of a high-tech direction.  So in some ways it was just a continuation of what I’ve always been interested in. But in addition, I was really struck by the fact that the image of a high-tech China had become the driving force that motivated so much of government policymaking not only in economic realms but also in international and strategic affairs and everything else.  It really seemed this was a key piece and we needed to understand it better, or at least I needed to understand it better.

Prime:  What do you think caused that pendulum to swing back?  I think it was under Hu Jintao really, not President Xi and it seems in hindsight somewhat stark that change and unexpected from our point of view.  So how do you read that?

Let me say as a prelude, one of the striking things is there is no abrupt turning point.  We see in so many different dimensions policy gradually stalling out and then very, very slowly moving in the reverse direction. So, it’s really hard to call a turning point.  From a purely economic standpoint, I think the most powerful explanatory factor is reform is costly and scary and so people don’t do it unless they have some kind of crisis, some kind of challenge.  And it’s easy to see in China from the ‘70s through the ‘90s the nature of the crises and how the government responded to it.  So I think one part of the answer is there were no crises in the early 2000’s and economic growth actually accelerated after China’s entry into the World Trade Organization, and everything seemed fine, so why take chances, why take risk, why reform?

But I don’t think that’s enough of an explanation.  I mean that helps, but I think there are a lot of things we don’t quite understand.  Clearly part of it has to do with forces in the Communist Party who always felt that the party needed to reinvigorate its mission and consolidate its power, and it’s funny, a lot of things that Hu Jintao did back then which seemed kind of romantic and backward looking but not very important now seem surprisingly important and foretelling, things that Xi Jinping has done much more intensively.  So, I think a lot of it is the nature of Communist Party governance and aspects of that that we underestimated.

Prime:  Would you tie that into the current administration’s approach of cracking down on liberalization and information as maybe the party feeling we have to be in control or we’re going to lose control? 

I wonder. It seems plausible, but first of all I have to say I don’t know. And the second thing is it seems that often when people go too quickly to the need to preserve power as an explanation, it gets a little—it starts to become making excuses for people.  I don’t feel at all like the fact that Xi Jinping, or Hu Jintao before him, think that they need to crack down in order to maintain social stability is either a good explanation or in any case an exculpatory factor. We could just as well say look at this society, it’s the most successful society by many metrics in the history of the world and the people on top of it say, oh we’re afraid that we’re going to be overthrown if we allow basic freedoms to people?  To me that is just such a weak argument.

Qi:  In terms of balancing market and government power, is it fair to say that recent economic events in western economies (such as the subprime loan crisis back in 2008) did not inspire confidence and aspiration in the typical market- dominated model, as China evaluates its own system that produced its proud achievements?

Sure, that’s totally fair, in terms of both a sense of pride, and the real things China has accomplished. And a sense of disappointment at the U.S. in the 21^st century, because even before the global financial crisis, there was the Iraq War (in 2003) where U.S. acted as the sole world superpower. In the end, even the economic cost-benefit calculation could not justify that decision for the US to intervene in Iraq. And it certainly showed the U.S. as an actor who is not committed to a rule-based global system.

Qi:  The doubt in the western model and system does not seem to come from only the top leaders, but is more widely shared now even among average citizens. I felt in the ‘80s and ‘90s, Chinese people generally and genuinely wanted to learn everything from the West because that represented higher productivity, more wealth and better ways of doing things. But now, even if we acknowledge that people’s views can be influenced by propaganda, there is this suspicion that American society and the way things are done there are not necessarily better anymore.

Who wants to be like Trump’s America?  Nobody in particular looks at Trump’s America and says I want our country to be like that.  Maybe some leaders in various places say I can adapt some of those techniques of leadership.

But I guess what’s funny about it is that there are lags in how anybody perceives their experience. Let’s say we pause in 2005 and we’re in China. First of all, we’ve accomplished so much in terms of economics, and we paid prices for it too (for example, we paid a big unemployment price and other dislocations).  But we got the payoff in terms of growth. So, you would think that that leads people to say, “the reforms were good, and the price paid was worth it.”  But generally speaking, that’s not the conclusion people came to.  They came to the conclusion that, as you said, therefore there’s a China way and it’s not the U.S. way, and it’s different and we should be proud of that.  Well, that’s true but there’s a subtlety there and part of that conclusion should have been that Zhu Rongji took some big risks and they paid off.

Another thing about 2005 is that Chinese society at that time was completely acceptable from a foreigner’s standpoint.  In other words, the criticism of China and human rights had pretty much disappeared, because I think Americans could look at China and say this is certainly not a democracy and it’s certainly not free speech, but there is this area that’s been carved out and everybody knows where the red lines are and within that area you can say a lot of different things and have a lot of different discussions, and who are we to pass any kind of judgment about that system? A system that seems perfectly fine, and they start to move away from it!

Prime:  Yes, but they talk a lot every year about what reforms are going to do.  So, the rhetoric about reforms hasn’t gone away, but not that much has happened.  Can you talk about that a little bit given the failure of the financial reforms, for example, which seems to be something they really do want to do but it hasn’t succeeded?

Yes, it certainly hasn’t succeeded.  On the other hand, they really seem to be trying to restart the financial reforms again now.  So, I think, you know, maybe the best thing that could be said about the trade war is it does seem to be creating a source of external pressure that maybe is substituting for that sense of economic crisis that was a reform driver before.  So, they do seem to be doing some things.  Now, the reforms are limited and uncertain and we’ll see what happens but at least there’s a feeling of movement again and so that helps. Of course, whether economic reform without political liberalization, without serious openness to the outside world can work, that’s a whole new set of issues way too complicated to address here.

Qi:  You had translated a lot of Wu Jinglian’s work.  It was so interesting to me because there is always this fascination and eagerness (at least from the China side) to learn about what American scholars are saying about China’s economy.   But we rarely see the same level of interests here in the U.S. to find out what Chinese economists were saying or their schools of thought about the whole economic system and the reform path.  Can you tell us a little bit more about your decision to translate Wu Jinglian’s work?

Sure. I’m delighted that you asked this.

To me it just seemed natural because he’s somebody whose thinking is interesting and whose personal role in trying to influence the policy process is really, really important.  He is not always right, of course.  There were so many different and contending ideas, but he was just there from the late ‘70s until very recently being super knowledgeable about what the existing policy and political context was and pushing and pushing and pushing.  How can somebody do that for 40 years without just making you have an enormous respect for them?  I do think there is a revival of interest especially in the ‘80s when it was so open and there were so many people and debates, some were really intense and involved actual bad feeling, but now a lot of people seem to want to retrieve their role and claim some credit for all the good things that happened.  At the time the key thing was the focus on moving forward.  But now looking back on it, we saw so many different dimensions, different views and realities.

Prime:  Not top down.

Yeah, that’s right.

Prime:  Coming back to innovation, China is really focusing on this right now as are many countries, but they don’t talk about innovation in terms of reforms, so there seems to be a distinction.  Can you talk about that?

That’s a really, really important observation.  I mean it’s funny, when you go back to the 2006 Long Term Plan on Science and Technology, which in retrospect we can see was very clearly the beginning of this accelerating industrial policy push, but when you look at the document and when you look at how Westerners interpreted it at the time, it actually seemed to be pretty reformist.  It was as much about creating a richer innovation ecosystem supporting intellectual property rights to a certain extent.  Remember they were much worse off then, overall, with respect to funding, research and development, and innovation outcomes.  So, a lot of that has been achieved but what hasn’t been achieved is creating a more competitive, open environment for innovation.

Look at the tech giants like Alibaba and Tencent that were formed in the 1990s through international capital markets.  They’re not industrial policy products at all and so, yes, it’s been very disappointing to see the inevitable erosion of market forces in the innovative sectors because of this bigger state presence.  Even when people still want to participate in certain innovative sectors within China, they find, well, I have to compete with the government who has very, very deep pockets.  I saw a result that I haven’t been able to trace so I’m not 100 percent sure it’s right: the government share of the venture capital market in China declined until 2014 and then turned around and started to increase significantly since then.  So absolutely there is a reversal happening where the government is squeezing out certain types of innovators and squeezing out market forces from the high-tech sector. 

Garver:  Is there still a voice for market-based reform that argue trends like these are bad?

Oh, definitely there’s a voice but it’s muted.  You don’t see it trumpeted in the official media and therefore in the public discourse.  There are lots of people who feel this way but, of course, those people have to be careful because they probably have some investments of their own and in this environment, you have to have a government partner so the voices aren’t heard as clearly and coherently as they should be.

It’s more intimidation that they are careful to modulate the way they express their views.  I think if you get together a couple of people from high tech sectors and banking sectors after dinner having a couple of drinks, they’ll be very, very critical, but you’re not going to see a really coherent article in the press.

Qi:  In reflecting on 40 years of reform, what is still the weakest link?  You can argue, for example, some of the product markets are very market driven and competitive.  Would you say the financial decision-making and the allocation of resources is still the weakest link?

Yeah, definitely.  Not just the financial sector but the banking sector in particular. You can’t help but notice that in the last year-and-a-half there’s been progress in the financial sector liberalization but not so much in the banking sector.

Prime:  It is striking that investment hasn’t fallen which was one of the goals in terms of a share of GDP.  It’s actually risen and as it’s risen, growth has slowed.  So just simple macro math says efficiencies have gotten worse and worse, so how can any economy sustain that or for how long? 

Well, it depends how they handle debt, right?  I mean you can sustain—I mean, again, sort of the Iraq War, what did we spend, $2 trillion on the Iraq War?  What did it get us?  Nothing.  Does that mean our economy will collapse?  No.  It just means we’re worse off because that money was raised through taxes and to a certain extent through national debt.  So as long as those markets are healthy you can do that for a long time.

Qi:  In terms of misallocation of resources, why not invest more resources on Chinese people and public services (such as public health and education)? Penny and I had a paper that showed, rather than always boosting GDP via investment, there were important benefits of investing more in public services. You also mentioned that total factor productivity had been declining or disappeared, why not invest more in public services?

The basic premise of economics is that there are trade-offs for everything and that implies that you’re operating efficiently when the marginal return is the same across different sectors. But that doesn’t seem to be at all true in China right now.  It seems that the marginal return to government investment in health care and elementary education will be far higher than the marginal return to semiconductor labs and other kinds of industrial policy.  So absolutely I think there is a clear evidence of misallocation.

Prime:  Barry, from your vantage point, how do you see U.S.-China relations today and going forward?

Well, I think there’s no question that relations are getting worse and I think they’ll continue to get worse.  I mean the first phase of the trade agreement is interesting because it does give us a pause maybe for a year or a year-and-a-half. We’re in this ironic situation where if China follows through with this commitment to buy $200 billion incremental goods by 2021, even though there’s some decoupling going on, this means there actually would be a certain amount of goods recoupling.  And, you know, there’s this discussion about can the U.S. economy provide $200 billion goods to China and, of course, the answer to that I think is we can if the businesses that provide those goods have confidence that the market is stable so that they are willing to reallocate resources in a way that supports that supply.  But then when we say that, we realize, no, of course they don’t have that kind of confidence.

Prime:  Given all of the sensitive issues and the changes that have happened, what advice would you give young scholars who are thinking about doing China studies and research on China?

Great question.  I’d say dive into it.  It’s more fascinating than ever.  Although we’ve got some really serious problems and you can’t even rule out overt conflict between the countries, but the interaction between the incredible dynamism of Chinese society and the Chinese economy and just the dynamism of this gigantic generation of people especially in their 20s and 30s who are going to be on some level the main drivers of world history.  Chinese people in their 20s and 30s will determine everything.  If we can understand them, if we can influence them, if we can cooperate with them, it’s the most interesting, the most exciting thing in the world.  So, I hope we get more young scholars to study this process.

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Here is the May 9 email exchange between Dr. Prime and Dr. Naughton:

Prime: Since we met in January, the coronavirus has struck. What are your views now on the steps that China’s leaders took in response and the evolving U.S.-China relationship?

The initial instincts and responses of the Chinese government in the face of the coronavirus were damaging and increased the threat to the world, there’s no question about that.  They suppressed information about the virus and still haven’t provided the opportunity for a thorough and transparent examination of the source of the virus.

But it also produced heroic responses among Chinese doctors, scientists and frontline health care providers, and an individual hero, the late Li Wenliang.  Li’s simple statement “a healthy society should have more than one voice (健康的社会，应该有多个声音)” is something that won’t ever be forgotten.  We should also remember that Chinese scientists posted the genome sequence of the virus on January 11, 2020.  We in the U.S. had two months to mobilize a response, and, generally speaking, we wasted it.  The Chinese response, on the other hand, has been crude but effective.  Since their nationwide lockdown went into effect on January 23, they have gradually throttled the virus and appear to have stopped its spread.

The U.S.-China relationship, in the course of all this, has gone from bad to worse.  Mutual recrimination has become the main content of the relationship.  In both countries, the top leaders are desperate to avoid being blamed by their own people, and eager to put the blame on foreign countries.  It’s hard to be optimistic in this context.

The post Discussion with Barry Naughton, January 24, 2020 appeared first on China Research Center.

On that trip, the trade war was kicking in. Presidents Trump and Xi had many of us, accustomed to years of deepening ties and growing prosperity, extremely concerned about deteriorating relations. And as I write, the global pandemic, far from bringing us together, appears to be pushing the U.S. and China even further apart.

I’m deeply worried. Just when we need more personal connections, more constructive dialogue and a more nuanced understanding of China – which I discovered the experiential focus of the Chang-Lan Fellowships fosters extremely well – we are dangerously close to a new era, in which borders and minds might be closing down those important activities.

My observations on the Chang-Lan Fellowships began with my questioning whether experiential learning was even relevant today, given dramatic changes in technology, globalization, and financial pressure on colleges. But reaching out to the more than 60 fellowship alumni made me realize experiential learning still has a powerful role. In fact, I’m even more convinced that we should be doing everything possible – particularly in our current crisis – to ensure experiential learning not only survives but expands.

A brief history of the Chang-Lan Fellowships

In 1996, my late mother, Judy Chang Wenderoth, and I set up the Chang-Lan Endowed Fund at Carleton College, in memory of her parents and my grandparents, Drs. Sing-Chen Chang (张信诚) and Chien-Wei Lan (蓝乾蔚), who came to the U.S. in the 1940s. The Fund supports independent undergraduate student fellowships and has two key requirements: projects must be experiential in nature (versus formal academic study), and Fellows must share their experience with the larger community upon return.

We wanted more Americans to better understand China, which we believed would become increasingly central in the world. But we were worried about the race to specialize in our studies and work, so we wanted the fellowships to encourage curiosity and exploration outside of one’s major, drawing students who never had thought much about China.

My mother, an architect, believed learning often came from doing and exploring, not solely through traditional academic study. So, we hoped the fellowships would generate personal contact with Chinese, which might lead to memorable stories, fresh perspectives, and closer relationships.

Past fellowships have included David Riedel’s retracing and re-sketching of the 1934 Barbour expedition of the Yangtze (2002); David Jinkins’ journey to understand changing worker culture in Manchuria through bathhouses and noodle shops (2003); Nicki Catchpole and Molly Patterson’s examination of the transformation of teahouses (2004); and Pierce McDonnell’s exploration of how China understands and presents its maritime history (2018).

Past Fellows have shared their experiences publicly at Carleton, and today can reach an even wider audience through the internet. For example, Pierce McDonnell’s presentation at the San Francisco Maritime Museum; Erik Lagerquist and Nyla Worker’s website to share solar insights; and Christian Heuchert and Alan Zheng’s recorded discussion on tourism in pastoral Gansu communities.

Conversations with Past Fellows: Benefits of Experiential Learning

Stepping back on campus, I was struck by change. One hundred students, about five percent of Carleton’s student body, is mainland Chinese, versus zero percent when I graduated. History, which I studied, has plummeted in popularity, replaced near the top with computer science, the closest to a pre-professional major you can get at a liberal arts college. Tuition and fees have skyrocketed ($65,000 a year today, versus $17,000 in 1990). And, of course, the campus is wired with technology: resources around the world are available with a few keystrokes.

When you’ve got Chinese voices on campus, and you can WeChat video with Sichuan villagers from tiny Northfield, Minnesota, do you really need to send students to China? When there’s immense pressure to land internships to secure well-paying jobs to justify tuition, is there still a place for off-the-resume exploration?

Reaching out to alumni who received fellowships as early as 2001, I came away with a much better understanding of how experiential learning addresses these questions:

1) Experiential fellowships foster independence and confidence.

How easy it is to forget what it was like to be 20. Fellows said they grew immensely from designing their projects and executing them themselves, abroad.

Kyle Schiller, who explored Buddhism by visiting temples across China with Adam Rutkowski in 2017, said he matured quickly having to travel on his own. His fellowship spurred further desire to contrast China with Japan, where he went the following year. An engineer at Airbnb, Schiller credits the fellowship with giving him confidence to pursue diverse interests in learning, innovation, and improving global health. Rutkowski worked on energy sustainability at Otherlab, liquid thermodynamics at SpaceX, and will soon start a PhD at Princeton.

In 2001, Sarah Karbeling traveled with Akiko Nakano down the Yangtze to understand the human impact of the Three Gorges Dam. A high school physics teacher in Iowa, she said that summer gave her a strong sense of independence. That’s something I heard from many women, who received more than half the Chang-Lan Fellowships, and from science majors, who often have brutal major requirements that afford little time to go abroad.

David Riedel, who re-sketched sections of the Yangtze, credits his fellowship with helping him see where art could lead him. The Chang-Lan boosted his application to Yale’s School of Architecture, which led to a career with Kohn Pedersen Fox in Shanghai. Now he is cofounder of AI SpaceFactory in New York, which develops advanced construction technologies for space exploration.

With parents and our educational system “snowplowing” the way for today’s youth, it’s easy to forget that most learning comes from forging out on your own, going in new directions, and making mistakes. Fellows emphasized how their independent, in-person exploration of China accelerated that process.

2) Experiential fellowships widen our perspectives, challenging what we’ve read and been fed.

Remember your first trip to China? All Fellows grew up with the internet, but stressed the importance of seeing China with their own eyes.

“We’re living in an echo chamber, with the internet reinforcing our beliefs, with much of it misleading information,” Anthony Wong told me. “So, I tell younger people today that it’s more important than ever to go out and see for yourself.”

Wong, a banker and now regulator at the Hong Kong Securities and Exchange Commission, received a fellowship in 2005 to explore Chinese identity, contrasting overseas Chinese communities (he is from Malaysia) with his distant relatives in Fujian.

Karbeling, the high school physics teacher, admits that she doesn’t do much related to China these days. But those conversations with displaced villagers helped her reconcile what she read at home and saw in the news, a human element she can even bring into discussion about physics.

Pierce McDonnell, a math and history major, combined his passions in shipping and history by working at the Shanghai Maritime Museum. He didn’t just explore the archives and exhibitions but also worked alongside museum staff and hosted Chinese visitors. That provided multiple perspectives on China’s maritime history, gave him a lifelong contact with the director there, and deepened his interest in the travels of Zheng He.

Sharing their experiences upon return forces Fellows to make sense of their experience, both in their own minds and to people back home. Using multimedia, story, and analogies to connect with their audiences, all said they saw their home country in a new light. Many grappled with differences between what they experienced and what they had read, studied, or assumed. This year will be particularly interesting, as the college awarded fellowships to two mainland students, a first.

3) Experiential fellowships lead to jobs, foster long-term success.

“Success” is dependent on how you define it. But contrary to turning them into wandering poets, Chang-Lan Fellows said the experience aided them professionally.

Nicki Catchpole had to postpone her fellowship due to the SARS outbreak in 2003. She said her conversations in Sichuan over tea made her more adept at conducting research, and helped her land her first job upon graduation. That eventually took her back to Asia, and now has her analyzing business technology in New York.

“The open nature of the fellowship… there’s nothing like it,” she said. “Figuring how to create structure to make sense of something and deal with obstacles that arose was invaluable.”

David Jinkins said he was madly curious about how China’s economic shift was affecting worker culture in northeast China. Though his focus today has shifted from China, the fellowship took him to Taiwan for a master’s and Penn State University for a doctorate. Now he is in Denmark, where he serves as associate professor of economics, specializing in international trade.

Jessica Lilu Chen fell in love with the stories of Muslim minorities on her fellowship. That started a journey to a PhD in religious studies at Stanford University, the recent publication of her book on Islamic history in early modern China, and her current work as a hospice chaplain in California.

The fellowships helped many stand out in job interviews and has served them in the longer arc of their careers.  But most recalled how tough it was to convey to recruiters how the experience could be applied to their first jobs. That’s not surprising since top executives cite soft skills (adaptability, assimilating information, communication, creativity) as critical, but they generally don’t do the entry-level hiring. There’s also increasing evidence that those same soft skills, not the quantitative ones, may be more valuable in a world of increased automation, and that generalists with wider-ranging experience, not narrow specialists, produce more cutting edge scholarship and innovations, given their ability to make disparate connections.

Expanding Experiential Learning

There’s a price to funding students and providing the critical support to make experiential learning work well. Patience, in short supply these days, is also needed to allow exploration to take its course. So, student fellowships like the Chang-Lan may not be possible at all institutions, nor be right for every student.

But there are many ways to integrate experiential learning into courses, study abroad programs, and independent study and work. At IE Business School, for example, I teach a course on business in China. One course I deliver entirely on campus; the other includes a weeklong immersion in Shanghai.

With the course on campus, I have drawn inspiration from Chang-Lan Fellows. For example, we conduct live WeChat video conversations with diverse experts in China; I integrate rich video, interactive articles, and simulations into coursework; and students deliver exercises and projects that pair them with mentors across China.

These changes have deepened student understanding of China, but I still can’t find a substitute for taking them there and sending them on their own explorations. When a student suddenly finds her internet sites blocked, she learns to navigate and live the experience, and then reflect on the broader implications. I see minds opening in our blogs, discussions on the bus, and group chats (we use WeChat, another way to enable the lived experience). Executives are no different: they can read a McKinsey report or hear my lecture, but until we buy a beer at a corner shop using WeChat pay, the vast implications of a mobile ecosystem usually escape them.

Those who go to China and explore seem to have deeper empathy and perspective than they had before their trips. The most valuable part is watching them grapple with contradictions between what they read or thought and what they see and experience, such as the trade-offs between convenience and personal privacy, between more individual rights and top-down rule.

When they’ve spent their time in China well, they become humbler, and I find they are less prone to demonize – or overhype – China. We could definitely use more of that these days.

There’s of course a balance between in person, experiential learning and time in the classroom. Fellows and the students I take to China need background on China’s history, political economy, culture, and language. But I find giving them too much information stifles refreshing questions that even seasoned experts overlook or have become too jaded to ask. And as a professor, there are benefits for me: seeing China through their eyes challenges my own views, particularly the constructs I’ve formed over the years.

When the pandemic ends, I hope we can safely mix more in person, and not retreat behind our walls into our online echo chambers. For those seeking to heighten the experiential in their organizations, I attribute the modest success of the Chang-Lan Fellowships to four sources:

• Dedicated professors who see themselves as mentors. Carleton has been nationally recognized for leading the way in undergraduate teaching, which comes down to people. The number one reason Chang-Lan Fellows apply is because a professor encourages them. Riedel, who sketched the Yangtze, said the late Professor Roy Grow not only pointed out the opportunity but also challenged him to use it to explore his interest in art. You can’t have a journey of a thousand miles without that initial step (and yes, sometimes a loving push helps).
• Strong fellowship support. Professors are under heavy pressure and are not always accessible. That’s where strong, professional staff steps in. Carleton is lucky to have Marynel Ryan Van Zee, PhD, Director of the Office of Student Fellowships. She handles all internal and external fellowship opportunities, serving as adviser and coach to guide student applications so they are set up for success. 

• Adjusting (or experimenting) as necessary. We faced a Catch-22 at Carleton: we wanted more students without China backgrounds or Mandarin skills to apply, but that group wasn’t thinking about China, and often were the least prepared to take advantage of an independent summer in country. To address the challenge, we opened half the fund to support summer internships. While adhering to the Fund’s core aims, internships enable students with less China background to experience the country. For most, the summer sparks greater appreciation and gets a good percentage of them to consider applying for the more independent fellowships.
• Re-examining what “experiential” means. Do you have to be physically in China to experience China? It may in fact be wiser to explore some sensitive topics from outside the country. With lockdowns in place worldwide, the five Chang-Lan Fellows awarded for 2020 are re-examining this topic, proposing creative approaches. Changlan Wang (no relation) may be able to conduct her research into emotional response online. Marianne Gunnarsson, who will examine doctor-patient conversations, has already deferred to the winter.

I don’t have a quantitative measure on the impact of the fellowships, but Fellows I spoke to had thoughtful views on current events and had plenty of examples of how their experience enhanced their life trajectories. Even if few of them continue to work in China, one alum said it best, “Doesn’t matter. Pretty much everything anyone does today has some connection to China. Americans are doing ourselves a big disservice if we don’t understand what’s happening there.”

Are the experiential Chang-Lan Fellowships playing their part to enhance U.S-China relations? My answer, to use an expression I picked up from my time in Minnesota, is a resounding “You Bet.” I hope we consider how to dramatically increase the experiential learning of China for more Americans. The future of U.S-China relations greatly depends on it.

Quotes have been condensed or edited for clarity. The author takes sole responsibility for any discrepancies in transcription or interpretation.

吃水的人，不忘挖井的人 (Those who drink water, should not forget who dug the well)：Michael would like to express his gratitude to key Carleton staff and faculty who have made the Chang-Lan Fellowships successful over the past two decades: Chris Solso, Dean Liz Ciner, Marynel Ryan Van Zee; to Professor Penny Prime and the late Professor Roy Grow, for co-designing his first experiential experience in China in 1992, a program decades ahead of its time; to Professor Prime for providing advice, years later, on ways to design his courses and immersions on China at IE Business School; to the 60+ Carleton Chang-Lan Fellowship alumni who shared their stories and who have gone into leadership positions around the world; and to his mother, the late Judy Chung-Yung Chang Wenderoth, and his grandparents, Drs. Sing-Chen Chang, and Chien-Wei Lan, from whose well he continues to drink.

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