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The most fundamental U.S. strategic beliefs are derived from the successes of the liberal world order established after World War II. The U.S. has repeatedly shown itself willing to go to war or risk war to maintain this system even when its physical survival or major economic interests are not at stake. Similarly, China’s core strategic beliefs are derived from its historical experiences of national “humiliation,” including foreign occupation of its territory, during the 19th and early 20th centuries.

Unfortunately, each country is now developing military capabilities that directly threaten the other’s historical core beliefs. China’s new capabilities to destroy U.S. naval assets, plus its claims on what the U.S. sees as international waters and airspace, threaten the freedom of the seas and the alliance system that has been fundamental to the post-World War II system. Similarly, U.S. “Air-Sea Battle” doctrine, which logically implies striking military forces on Chinese territory, will seem to Chinese thinkers to hark back to the “century of humiliation.”

I. U.S. Lessons from Strategic Successes after World War II

U.S. strategic thinking and policies have been shaped by the failures of the inter-war (1918-1939) period and the successes of the post-World War II and Cold War periods. In particular, three historical lessons drive U.S. strategic thinking about China (and the rest of the world) to-day: First, the “lessons of Munich” contrast Chamberlain’s appeasement of Hitler in 1937-38 with the success of the containment of the Soviet Union. Second and more positively, the benefits of a liberal international system with U.S. leadership are contrasted with U.S. isolationism, international economic collapse, and the failed League of Nations in the inter-war period. Much of this thinking also is shaped by a generally favorable view of the role of the British Empire in the 19th century. Finally, much thinking about military-operational planning is shaped by the Air-Land Battle strategy NATO adopted in the early 1980s to create a credible counter to the Soviets’ overwhelming conventional superiority in Europe.

Lessons of Munich: U.S. Secretary of State John Kerry, when arguing for intervention in Syria, famously said, “This is our Munich moment.”¹ Kerry, who one might have thought would be more guided by the “lessons of Vietnam,” showed that U.S. policy is still informed by events of more than 75 years ago.

One lesson drawn was that failing to stand up to an evildoer early on leads to worse behavior lat-er. Thus, appeasing Hitler over the Rhineland, Austria, and Czechoslovakia led him to conclude that an attack on Poland would not be resisted. Another related lesson is that not appeasing a “bad guy” may well lead to changes in the potential adversary’s internal politics. It is widely argued that Hitler might have been overthrown if Britain and France had resisted his aggressive moves in 1936-1938. These lessons of Munich have had a large influence on both the grand strategy and the details of U.S. policy since World War II. They drove both the overall policy of containing the Soviet Union and such otherwise inexplicable decisions as the intervention in Vietnam. Despite problems, policies based on the lessons of Munich are widely seen as leading to the successful conclusion of the Cold War.

Liberal International Order with U.S. Leadership: Lessons drawn from the inter-war period were far from purely military. U.S. grand strategy after World War II focused on creating strong prosperous allies in Western Europe, Japan, and elsewhere, and on establishing international organizations, norms, and rules. Especially in its trade policy, the U.S. was willing to go against its short-term economic interests to implement this strategy. In the U.S.’s eyes, U.S. leadership has largely been about providing international public goods—which are not only good for the U.S., but also for most of the rest of the world.²

American strategic thinkers are most familiar with, and influenced by, the history of the British Empire in the 19th century. In particular, the Royal Navy’s role is seen not only as promoting British interests, but also in providing an important benefit for the world—“freedom of the seas.” In this view, the U.S. Navy has continued this responsibility and therefore provides an international public service that is critical to continuation of a liberal world order.³

Air-Land Battle: NATO’s primary strategic problem throughout the Cold War was always that the Soviet Union had numerically far superior conventional forces near the “central front” at the inner-German border. Plus, the geography dictated that the Soviets would have a much easier time resupplying or replacing combat forces in the event of war. NATO initially tried to deter the possibility of a Soviet surprise attack on Western Europe by threatening to escalate to the use of nuclear weapons, but such a threat always lacked credibility since it implied subjecting the U.S. homeland to nuclear strikes and entailed tactical nuclear warfare in densely populated Ger-many. By the time the Soviets achieved large nuclear and rocketry capabilities in the mid-1970s, the threat to answer a conventional attack with nuclear escalation lost even more plausibility.

Technology pushed by the Carter administration that came to fruition in the early Reagan administration gave NATO a much more plausible non-nuclear option for stopping a Soviet invasion. Using the combination of vastly improved intelligence (to find Soviet reinforcements), stealthy aircraft and cruise missiles (to penetrate Soviet defenses), and precision-guided weapons (to be able to hit key forces and transportation nodes), NATO would strike Soviet second- and third-wave forces and supplies with purely conventional weapons. This operational plan was known as “follow-on forces attack” or “Air-Land Battle.”⁴

It is hard to remember now how credible the threat of a Soviet surprise attack on Western Europe seemed in the early 1980s. Now, the concept of Air-Land Battle is most widely known as a best selling video game. It is plausible that NATO’s advanced conventional capabilities led the Soviets to agree to the truly revolutionary 1986 Intermediate Nuclear Forces (INF) treaty and the 1989 Treaty on Conventional Armed Forces in Europe (CFE).⁵ By foreclosing the option of a Soviet invasion of Western Europe, these capabilities may have contributed to the rise of Gorbachev and the peaceful end of the Soviet Union. So, in the light of this history, Air-Land Battle can be seen as a stunningly successful solution to NATO’s strategic problem.

Despite the fact that the new highly coordinated precision deep-strike capability was developed for dealing with a Soviet attack on Western Europe, the first Gulf War also demonstrated the value of this operational doctrine in a very different scenario. It’s not surprising that U.S. strategists seek similar solutions to today’s problems.

II. Chinese Views from the Century of Humiliation

Anglo-Saxon strategic thinkers look at the pros and cons of the British Empire, but the widely used term Pax Brittanica implies that it was, on net, a positive for the world. Americans often see U.S. policies in the world as an even more benign follow-on to the British Empire. Chinese, on the other hand, remember the British Empire as an organized gang of drug traffickers.

China’s century-plus of “humiliation” began with the first opium war in 1839, progressing through various military defeats and “unequal” treaties, culminating in the 1937-1945 Japanese War. So the Chinese view of the 19th and early 20th centuries is very different from the generally positive view of Britain or the U.S. It’s hardly surprising that Chinese, based on their history, are particularly emphatic about avoiding further humiliation. Of course, the government rein-forces these views both in education and in the media, but average Chinese of all political persuasions are widely believed to share them.⁶

Recent history also looks different from a Chinese perspective. Americans remember 1999 as the year U.S. airpower finally stopped the ethnic murders in the Balkans. Chinese remember that as the year the U.S. bombed their embassy in Belgrade. Americans and Western Europeans are likely to see the fall of the Soviet Union as being good for the Russians and others — essentially they were being invited to join a benevolent liberal world order. Chinese (and Russians) are much more likely to see those events as a defeat for the Russian nation.

III. U.S. Perception of Growing Chinese Area-Denial Capability

As recently as 2006, Philip Saunders, a leading U.S. analyst of the Chinese military could summarize Chinese strategy as seeking to reassure neighbors (partly by downplaying territorial disputes) and seeking “to reassure Washington that China regards the U.S. military presence in Asia as a stabilizing factor and does not seek to push the United States out of Asia.”⁷ However, in August 2013, the same author argued, “Washington is concerned about China’s increasingly muscular military, which is developing anti-access/area-denial capabilities that might challenge the U.S. military’s ability to operate in Asia.”⁸ China’s neighbors, meanwhile, are pushing for increased U.S. capability in the region.⁹ What changed over those seven years?

On the Chinese side, a decade of double-digit growth in defense budgets (albeit from a low base) has greatly increased the PLA Navy’s offshore capability and portends even greater future capability. Much of this capability, especially “carrier killer” anti-ship and anti-aircraft weapons, could deny the U.S. Navy the ability to operate in international waters throughout the region.¹⁰

Chinese military strategists discuss denying U.S. Navy ability to operate inside the “first island chain” (Japan-Taiwan-the Philippines-Malaysia).¹¹ This would eliminate “freedom of the seas” in the South China Sea, the East China Sea, and the Yellow Sea — all of which are major ship-ping corridors. Thus, China’s new military capabilities, combined with its newly assertive claims on disputed islands,¹² can be seen as a fundamental challenge to the key U.S. strategy of securing a liberal international order. If the U.S. ceased operating in these areas, it would certainly be accepting that it has no leadership role in the region and cannot provide assurance to its allies.

In the words of the Chief of Staff of the U.S. Air Force and the Chief of Naval Operations, “To-day, the development, proliferation, and networking of advanced weapon systems specifically built to circumvent U.S. defenses threaten America’s freedom of action and its ability to project military power in strategically significant regions. This development could erode the credibility of U.S. security commitments to partners and allies, and with it their political stability and economic prosperity. Air-Sea Battle responds to this concern.”¹³

When President Clinton moved U.S. aircraft carriers into the Taiwan Strait in 1996, he had no fear that those ships might be successfully attacked. The U.S. could achieve its strategic objective by positioning of forces with no realistic possibility of this move resulting in combat be-tween the U.S. and China. In this U.S. view, the decision protected the liberal international order at almost no cost. For Chinese strategists, on the other hand, it was another example of superior Western military capability leading to an outcome similar to those of the century of humiliation.

The growing Chinese sea-strike capabilities mean that this virtually risk-free option is no longer available to the U.S. As a result, a very different strategy, involving strikes against military tar-gets on Chinese territory has been developed. Air-Sea Battle, which was formally directed to be operational doctrine by the Secretary of Defense in 2009, draws on the strategies and capabilities developed for Air-Land Battle in the 1980s. Rather than limiting action to a central battlefield, U.S. forces would strike deep against military capabilities in the adversary’s homeland.¹⁴ Following the logic of the “lessons of Munich,” U.S. strategists do not necessarily view this as an aggressive plan. Responding to increased Chinese capability, it simply returns us to the status quo ante (circa 1996). Furthermore, like the 1980s Air-Land battle strategy, this plan is seen as reducing the chance of escalation by giving the U.S. a credible capability to defeat an attack that involves only precision strikes against the adversary’s conventional forces that are involved in the battle.

Of course, U.S. analysts recognize that an attack against the territory of any nation, especially a major nuclear-armed power such as China is fraught with danger. This is the case even if the U.S. is responding to a Chinese maritime attack. T.X. Hammes argues, for example, that U.S. war planning should be focused on an offshore strategy that does not include any strikes on Chinese territory.¹⁵ Similarly, Amitai Etzioni argues that Air-Sea Battle will lead to an arms race between the U.S. and China, inevitably increasing tensions between the two nations.¹⁶

Let me be clear that no one is planning an attack on China or a war with China. Air-Sea Battle is seen as a way to deter war. In the unlikely event of a U.S.-China war, Air-Sea Battle is seen by American planners as the best way to eliminate the Chinese forces that threaten U.S. maritime capability and reduce the danger of escalation. How will the Chinese see it? A key conclusion of this paper is that Chinese historical memory makes it more likely that Chinese military and political leaders, and the public at large, would view any strike on Chinese territory, even a precision strike that hits only military forces, as a humiliation and as an existential threat. It is difficult to imagine any Chinese government suing for peace in that scenario.

IV. Current Disputes and Policy Recommendations

As recently as five or six years ago, East Asia (apart from North Korea) seemed to be strategically untroubled. The U.S. mostly welcomed China’s economic growth and China appeared to view the U.S. as a fairly welcome balancer in East Asian affairs. Some former flashpoints, most notably Taiwan, appear to be quiet, although not entirely settled. But, the almost daily disputes about the East China Sea and the South China Sea have worsened the atmosphere throughout the region.

The loud disputes between China and Japan about the “fishing”¹⁷ islands are not really about fishing rights or about any possible but unproven petroleum reserves in the area. The U.S. has no real interest in any of these islands, but believes that allowing China to claim them by force or retaliation threatens the credibility of its alliance system and the post-World War II, U.S.-led world order. Chinese, both leaders and the general public, interpret these disputes as vestiges of its humiliation. China’s recent imposition of an air defense zone (ADIZ) in the East China Sea has been strongly supported by the Chinese general public because they see it as an anti-Japanese move. For example, during a recent business dinner in Beijing, this author faced many questions about why the U.S. supported Japan. And, the Chinese businessmen at the table talked openly about their support for war with Japan.

Several steps could help reduce the danger of the situation:

(a) American strategy, doctrine, and tactics should explicitly be planned with options that avoid humiliating the Chinese. Historical memory implies that any strike on Chinese territory is much more likely to lead to some type of escalation than to an end to conflict. U.S. military forces should develop doctrine and forces that give the president options that protect U.S. and allied interests without escalating to strikes on Chinese territory. If the U.S. military plans, trains, and exercises using Air-Sea battle strategy, we could be giving ourselves the stark choice between going to large-scale war with China or withdrawing from Asia.

(b) China needs to recognize that military forces that threaten U.S. Navy carriers can be interpreted by the U.S. not as a regional threat but as a challenge to freedom of the seas. Similarly, putting the U.S. in positions where its only choices are to U.S. military force or to ignore treaty commitments turns minor situations into threats to the U.S. global post-World War II strategy. This makes little strategic sense unless China has taken the huge decision to try to overturn the U.S.-led liberal world order. There is no evidence that such a strategic choice has been made at the high levels of the Chinese government. Furthermore, China has gained so much economically from the current world order that it could well be the biggest loser in such a change.

(c) Finally, there is little indication that either government is changing its behavior because it has made a deliberate grand strategic decision. If this is indeed the case, then each side should negotiate accordingly. If each side interprets each dispute as involving its core historical beliefs and strategy, compromise is impossible. It would be a great advancement if we could find a way to put a dollar (or RMB, or Yen) sign on the disputes.

The big danger is that small disputes shape thinking about future strategic options. The extreme Chinese position is that President Obama’s “pivot to Asia” is an attempt to build a military cor-don around China with the goal of keeping China down. The extreme U.S. position is that China’s actions over the past years are the start of a scheme to expel the U.S. from its interests in Asia. Each side needs to take seriously the historical roots of the other’s strategic vision. If we are not careful, a situation will arise in which each side comes to view the other as an adversary.

The post The Clash of Historical Memory: The “Century of Humiliation” vs. the “Post-WWII Liberal World Order” appeared first on China Research Center.

The employment of culture as a foreign policy tool in present-day politics in China is a combination of both academic effort and the leadership’s genuine compulsion to open channels of communication with the international community. This paper tracks use of culture as a soft power tool in Chinese history while underlining the leadership’s pragmatic understanding of the concept and underscoring its application worldwide. The Confucius Institutes (CIs) have played a major role in the global transmission of Chinese language and culture. This paper also reflects on the mandate of these Institutes and argues that China’s CD is a far more strategically ambitious exercise than the mere export of its rich cultural heritage.

Cultural Diplomacy: An Ancient Chinese Legacy

CD is widely used by modern states for enhancing soft power. Soft power, popularized in the contemporary discourse on international relations by Joseph Nye, focuses on diplomatic engagement for strategic dividends. Several prominent political thinkers, e.g. Foucault, Bourdieu, Gramsci, Habermas and E.H. Carr, also have variously expounded on the concept prior to Nye. As a conceptual identity, soft power and the role of culture in its use are hardly limited to the western political discourse. Indeed, the prevalent impression of China’s modern soft power strategy for connecting with the rest of the world being essentially an emulation of similar strategies pursued by major western powers overlooks the fact that soft power was strongly embedded in ancient Chinese history and philosophy. The specific period in Chinese history that can be identified for its distinct emphasis on spread of harmony and amity is the Spring and Autumn era (771 BC – 476 BC), also known as the Hundred Schools of Thought. Marked by significant cultural and intellectual developments, the historical thoughts of the period remain relevant in the modern era and are reflected in the contemporary Chinese articulation of soft power and its emphasis on CD. Thus, recognizing culture as an effective instrument of soft power and modern statecraft is an example of the pragmatism characterizing contemporary Chinese foreign policies.

According to the literature of the Hundred Schools of Thought, China’s ancient strategists preferred diplomatic maneuvering to secure state objectives and were averse to territorial expansion by force. Kong Zi or Confucius (551 BC – 479 BC) stressed the limitation and regulation of power. Rather than war, Confucius’ teachings focused on education and humanity. Mencius (372 BC – 289 BC), another great thinker of the time, also denounced wars with the idea that benevolent kings who could easily win over masses had no enemies.² The Confucius-Mencius political construct rejected the need for possessing large territories for enhancing state prestige. The Chou kingdom (1027 BC – 256 BC), for example, was hardly large but was nonetheless able to retain its dynastic command for eight hundred years—the longest for any Chinese dynasty.³

Along with Confucianism, the doctrine of Taoism and Mohism also emphasized “universal love” and the virtues of discussion and persuasion for solving problems. Lao Zi, another ancient Chinese philosopher who wrote the main texts of Taoism along with Zhuang Zi, discounted wars, with the latter emphasizing education and humility. Ideas such as culture winning over an enemy and winning a battle before it is fought are replete in ancient Chinese writings. The celebrated military strategist, Sun Zi (722 BC – 481 BC), in The Art of War, argued for attacking the enemy’s mind rather than his fortified cities. Indeed, Chinese ancient philosophy and history rarely espoused hard power and focused on cultivating friends as opposed to engaging in conflicts. Later Chinese history obviously produced different strategies and priorities dictated by national interests of the time. Nonetheless, soft power and CD – conspicuous in modern China’s strategic engagement – are essentially products of its ancient history and tradition, not emulations of western experiences.

The Academic Discourse on Culture

China’s communication with the world was largely intermittent until the late 1980s. Prolonged isolation by the international community, a vocal discourse in the West labeling China as a destabilizing force, and the increasing spread of the “China collapse” theory after the Tiananmen Square crackdown in 1989 led China to seriously contemplate positive image-building. A nascent interest in soft power began taking shape in the 1990s with scholars and academics deliberating the virtues of dialogue and interaction. Wang Huning was one of the earliest exponents of soft power. Earlier with the Fudan University and currently a member of the Communist Party’s Poliburo and the Director of the Policy Research Office of the Party’s Central Committee, Wang was probably the first contemporary Chinese scholar to argue that culture is the main source of a state’s soft power.⁴ The view was endorsed by other scholars such as Xiang Shu Yong⁵ and Zhao Chang Rong⁶ with both identifying culture and language as instrumental in enhancing strategic strength of a nation.

The modern Chinese literature on soft power is conspicuous by its ideological flavor and pronounced emphasis on culture. Discussing soft power, Rong distinguishes between western and Chinese cultures and argues that while the former stresses hegemony, Chinese culture based on Confucianism seeks peaceful solutions to international problems.⁷ Several of his peers argue the western culture’s focus on materialism, science, individualism, and industrialization are producing clashes and disharmony, while traditional Chinese principles such as “putting people first” and “harmony between nature and mankind”⁸ are more effective in solving complex international problems. Modern Chinese writings regard China’s indigenous culture imbibing Confucianism, Taoism, Buddhism, Mohism, and other classical schools of thought as embodying the softer aspects of China’s national power. In this regard, concepts such as winning respect through virtues, benevolent governance, peace, and harmony without suppressing differences are repeatedly highlighted.

Culture in Official Pronouncements

Chinese culture retains ancient characteristics while accommodating changes. Culture has been influenced by politics and has acquired diverse undertones under different leaders. While Mao Zedong relegated Confucian teachings to the background during the Cultural Revolution (1965-75), the subsequent generation of leaders adopted Confucianism almost passionately. Whether it be Jiang Zemin’s “rule by virtue” (yi de zhi guo) or Hu Jintao’s “harmonious society” (he xie she hui), Confucian ideals are embedded in modern China’s state vision for underscoring and achieving various national objectives. Mao highlighted the congruence of culture and politics decades ago: “There is no such thing as art for art’s sake. Proletarian art and literature are… as Lenin said, cogs and wheels in the whole revolutionary machine.”⁹ In the same vein, he emphasized that the Party would not hesitate to harness literature and art for achieving national interests. Mao’s emphasis was on the creation of what he termed a New Democracy—national and anti-imperialistic—for advancing the dignity and independence of the Chinese nation, not the individual. This national and anti-imperialistic flavor continues to condition Chinese contemporary thinking on the role of culture, albeit with modern connotations.

Mao’s vision of cultural exclusiveness gave way to a more receptive outlook toward cultural diversity with emphasis on coexistence and harmony during the Hu-Wen period (2003-13). Premier Wen aptly reflected: “…Cultural diversity is an objective reality in this world and only when the diversity of cultures is respected, will civilizations progress.”¹⁰ This is a marked departure from past when culture was defined as “class culture,” identified more with the “ruling elite,” and to be employed for serving workers, peasants, and soldiers. The current new leadership is also showing signs of pursuing an accommodating and pragmatic cultural policy in keeping with larger national interests of holding “high the banner of peace, development, cooperation, and mutual benefit….”¹¹ The Resolution adopted at the 18th Congress of the Communist Party of China in November 2012 was emphatic about upholding China’s cultural heritage: “The country’s cultural soft power should be improved significantly”¹² for mutual understanding. Subsequently, the Communiqué of the Third Plenum of the 18th Party Congress held in November 2013 offered similar emphasis. While highlighting “putting people first,” the Communiqué stressed cultural openness while strengthening “national cultural soft power.”¹³ The message is clear. China is eager to project itself as a responsible stakeholder in the international community by employing culture.

The contemporary avatar of culture has been in vogue for a decade or so. While the 18th Congress explicitly highlighted the role of culture in shaping foreign policy, the 11th Five Year Plan (2006-10) urged a bigger presence for China in the international cultural markets.¹⁴ Beijing is determined to push deep into the global culture market in particular to communicate China to western audiences. Efforts for achieving this objective by “connecting people and building platforms for introducing writers…” have been called critical and hailed “as important as high-level government dialogues.”¹⁵ China has also tried to project Zheng He’s voyages during the Ming dynasty as an example of China’s cultural tradition of friendship in international relations. According to Huang Ju, former Vice Premier and a member of the Standing Committee of the Party’s Politburo, “Zheng He’s voyages facilitated cultural, economic, and trade exchanges across the globe, helped establish friendly ties, and contributed to the world’s navigation cause.”¹⁶

China’s leadership, however, is still wary of the western “cultural onslaught” and “hegemonism.” In Seeking Truth (March 2012 issue) — the Party’s flagship magazine — Hu cautioned: “We must clearly see that international hostile forces are intensifying the strategic plot of westernizing and dividing China, and ideological and cultural fields are the focal areas of their long-term infiltration.”¹⁷ The Report of the 18th Party Congress underlined similar concerns. Reportedly drafted by a team headed by Xi Jinping, it warns of the continued presence of “hegemonism” and “power politics” in the world in what is probably a veiled reference to the United States and its allies.¹⁸ These perceptions have been influencing China’s cultural strategy. Aspiring to play a major power role in future global politics, China realizes that its cultural rise will augment its strategic rise. It is hardly accidental that almost all major world powers are leading global cultural hubs as well. Expanding global cultural presence therefore is a priority. The primary focus, while upping cultural communication with the rest of the world, is to charm the West through a markedly different, Oriental brand of culture. This effort will also add a distinct dimension to global culture and might reduce the western cultural hegemony over time.

Confucius Institutes as Cultural Ambassadors

With culture increasingly identified as “a mission more arduous and critical to guard national cultural security and to boost national soft power and Chinese culture’s international influence,”¹⁹ Confucius Institutes have spread globally. The implicit strategic objective behind the proliferation of CIs can be traced to the vision of China nursed by a core group of foreign affairs decision-makers in the Party’s Central Committee (zhong yang wai shi gong zuo ling dao xiao zu) emphasizing a globally benign image of China.²⁰ Confucian teachings and principles with their unequivocal focus on humanity, education and harmony are expected to bind ethnic Chinese all across the world and attract other countries to China, through their non-dogmatic virtuous appeal. Indeed, Confucian thoughts are most representative tenets of a “global” doctrine that the CPC is comfortable in identifying with and disseminating across the world. Taking off in 2004, the CIs were originally designed to promote Chinese language and culture. Over time their mandate expanded from cultural interaction and exchanges to academic collaboration. Their programs now depend on the scope demanded by host countries. The largest number of CIs is in North America. Some of these step beyond their usual domains of promoting cultural interactions to assume advanced academic roles, such as the one at Stanford University, which apart from language training also focuses on research and literature of the Tang dynasty for discerning the cultural saliences of the period. The CIs at Chicago and Columbia Universities also declare themselves “research-oriented.”²¹ The advanced academic roles are hardly noticeable among CIs in Asia. Aligned with the Chinese Government and its programs overseen by the Hanban (Office of Chinese Language Council International), CIs have emerged as China’s cultural ambassadors with varied agendas.

The propagation of CIs began in South Korea, which in many ways was an ideal ground for launching “Brand Confucius” given the Korean peninsula’s long history of following the Confucian system of thought, society, and governance. South Korea’s significance as an economic partner for China and the importance of not allowing territorial tensions to damage economic ties was also responsible for launching CD through a CI. Furthermore, the fact that South Korea is a major U.S. ally and a conduit for facilitating extra-regional presence in the region made the country and the geography perfect for communicating China’s arrival on the world stage, through a dedicated policy of cultural engagement and with a loud and clear message: China was back into the “first world club after a century of semi-colonial status and fifty years of third world membership.”²²

CIs in South Asia – China’s western neighborhood with complicated regional dynamics – are much fewer compared with some other parts of Asia. India’s dominant presence in the neighborhood and its overarching and deep-rooted cultural influence in the region probably have motivated a relatively low-key cultural engagement strand from China to minimize any potential clash of cultures among the two occasionally estranged neighbors. CIs in the region have confined themselves to teaching Mandarin, organizing limited cultural events, and occasional study tours and education exchanges. CIs have been rather active in their teaching and cultural communication functions in Central Asia – a key region for China given its strategic location and vast natural resources. The CI at the Tajik National University, for example, had 2,000 registered students learning Mandarin in 2011 and is an important platform for cultural exchanges and interactions between China and Tajikistan since its inception in March 2009.²³ CIs have sprung up fast in Africa as well – another strategic continent and region – critical for China’s global outreach.

Global Perception of China

China’s rise is accompanied by mounting anxiety on the part of the international community. Beijing is conscious of the need to provide an alternate perception of its rise by addressing tensions surrounding it. Premier Li Keqiang spoke to the issue at a press conference held after the annual session of the national legislature in March 2013, saying: “Even if China becomes stronger, we will not seek hegemony.” The statement underlines the Chinese effort to project an image as a responsible stakeholder willing to work with other countries. The Code of Conduct to be worked upon for the South China Sea is an example. The Chinese government has demonstrated its willingness to embrace “gradual progress and consensus through consultations” as the cornerstone of the agreement.

Culture has been identified as a key tool for conveying the messages of peaceful development and harmonious coexistence. However the strategy so far has had relatively limited success. A BBC survey conducted in May 2013 across 21 countries revealed perceptions about China at their lowest since 2005.²⁴ Another survey by the Pew Research Center indicates that while people across the world may accept China’s superpower status, they “don’t like it.”²⁵ Indeed, CD, and particularly the CIs might be producing counterproductive outcomes by being identified as propagandist arms of the state.²⁶ Scholar Sheng Ding writes that many Chinese observers believe “despite their neutral scholarly appearance, the new network of Confucius Institutes does have a political agenda…. The Institutes will teach Beijing’s preferred version of Chinese, characters that are (not) used in Taiwan. This would help advance Beijing’s goal of marginalizing Taiwan in the battle for global influence.”²⁷ Other opinions suggest CIs “have been effective at expanding China’s network of relationships, but in terms of cultivating cultural soft power, they have yet to offer anything to substantiate their nominal use of Confucius as a representative of Chinese culture.”²⁸ While aggressive CD is yet to reshape global perceptions, China’s massive economic growth has generated enormous interest in its culture. Indeed, economic success has probably acted as a stronger pull for Chinese culture than its CD. In fact the success of the CIs to a large extent has been influenced by this economic pull. Several economically backward countries in Africa and Asia are inspired by China’s economic development and are keen on reproducing its economic strategies. However, such awe is much muted elsewhere and accompanied by anxiety. Niall Ferguson argues that the bloody twentieth century witnessed “the descent of the West” and “a reorientation of the world” toward the East, underscoring the future power shift from the West to the East. China’s rise, an integral part of this shift, is cause for discomfort in its immediate neighborhoods of Southeast and Northeast Asia, and, needless to say, in the West. CD has hardly been able to erase this strategic discomfort given that the world realizes that China’s cultural engagement is far more strategic and national interest-driven than pure virtuous export of cultural heritage. This could be due to several factors including reluctance to introduce domestic political reforms coupled with heavy military build-up including the recent effort for a drone development program.²⁹ The hard power implicit in these actions continues to overshadow the soft power explicit in CD.

The post China’s Cultural Diplomacy: Historical Origin, Modern Methods and Strategic Outcomes appeared first on China Research Center.

China’s reckoning with its growth model has been long in coming. Indeed, the seeds of change in China have been visible since the mid-2000s. China’s output of high technology goods for export, mostly IT hardware, has soared, growing consistently at more than 10% per year (NSBPRC 2001-2013). Despite these achievements, other high technology statistics suggest existing incentive policies and business strategies are yielding diminishing returns. To provide one example, in the decade beginning in 1994, China’s share of high technology exports in its total export mix grew exponentially. Since 2005, however, this share has leveled off at roughly 30% of total exports (MoST 2012, NSBPRC 2001-2013). The inability to continue to increase the share of high technology goods in the overall export mix means the low-hanging fruit of high technology industrial development has now been picked, but new means of driving rapid innovation have not yet been found.

Figure I: Growth of High Technology Exports – 1991-2012 (Source: National Statistics Bureau of China)

Figure II: High Tech Exports as a Percent of Total Exports – 1991-2012 (Source: National Statistics Bureau of China)

The universal prescription for resolving China’s economic challenges is mastery of “innovation.” However, the exact definition of innovation varies within the Chinese state and economy. Some adopt a Schumpeterian perspective and argue that innovation is the application of knowledge to improve the development, sale, or production of goods and services. Others take a harder approach, saying that innovation is synonymous with invention and that only the creation of wholly new and wholly Chinese-owned technologies will yield sustained competitive advantage and economic growth. These competing perspectives have influenced the raft of policies adopted by China’s central, provincial and local governments to encourage technological upgrades by firms and greater technology independence.

Policies for Technology Upgrading and Innovation

Despite competing visions about the nature of innovation, the Chinese government at various levels has pushed incentive policies since the late 1980s and increasingly through the 1990s and 2000s intended to encourage firms to move up the value chain, become more innovative, and increase their investment in R&D. These promotional policies include major national plans such as the 15-year Medium-to-Long Range Plan for Science and Technology (MLP), the 863 and Torch programs, and the most recent Five Year Plans. Investment rules and joint-venture agreements in the 1990s and early 2000s often made the sharing or transfer of advanced foreign technology a prerequisite for investment permits. National incentive policies are complemented by a host of provincially and locally administered promotional policies such as R&D tax breaks, export promotion, duty-free imports of certain goods, and human resource policies granting legal residency (hukou) to new residents in different cities such as highly desirable Beijing and Shanghai (see, for example: Breznitz and Murphree 2011).

These policies appear to have been largely ineffective in encouraging Chinese firms to move “up” the value chain and become independently innovative. Many of the recipients of state incentives and investment have used the funds to expand productive capacity or diversify rather than make concerted efforts at R&D and technological upgrading. Requirements to transfer technology have not resulted in transfers of the most advanced technology and foreign firms remain reticent to move their most advanced production or research activities to their Chinese subsidiaries or partners. Seeing the limited efficacy of these long-running programs, the government has more recently pushed for an alternative innovation strategy: development of technology standards.

Since the early 2000s, China’s central government – most notably the ministries of Industry and Information Technology (MIIT) and Science and Technology (MoST) – has actively pushed the development of technology standards in order to upgrade and increase profitability of Chinese firms (Wang et al 2009, Linden 2004, Kennedy et al 2008, Suttmeier and Su 2004). Often couched in the language of “technology independence,” the broad goal of the standardization policy is to enable Chinese firms to produce goods with global demand and markets without having to pay licensing fees to foreign IP holders. Apart from this goal, pursuing the development of unique standards also has the potential to upgrade China’s overall innovation capacity as standardization requires sophisticated R&D, technology transfer and management capabilities – all skills China needs as it seeks to upgrade its economy.

To accomplish this, Chinese firms are developing alternative or wholly new technology standards-essential patents, often licensed at free or nominal rates. Preliminary research suggests that driving down the costs of intellectual property through this method, just as China has driven down the costs for other inputs, will make Chinese-manufactured goods even more competitive. Increased profitability for Chinese manufacturers should also provide resources for further investment in new technologies, enabling China to produce ever better and cheaper high technology goods for domestic consumption and export.

Concerning Technology Standards

Technology standards are agreed upon protocols that enable goods and services, regardless of supplier or country of origin, to work together. To illustrate, the Universal Serial Bus (USB) enables computers and peripheral hardware to work together regardless of operating system, computer brand or peripheral manufacturer. This facilitates consumer choice, enhances competition, and – according to many scholars – provides a platform for faster innovation. Without common standards, markets are fragmented, consumer choice is constrained, and the pace of innovation arguably is slowed down.

Standards are developed through either formal or market processes. Formal standardization is bureaucratically managed through established national, regional, or international standardization bodies such as the China Electronics Standardization Institute (CESI), the European Telecommunications Standards Institute or the International Electrotechnical Commission. In formal standardization, specific protocols for a standard are developed in working groups composed of experts in the technology or industry in question. Working group members debate proposals and competing technologies before sending their recommendations to technical committees under the formal organization for more debate, comment and adoption – usually by consensus. In formal standards, intellectual property holders declare potentially relevant IP and the terms under which they are willing to license the technology. Most frequently, incorporated technologies are licensed on the Reasonable and Non-Discriminatory (RAND) principle: firms agree to charge reasonable licensing rates and not restrict which firms or countries may license their technology in order to produce standards-compliant goods.

Market standards are produced by single firms or ad hoc industry consortia. These are not formally adopted by standardization bodies and become “standards” through their dominance of the market for their respective goods or services. The IBM PC became the standard for personal computers after achieving “critical mass” in the market for computers in 1984. Thereafter, computer firms either conformed to the IBM standard or else were relegated to niche status (as in Apple). China is using both the formal and market approaches to set new standards. Given the nature of China’s standardization system, however, even market approaches often include significant state support and influence.

Technology Standardization in China: Justification and Challenges

How can standardization benefit Chinese firms? Standards represent the means of completely changing China’s position in global production networks. Currently, Chinese firms generally operate at the lowest value-added level in many industries, particularly IT hardware. Chinese firms tend to specialize in the final assembly of imported high-value components or in the production of low-value commodity components such as plastic or metal cases. Indeed, the low value-added by Chinese manufacturers in such prize exports as Apple iPhones has been long recorded and reported in the media (Batson 2010). While many IT hardware components are increasingly produced in China — notably in Dongguan and Shenzhen — the highest value components — logic chips, digital signal processing chips, and software — are designed and manufactured overseas and imported by Chinese assemblers. Chinese firms have come to specialize in the integration of components from a highly disparate production chain consisting of hundreds of supplier firms. This is not to downplay the accomplishment or innovation characteristics of contract manufacturers and assemblers. Their skills and upgrading capabilities remain among the best in the world – making it difficult to find partners as capable when foreign firms show interest in diversifying away from Chinese manufacturing (Zhang et al 2013, Yao 2012). Nonetheless, the overall contribution of China to the wholesale price of products is usually only a few percentage points.

Stan Shih of Taiwan’s Acer Computer once described the difficulty facing firms that specialize in final assembly. He argued that the profits that accrue to different firms in a production chain form a “smiling curve” where the definers of product architecture and after-sales service or branding firms reap the highest profits. Assemblers and contract manufacturers are at the bottom of the “smile.” Shih argued that firms had to move away from low value-added manufacturing in order to survive. In China today, many companies find themselves at the bottom of the “smile.”

In electronics and information technology hardware, however, moving up from this low value-added position is difficult as the technologies being produced are subject to established and clearly defined technology standards. Having not contributed to the development of the standards currently in force in many sectors, Chinese firms are “standards takers.” In order to compete in these technology sectors, Chinese firms must accept internationally determined standards for various products and produce goods according to the terms of the standard. Producing goods such as mobile phones requires manufacturers to pay licensing fees for the raft of patents that establish transmission standards for the phone (such as CDMA). These license payments reduce the already low profits for Chinese manufacturers. Finally, standards define the basic features of large categories of products, leaving little room for innovation or improvements as the protocols of the most basic level have already been defined.

Were China to successfully develop new technology standards and have them adopted internationally, this situation could change. Chinese firms would be able to earn royalties and potentially limit the access of competitors to key essential technologies (as Motorola did with its restrictive licensing of patents for the GSM mobile telephony standard). China would thus be able to control the structure of an industry by determining which firms are allowed to participate. Chinese manufacturers would also owe less in licensing fees. Firms and research institutions would gain valuable experience conducting collaborative in-depth and sustained research toward a common industrial goal.

Since the mid-1990s, China’s research institutions and firms have developed dozens of unique information technology standards. Despite their promise, none has been internationally successful (Kennedy et al 2008, Kennedy 2006, Breznitz and Murphree 2013). China’s standardization system continues to face several problems:

1. Lack of coordination: While many Western observers continue to view China through the lens of a centrally coordinated “China Inc,” there is significant complexity and lack of coordination. While the Ministry of Industry and Information Technology and the Ministry of Science and Technology remain the most active government ministries in standardization, and formal national standards remain the sole responsibility of the Standardization Administration of China, recent standards efforts have been fragmented. In electric vehicles, for example, different cities have established their own regional standards for charging stations, thus making equipment from different regions incompatible. Standards created by organizations under one government ministry —such as MIIT —may face challenges from standards created by groups under other bodies. At the same time, industry has become increasingly active in standardization and frequently seeks to adopt international standards rather than push for unique Chinese standards that are unlikely to be adopted internationally. These conflicting interests and proposals make for a confused standardization environment. A common result is that many firms in China take a “wait and see” attitude toward standardization, preferring to let the situation resolve itself rather than getting actively involved.
2. Lack of core innovation: Technology standards codify the state of the art in technology at a given point in time. They ideally embody the most sophisticated, basic and essential technologies necessary for a given system to work as a platform for other products and services. To create technology standards, a country or firm needs to have strong core innovation capabilities. To date, many of China’s leading indigenous standards efforts have relied heavily on foreign core technology. Using foreign technology is a pragmatic means of addressing weaknesses in China’s innovation system as well as enabling new standards to be released quickly. However, use of core foreign technology undermines the potential benefits of lower licensing fees since expensive foreign technology remains at the core of the standard.
3. Strong role for government in standards: like all areas of the Chinese economy and society, there is a major role for the state in the standardization process. This role is mandated through the 1989 Standardization Law of China, which gives the state sole responsibility for setting the agenda and legitimizing standardization efforts. On the one hand, the state is able to marshal resources and direct industry to invest in standards development, perhaps where it hitherto had been disinclined. On the other, the state has historically been such a strong force in the economy that many firms are hesitant to standardize without first receiving a direct order or clear signal from the state that a new standard is desired. This makes the state responsible for initiating standardization, a difficult process to master, as it requires intimate familiarity with technology and technology trends in order to start processes when opportunity presents itself. State leadership in standards is generally considered inferior to industry leadership (Funk and Methe 2001), yet it remains the norm in China.

Potential Benefit from Technology Standardization

Despite these challenges, China’s approach to standardization has yielded benefits for Chinese firms and may become internationally influential. Unlike American and European firms, which emphasize the monetization of intellectual property as a core business strategy, Chinese firms generally see intellectual property as a means to improving the value of manufactured goods and not primarily as an opportunity for monetization. For technology standards, this is highly significant. In most internationally accepted standards today, there are thousands of “standard essential patents” (SEP). U.S. and European firms frequently seek to maximize their returns from SEPs by setting “reasonable” licensing fees as high as possible. Alternately, firms with major SEP patent portfolios enter technology-sharing agreements with other major contributors, lowering mutual licensing rates. Chinese firms have to date contributed relatively little to major international standards (the contributions of Huawei and ZTE to 4G LTE are an important exception) and thus must license technologies to produce standards-compliant goods while also being excluded from technology-sharing agreements.

In China’s indigenously developed technology standards, there is a movement toward the demonetization of intellectual property. In the Chinese model, intellectual property is just another factor input in the production of goods and services. Like all components and resources, it is in the interest of firms to reduce the costs of this input. For indigenous standards, Chinese firms increasingly have made the intellectual property they contribute available at extremely low rates. Ideally, Chinese enterprises will license their standard essential patents on a free or nominal price basis. For Chinese firms interested in selling more goods, offering intellectual property for free is a means of helping to widely disseminate their technology while keeping costs low and thus encouraging adoption of their products. China’s standards-making bodies have begun establishing patent pools for core standards-essential patents that will make one-stop licenses available at a nominal basis.

In Chinese standards for home networking (IGRS) and audio-video encoding (AVS), the standardization consortia have set low or nominal rates for technologies licenses. Firms seeking to produce compliant goods thus reduce their production costs, increasing profitability while maintaining low final consumer costs. China’s Electronics Standardization Institute (CESI) has begun discussing how to make low-cost patent pools standard procedure.

While it remains to be seen whether this approach will successfully change global approaches to intellectual property and its economic value, China’s inexpensive IP model has already had some successes in forcing foreign holders of standards-essential IP to lower their licensing fees (Breznitz and Murphree 2013). In several cases, low-priced Chinese standards have been created and adopted by China’s standardization authorities. Shortly thereafter, the licensing rates charged by foreign IP holders to Chinese manufacturers have decreased. This occurred for DVD, Blu-ray, MPEG and 3G mobile. While China may not yet change the world’s perspective on IP, its economic and industrial power is already sufficient to force the rest of the world to pay attention to China’s moves in this area and perhaps act to preempt them. Again, this lowers the costs for Chinese manufacturers, making them more profitable and able to further drive down global costs for desired technologies.

Concluding Thoughts

China faces real challenges to its economic development model as it seeks to upgrade its technological capabilities and find new sources of sustained competitive advantage. The Chinese leadership has targeted development of technology standards as a means of improving the competitive position of Chinese firms and developing all-around technology innovation capabilities. Many of the standardization efforts to date have been unsuccessful, as they remain underutilized – or even wholly ignored – within Chinese or global markets. At the same time, China has realized two important benefits from its standardization activities. First, China may be changing the global perspective on intellectual property. Just as China’s scale and incremental innovation capabilities have redefined global manufacturing and sourcing of goods, China may also be able to significantly lower the cost of intellectual property for manufacturers. It may do so either through creation of low-priced alternative technologies or through pressuring foreign IP holders to lower the licensing fees for standards-essential patents. In either case, China’s firms improve their profitability while also remaining focused on their core capabilities in manufacturing. It is likely that China will continue its development of technology standards, meaning we should anticipate even great price and normative influence from China in the coming years.

Works Cited

Batson, Andrew. “Not Really ‘Made in China’.”The Wall Street Journal (2010). Web. November 8, 2013.

Breznitz, Dan, and Michael Murphree. Run of the Red Queen: Government, Innovation, Globalization, and Economic Growth in China. New Haven, CN: Yale University Press, 2011.

Breznitz, Dan, and Michael Murphree. The Rise of China in Technology Standards: New Norms in Old Institutions. Washington, DC: US-China Economic and Security Review Commission, 2013.

Funk, Jeffrey L., and David T. Methe. “Market- and Community-Based Mechanisms in the Creation and Diffusion of Global Industry Standards: The Case of Mobile Communication.” Research Policy 30.4 (2001): 589-610.

Kennedy, Scott. “Between Bureaucrats and Markets: China’s Frustrating Involvement in Standards Wars.”Annual Meeting of the Midwest Political Science Association. 2006.

Kennedy, Scott, Richard P. Suttmeier, and Jun Su. Standards, Stakeholders, and Innovation. Seattle, WA: National Bureau of Asian Research, 2008.

Linden, Greg. “China Standard Time: A Study in Strategic Industrial Policy.”Business and Politics 6.3 (2004).

MOST. “2011 Nian Woguo Gaojishuchanpin Guoji Maoyi Zhuangkuang Fenxi.” Ed. Technology, Ministry of Science and. Beijing: STS.org.cn, 2012.

NSBPRC. “2000-2012 Nian Guo Min Jing Ji He She Hui Fa Zhan Tong Ji Gong Bao (2000-2012 Citizens’ Economic and Social Development Statistics Reports) (in Chinese).” Beijing: National Statistics Bureau of China, 2001-2013.

Suttmeier, Richard P., and Xiangkui Yao. China’s Post-WTO Technology Policy: Standards, Software, and the Changing Nature of Techno-Nationalism. Seattle, WA: National Bureau of Asian Research, 2004.

Suttmeier, Richard P., Xiangkui Yao, and Alex Zixiang Tan. Standards of Power? Technology, Institutions, and Politics in the Development of China’s National Standards Strategy. Seattle, WA: The National Bureau of Asian Research, 2006.

Wang, Ping, Yiyi Wang, and John Hill. “Zhongguo De Biaozhun Zhanlue – Chengjiu Yu Tiaozhan.”CS09. National Bureau of Asian Research, 2009.

Yao, Kevin. “Analysis: Investors Make $100 Billion Bet on China’s Drive up Value Chain.”Reuters (2012). Web. November 8, 2013.

Zhang, Yajun, et al. “China Loses Edge as World’s Factory Floor.”The Wall Street Journal (2013). Web. November 8, 2013.

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But what seemed like fertile ground for two of the largest and most prominent U.S. big-box retailers proved anything but. Best Buy and The Home Depot announced their retreats from China within a month of each other in early 2011. Electronics retailer Best Buy closed its nine branded stores around the country and its Shanghai headquarters after three years of preparation for market entry and five years of expansion in China (Ni, 2011). In September 2012, The Home Depot decided to close the last of its seven stores in China after years of losses. The media was flooded with experts’ opinions that Western retailers are not acclimated to Chinese culture, referring to a common Chinese idiom, “not adapting to the water and soil.”

What made these two companies withdraw from this hot market after less than six years of operation? The general perception of their failures is lack of adaptation to Chinese consumer culture. Are other reasons contributing to the failure of The Home Depot and Best Buy in China? The following discussion provides a deeper understanding of the factors challenging these companies to perform in China’s market.

The U.S. Big-Box Retailers

The experience of these two companies contrasts with other U.S. firms doing business in China. KFC and General Motors reported record sales in China at the same time and have higher profits in China than they have back home. Another U.S. retail giant, Walmart, also has seen growth in its China sales. It operated 380 stores on the mainland by early 2013, becoming No. 2 in market share in China (Burkitt, 2013). With the rapidly increasing middle class and a housing boom, it should have been a very good time for The Home Depot and Best Buy to establish themselves in China, like other global brands.

The majority of U.S. retailers are big-box stores, which means they provide a wide variety of products in a large physical space. A big-box retailer often uses a low price strategy to drive sales volume. The big-box retailer also has many stores across the country. Examples of famous U.S. big-box retailers are Walmart, Target, and Sears, as well as Best Buy and The Home Depot.

The Home Depot is the world’s largest retailer of home improvement and construction products and services, headquartered in Atlanta, Georgia. Founded in 1978, The Home Depot created the “do-it-yourself” concept and changed consumers’ perspectives about how they could care for and improve their homes. Today, The Home Depot serves three primary customer groups: do-it-yourself (“DIY”) customers, do-it-for-me (“DIFM”) customers, and professional customers. The Home Depot has opened more than 2,200 locations throughout the United States (including Puerto Rico and the Virgin Islands), Canada, China, and Mexico. Stores average 105,000 square feet with approximately 23,000 additional square feet of outside garden area. Each store sells as many as 40,000 different kinds of building materials, home improvement supplies, appliances, and lawn and garden products for all kinds of projects (www.homedepot.com). Its primary rival, Lowe’s, currently has less than half of its market size.

Headquartered in Richfield, Minnesota, Best Buy Co. incorporated in 1996 and specializes in consumer electronics. Today, Best Buy operates 1,150 stores around the world. Besides its big-box retail stores, the company also manages more than 100 Best Buy Express automated retail stores or “Zoom Shops,” operated by Zoom Systems, in airports and malls around the United States. Best Buy markets itself as having superior customer service provided by knowledgeable sales associates. Best Buy had its glory era: it was named “Company of the Year” by Forbes magazine in 2004, listed in the Top 10 of “America’s Most Generous Corporations” by Forbes magazine in 2005, and made Fortune magazine’s list of “Most Admired Companies” in 2006. After its rival Circuit City went bankrupt in March 2009, Best Buy became the largest electronics retailer in the eastern United States. For years, Best Buy has been reducing store space allotted for music CDs because of the surge of digital music access via Internet download. Today, online retailers, particularly Amazon.com, are seriously challenging Best Buy. E-retailers do not have the fixed costs of store space and employees, and therefore can often provide the same products for lower prices. Many customers often go to Best Buy stores to find products they like, but purchase them from online stores. In 2011, revenue and profits of Best Buy declined. In 2012, Best Buy announced a“”transformation strategy” to close 50 stores in the U.S. In early 2013, Best Buy announced a partnership with Samsung Electronics for a store-within-a-store concept to better utilize floor space. A strong 2012 Christmas sales season and the mini-mall strategy apparently gave investors confidence as Best Buy’s stock more than doubled in 2013 (Eule, 2013).

The Retail Industry in China

As a result of successful economic development over the last three decades, China has become the most attractive and rapidly growing market for multinational companies. The size of the middle class, which has an appetite for spending, has been increasing rapidly. Meanwhile, China’s retail market is very fragmented with many small and medium-sized retailers. Cross-provincial retail stores are still rare because of local-access barriers that limit such growth. In 2008, the sector was composed of 549,000 small and medium-sized retailers, each with an average of 15 employees (Lu, 2010). For global big-box retailers, China appears to be easy territory to conquer with its abundant capital resources and global brand reputation. However, the retail industry in China has proven more complex than expected. Foreign retailers face various challenges from distinctive local consumer cultures to different industry practices in terms of the business model, marketing and sales practices, and supplier relationships.

Store-Based Retailing Business Model

The Chinese retail industry has its own distinctive business model, which provides Chinese retailers cost advantages over their global competitors in their home market. Instead of running the retail business as a buyer and reseller as American retailers do, Chinese retailers are more like commercial property management companies. They own or rent the buildings, design the buildings as department stores or super markets, and rent out shelf space to individual manufacturers. Chinese retailers charge manufacturers space rent and commission from sales revenue. Manufacturers in the retail stores manage their own promotions, inventory, and operation to make sure they cover those costs, and make profits. Under such a business model, Chinese retailers do not worry about investment for inventory, operational costs to manage the products, or payroll to sales associates.

However, foreign retailers are running their businesses in a completely different way. The foreign retailers are resellers. They decide the “best” product offerings for customers, select and purchase the products for resell, or contract suppliers to manufacture the products under their own brands. The foreign retailers not only commit large capital investments on inventory, but also carry the burdens of administration, marketing, sales, and service costs. The reselling model works in the U.S. because large retailers benefit from purchasing large quantities of products, managing retail prices to ensure their profit margins, and controlling the product quality level. However, this model causes challenges in China. The majority of retailers do not have the financial capability to hold a large inventory, nor do they have a mature retailing management system. Thus a “consignment” model gives them more flexibility to minimize burdens of holding inventories and managing products.

Marketing & Sales Practices

Along with managing their own products for Chinese retailers, the manufacturers also arrange their own sales associates to manage sales in the retail stores. Trained by manufacturers and motivated by sales commissions, sales associates of Chinese retailers are more aggressive in promoting their represented brands and products. Unlike their Chinese competitors, the Western retailers hire their own sales associates, who often are not paid through sales commissions. Therefore, they might be less knowledgeable about the products and less motivated to interact with customers to drive sales.

In the case of household products, Chinese retailers display products by brands. Each brand owns its own section in the store. For example, when a customer goes to the section of Hai’er, the most famous Chinese brand for home appliances, he or she will find all of the products offered by Hai’er in the same area. However, American retailers display products by product categories. It is common for American consumers to go to the same product category and compare products across brands. But for Chinese consumers, the depth of a product category offering can better represent the competitiveness of a brand. Displaying by brands is also preferred by suppliers as they can better present their brands by controlling the setup, more effectively run their sales promotions, and use fewer associates to manage the concentrated area.
The typical marketing strategy also gives Chinese retailers advantages over Western retailers. Chinese retailers spend millions on advertising; however, the expenses are mainly paid by suppliers to promote their own brands and products. Western retailers focus on promoting their store brands and have to pay the majority of the advertising costs themselves. With a lower level of spending on advertising in general, Western retailers have trouble effectively leveraging their brand names in China.

Supplier Relationships

Suppliers to Chinese retailers have complete autonomy to manage their own products. Even though they carry the inventory cost, they do not carry the burden of late payment from retailers. Suppliers have more control over their promotions and prices. As long as they can pay the space rental and commissions to the retailers, it is a harmonious partnership.

On the other hand, the Western retailers procure products from their suppliers and often decide the retail prices based on demand. Suppliers need to keep up all clauses of service agreements to guarantee order fulfillment, on-time delivery, and sales performance. Failure to meet service standards will result in financial penalties or loss of shelf space. Late payment is common, causing financial pressure on suppliers. Procurement management is not yet mature in China, thus communication between buyers and suppliers focuses on operational transactions with less emphasis on product development or marketing strategies. Suppliers are not able to effectively learn the needs of consumers through buyers for further product improvement. In order to improve sales performance, Western retailers often require suppliers to lower their prices to drive sales volume, and thus squeeze profits out of their suppliers. For suppliers, the required deep discounts ultimately make the retail stores the place to get rid of outdated and obsolete products. Bribing buyers also becomes part of the game so that suppliers can get a bigger volume or better shelf space. For all of these reasons, the relationship between suppliers and Western retailers is a challenging one. Because of the increased costs of doing business with the Western retailers, many small and medium-size suppliers choose to terminate the supplier relationship. Consequently, there are fewer brand selections in Western retail stores.

There are significant differences between Western and Chinese structure and practices in the retail industry (See Table 1). The differences seem to give Chinese retailers competitive advantages while challenging foreign retailers to penetrate the Chinese market effectively. In addition, the unique Chinese consumption culture poses extra barriers for foreign retailers. The following sections will discuss these issues as they apply to The Home Depot and Best Buy.

The Home Depot in China

In the last decade, the housing market in China has experienced annual double-digit growth. Unlike in the West, most new homes are sold in China as empty frameworks with only concrete walls. Homeowners need to invest significantly to finish the home, from flooring, ceiling, windows, bathroom fixtures, kitchen cabinetx, to doorbells. Very often the homeowners will select the design and materials they like and hire contractors to do the work. The new homeowners or the contractors will visit the traditional home improvement markets, which are often located in giant warehouses close to expressways. In these markets, dozens of manufacturers show their products for each category, such as tiles, toilets, bathtubs, etc. Customers can bargain over prices with the sellers and cut deals. After the transactions, sellers are responsible for delivering the goods.

The home improvement business in China is still underdeveloped. With millions of new homes sold every year, China should be the best investment destination for The Home Depot with its expertise in home construction/improvement and high quality installation services. When Chuck Elias, The Home Depot’s China head, started investigating the market opportunity in China in 2005, he visited 25 cities, scouting competitors’ outlets and traditional markets. As he observed, “China is an incredibly exciting opportunity.” China became the top priority for The Home Depot to grow its business and to increase its stock price (Businessweek, 2006).

The Home Depot started its journey in China in December 2006 through an acquisition of the Chinese home improvement retailer The Home Way. The Home Depot was able to establish its presentence in China quickly with 12 stores in six cities. However, the performance of the stores did not meet expectations, even amid China’s housing boom. By April 2011, The Home Depot had closed its last Beijing store, the fifth one in China, which left seven stores in Tianjin, Xi’an, and Zhenzhou. The Home Depot shook up its strategy by focusing on specialty stores in Tianjin to cater to specific needs and shopping preferences of Chinese consumers. It opened one paint and flooring store and one home decorations outlet, and planned to launch online operations with a Chinese partner. Later, in September 2012, The Home Depot decided to close all remaining big-box stores in China.

There are various reasons for The Home Depot’s unsatisfactory performance, including the change in company presidents three times in four years, a dispute with a commercial property landlord, and poor supplier relationships. But the most common criticism focuses on the unique DIY business model. Many believe the failure of The Home Depot in China is mainly because Chinese consumers do not have the same “do-it-yourself” attitude as people in the U.S. Hiring home improvement contractors is very convenient and inexpensive. Chinese consumers do not have time or know-how to improve their homes on their own. The Home Depot admitted it misread China’s appetite for do-it-yourself products. With its announcement of the stores closing in China, a Home Depot spokeswoman said: “The market trend says this is more of a do-it-for-me culture”(Burkitt, 2012). Another interesting cultural issue is the signature orange apron worn by The Home Depot sales associates. In the U.S., the apron signals expertise and knowledge of home improvement. In China, a man wearing an apron is often looked down upon as someone who lacks authority. Therefore, customers in China did not feel they should ask for suggestions from people wearing aprons.

In the U.S., The Home Depot is proud of its services and the knowledge of its sales associates who provide guidance to customers for home improvement projects. The company also provides installation services in the U.S., fulfilled by third-party service providers. In fact, many American families prefer to use installation services for complex projects such as flooring and roofing, rather than trying to do it themselves.

So the “do-it-yourself” model might not be the only factor in The Home Depot’s failure in China. The product offerings suggest another problem. Products were perceived to be too cheap and simple. A longtime Chinese tile saleswoman says, “It’s mainly for poor people” (Grgurich, 2012). Chinese families like to decorate their new homes with high quality products. Chinese consumers are used to finding bargains from hundreds of suppliers at traditional home improvement markets, so shopping in a home improvement retailer is a new concept. The Home Depot was not successful in promoting and leveraging its global brand as the world’s largest retailer of home improvement. Many Chinese consumers are not even aware of the brand.

Meanwhile, The Home Depot’s major competitor in China, B&Q, a subsidiary of Europe’s do-it-yourself giant Kingfisher, set the example of adaptation to local consumer culture. In Shanghai since 1999, B&Q stumbled through some rocky first steps, and then developed strong brand awareness through offering innovative services for customers. B&Q provides customers full design and decorating services from floor to ceiling to help customers transform their new houses from empty concrete shells into stylish homes at a reasonable cost. With this full-service strategy B&Q is the market leader in China with 39 stores, and is one of the largest Western retailers in the country as of 2013.

Best Buy in China

In 2003, Best Buy dipped its toes in the Chinese marketplace by establishing its office in Shanghai. In 2006, after three years of research, Best Buy acquired a majority interest in China’s fourth-largest appliance chain, Jiangsu Five Star Appliance Co., Ltd., obtaining 136 stores in eight of China’s 24 provinces (Jiang, 2006). In January 2007, Best Buy opened its first flagship store in Shanghai with great fanfare. However, Best Buy also faced tremendous challenges. In the first five years of market entry, Best Buy expanded very slowly. By 2011, when Best Buy announced its store closings in China, only nine stores had been opened, six of them in Shanghai.

With the increased disposable income among Chinese consumers, Best Buy should have appealed to the high-end middle class consumers. According to retail analyst Paul French of the Shanghai-based firm Access Asia, Best Buy offered “a concept ahead of the consumer.” Unlike their top Chinese competitors, Gome and Suning, which used the warehouse style of Chinese electronic chains, Best Buy moved the U.S. business model completely to China and built large, high-end flagship stores. These stores did not use glass cases. Instead, customers could touch and examine products without having to ask permission from staff. Products were displayed by different quality standards: “good, better, best.” Instead of aggressive and pushy vendors’ representatives, well-trained sales associates who did not earn sales commissions helped customers when they needed it. The associates were there to provide expert introduction to the products so customers could make their own purchasing decisions. Best Buy provided a much nicer shopping environment at prices no higher than its competitors (MacLeod, 2011).

However, Best Buy apparently fell well short of its goals and did not flourish with this “customer-focused” business model in China. With only one percent market share after six years of operation in China, Best Buy decided to close its nine stores at the end of 2011. Many reasons are suggested for the failure of Best Buy. One of the most commonly heard is that Chinese consumers are “too cheap” to buy expensive products or to care about service, and prefer bargaining for discounts rather than choosing from set prices in these stores (Rein, 2011).

Compared with its Chinese competitors, Best Buy spent more on store decoration and employee benefits, and had only a few stores. As a result, Best Buy had a much higher cost structure compared to its competitors, which may have led to higher prices for some products. In addition, except for a few Chinese brands, the majority of products in Best Buy were foreign brands, leaving consumers with fewer options. Although many enjoyed the shopping environment in Best Buy, consumers were also disappointed to see very few discounts in the stores, compared to the ubiquitous promotions in Chinese electronic chains. With few choices and not many special deals, Best Buy was perceived to be more expensive to Chinese consumers. While Best Buy selected the best of every product for their customers, Chinese consumers preferred to choose for themselves from hundreds of options. Kal Patel, head of Best Buy’s Asia operations, stated: “What we learned, very crucially, is that in China you cannot make revolutionary change. You have to work at the pace of the Chinese consumer” (Roane, 2011).

Emphasizing large flagship stores could be another mistake Best Buy made. The four-story store in the Xu Jia Hui area of Shanghai’s premier shopping district is the largest Best Buy in the world. However, unlike American consumers who often drive to shop at the big-box stores, most Chinese consumers prefer to shop closer to home. With its slow pace of store expansion, Best Buy was unlikely to stand against fierce competition from Gome and Suning, both of which owned more than 1,000 stores nationwide (Ni, 2011).

Ironically, the “cheap” consumers and flagship stores were not completely to blame either. Gome and Sunning did not hesitate to duplicate Best Buy’s business model, operation and marketing strategies, and even store decoration. Gome used blue as its store color, which some consumers confused with the blue logos of Best Buy. Gome also adopted the sales strategy to provide fixed prices and non-commissioned salespeople in some stores in 2010. As a result, sales soared because wealthier consumers were afraid of over-paying and prefer not to waste time negotiating (Rein, 2011).

The Home Depot and Best Buy try new strategies in China

Both The Home Depot and Best Buy closed their big-box retail stores in China suddenly with no advance notice. Consumers and employees found announcements of permanent closure and locked doors when they came to the stores to shop or work. The sudden closures left many angry customers who had bought products with warranties and services, frustrated employees who received no sign of losing their jobs and worried suppliers who were still waiting for payments. All they could do was to work with support centers to deal with any refunds or payments.
Actually, neither The Home Depot nor Best Buy planned to completely leave the Chinese market. Both companies planned to shape up their strategies in China by focusing on specialty stores and online sales. As previously mentioned, The Home Depot opened several paint and flooring stores and one home decorations outlet in the northern port city of Tianjin. Best Buy has continued to work with its Chinese subsidiary, Jiangsu Five Star Ltd., to open more electronic stores and is testing a Best Buy mobile store-within-a-store concept in some Five Star stores (Lee, 2013). Both companies are trying to cater to specific needs and shopping preferences of Chinese consumers.

While U.S. big-box retailers prepare to shrink to smaller stores and focus on special products in China, one of their Chinese counterparts, Suning Appliance, China’s largest appliance retailer, plans to create superstores over the next three years, adding daily necessities and books to 400 existing outlets (Burkitt, 2012). Clearly The Home Depot and Best Buy will continue to face challenges from local and global competitors, and will need to be creative to respond to the different Chinese retailing practices and consumer culture.

Conclusion

What can we learn from the cases of The Home Depot and Best Buy in China? The retail market in China is complex. Both these companies took cautious steps when they entered China. (See table 2 for a summary of the comparisons.) They conducted detailed market research, but apparently still failed to customize their business models to fit the market. They entered the market through acquiring previously successful Chinese stores, but were not able to fully leverage the acquired knowledge and experience. Both retailers faced tremendous challenges as a result of the different consumer culture, from major ones such as the consumption habits to minor ones such as the different perception of The Home Depot’s signature orange apron (Mei, 2013). In addition, Chinese retailers are more flexible and cost-effective than foreign competitors with their unique practices. Both The Home Depot and Best Buy failed to provide an education about premium Western brands. Neither retailer provided consumers superior value from a price advantage or sufficient product differentiation. The Home Depot’s products were too cheap and simple, while Best Buy’s offerings were too limited. As foreign brands are not very familiar to Chinese consumers, The Home Depot and Best Buy also faced tremendous challenges from distinctive industry practices that were not compatible with the norms for these companies. Nonetheless, with strong corporate leadership and a vision of long-term development in China, these challenges could be overcome.

References

Burkitt, L. (2012). Home Depot Learns Chinese Prefer ‘Do-It-for-Me’. http://online.wsj.com/article/SB10000872396390444433504577651072911154602.html.
Burkitt, L. (2013). Wal-Mart Says China Growth Is on Target. http://online.wsj.com/article/SB10001424127887324883604578396090449466504.html.
Busienssweek. (2006). Home Depot: One Foot in China. http://www.businessweek.com/stories/2006-04-30/home-depot-one-foot-in-china.
Deloitte. (2011). China power of retailing.
Eule, A. (2013). All of a Sudden, Investors Love Best Buy. But Do Shoppers? http://online.barrons.com/article/SB50001424052748704235404578404641758715174.html – articleTabs_article%3D1.
Grgurich, J. (2012). Why China Doesn’t Like Barbie, Best Buy or DIY. http://www.dailyfinance.com/2012/06/20/why-china-doesnt-like-barbie-best-buy-or-diy/.
Jiang, J. (2006). Best Buy Acquires China’s Five Star for $180 Mln. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aXdoCwlUZ2R8&refer=asia.
Lee, T. (2013). Best Buy Hires New CEO for its China Business. http://www.startribune.com/business/206772421.html.
Lu, S. (2010). Understanding China’s Retail Market. http://www.chinabusinessreview.com/understanding-chinas-retail-market/.
MacLeod, C. (2011). Best Buy, Home Depot Find China Market a Tough Sell. http://usatoday30.usatoday.com/money/industries/retail/2011-02-23-bestbuy23_ST_N.htm.
Mei, G. (2013). Culture Determines Business Model: Analyzing Home Depot’s Failure Case in China for International Retailers from a Communication Perspective. Thunderbird International Business Review, 55(2), 173-191.
Ni, V. (2011). Best Buy’s Withdrawal: American Morals Fail to Transcend Chinese Consumer Market. http://www.china-briefing.com/news/2011/03/02/best-buys-withdrawal-american-morals-fail-to-transcend-chinese-consumer-market.html – sthash.48ndz7g4.dpuf.
Rein, S. (2011). Why Best Buy Failed in China. http://www.cnbc.com/id/41882157/Why_Best_Buy_Failed_in_China.
Roane, K. R. (2011). Best Buy’s Lesson from China: Cluttered Beats Curated. http://money.cnn.com/2011/02/10/news/international/bestbuy_china_fivestar.fortune/index.htm.

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Xinan Lianda – Southwest Associated University – was an amalgam of three institutions that fled Beijing and Tianjin in 1937 at the outset of the Second Sino-Japanese War. These were Peking University, Tsinghua University, and Nankai University. Lianda kept the light of learning burning in Kunming for eight years of war in the face of Japanese bombing, material shortages, devastating inflation, and official oppression that sometimes morphed into terrorism.

When I first heard of Lianda in the early 1970s, I decided to write a book about it. Besides the historical importance of the university, I was attracted to the subject because it was a ripping good story – and I am a rather old-fashioned practitioner of narrative history. But there was another dimension that tied together author and subject – shared values. So much of what I found in Lianda resonated with my own values as a liberal American academic: a vision of liberal education marked by diversity, tolerance, and academic freedom. The people I was writing about were subsequently characterized by my mentor, John King Fairbank, as “Sino-Liberals.”

Following a quarter century of research, interviews, writing, rewriting, procrastination, and unanticipated problems, my work was published by the Stanford University Press as Lianda: A Chinese University in War and Revolution.

Friends in China – many of them Lianda alumni – heard about the book. Some volunteered to translate for a Chinese edition. Knowing that a serious translation depends upon close cooperation among author, translator, and publishing house, they invariably asked me if I would cooperate in such an enterprise. I agreed to do so if they could satisfy three conditions:

1. They would have to have a high level of proficiency in English. The response here was invariably affirmative.
2. They would have to write Chinese with stylistic verve. Further smiles and nodding of heads.
3. The publisher would have to agree not to change a single word for political reasons.

This always elicited a crestfallen expression and nipped our Sino-American joint enterprise in the bud.

There were two reasons for my zero tolerance stand on censorship:

1. Personal convictions and values. I have been a card-carrying ACLU member for half-a-century.
2. The nature of my subject. Professors and students at Lianda risked (and sometimes gave) their lives for freedom of expression. It would have been unseemly to sacrifice such a noble legacy to publish a sanitized version of the university’s history.

Over time, I became more fully aware of what I was up against. Chinese censorship did not operate from the top down. To be sure, the Communist Party’s Propaganda Bureau was charged with guarding against politically incorrect ideas. However, publications were not submitted to some official with a wary eye, a green eyeshade, and the countenance of the Grand Inquisitor. Rather, publishers had to self-censor authors’ manuscripts before they were published. If anything slipped through that would rankle higher-ups, the entire publication run could be confiscated and months of hard work and piles of renminbi would be consigned to the dustbin of history.

Given this system of self-censorship, it was inevitable that publishers would err on the side of caution and that self-censorship would, in effect, out-inquisit the Grand Inquisitor.

So I resigned myself to the reality that a billion-plus Chinese would have to survive without access to my magnum opus in its native language.

Fast-forward to November 2007. I was packing up for a trip to China when an email arrived from a certain Rao Jiarong. Mr. Rao identified himself as a recent graduate from the history department of Xiamen University who had taken a job in Beijing. There, a friend of his had lent him a copy of my book. So enamored was he of my work that he finally quit his job to devote full time to writing a translation. After a year’s work, he had completed the manuscript, which he attached to the letter.

Would I help him find a publisher? I was awestruck by this intrepid young man who had poured his financial and spiritual resources into this labor of love, the beloved object being my own literary progeny. But I had already said no to more than one ardent suitor, including a good friend, so what could I tell Mr. Rao? Maybe, I pleaded rather lamely, he could find a publisher in Taiwan or Hong Kong, but I had little hope that this unknown recent college graduate would have access to such remote realms.

I had underestimated Mr. Rao. Within a few months, he had a contract from the Zhuanji Wenxue Chuban She (Biographical Literature Publishers) in Taipei. The Taiwan edition appeared in 2010, complete with a preface that lay bare the realities of literary censorship on the other side of the Taiwan Straits. Now my work was available to some 20 million Taiwan Chinese. I took some solace when I found the book advertised on a Mainland website, but I realized that few people in the PRC would go to the trouble of ordering an expensive book from the Unliberated Province, printed in traditional Chinese characters.

Then, in the summer of 2011, I received an email from Mr. Rao. The Jiuzhou Chuban She – Nine Continents Publishers – in Beijing was prepared to produce an uncensored simplified characters edition. We soon had a contract guaranteeing that not a single word would be changed for political reasons.

This seemed too good to be true. And it was. In December 2011, Mr. Rao forwarded from the publisher a list of about a dozen “sensitive passages,” as he called them, with suggestions for softening the wording. Would I approve them? I went down the list, wrote “No!” next to each item, and returned it to Mr. Rao. He replied, to my amazement, that, in every instance, the Press had accepted my decision. Then, a couple of weeks later, I got an email from the Press. The fact that they were writing me directly underscored a note of desperation. Three particularly sensitive passages had to be dealt with before publication. We finally agreed to place controversial words in quotation marks, followed by footnotes attributing the quotation marks to the publisher rather than the author. Here is how the passages appear in the translated version:

After seizing power in 1949, the Communists were able to impose unprecedented restraint upon the words and deeds of liberal academics.

Quotation marks around “restraint.”

Academic freedom, which reached its apogee in Beijing during the warlord era and in Kunming under the patronage of Long Yun, was challenged by the Guomindang and finally crushed under the Communists.

Quotation marks around the word “crushed.”

The frenzied reassertion of political and ideological control following the destruction of the democracy movement in June 1989 is a further reminder of the official strictures that limit political and philosophical discussion.

Quotation marks around “democracy movement.”

Here is a poignant example of the inanity (if not insanity) of censorship. The translated version not only retains criticism of the Communists for political and ideological oppression, but actually calls attention to these passages!

So much for my experience with China’s system of censorship. Equally intriguing is what I learned about China after the spring of 2012, when the Beijing translation hit the bookstores.

First of all, my history had appeared in the middle of a phenomenon called “Lianda Re” – meaning Lianda Fever. What was going on was the familiar Chinese passion for using history as an oblique way of commenting upon the contemporary scene. There had been a minor tsunami of books, articles, reviews, and commentaries identifying Lianda as a high point in modern Chinese higher education. Such publications, as not even the dullest reader could fail to observe:

1. Highlighted the inadequacies of Chinese higher education in the 21st century
2. Provided a Chinese pedigree for ideas, values, and institutions that might otherwise have been dismissed as bourgeois American intrusions
3. Reminded people, sometimes quite explicitly, that under Chiang Kai-shek’s (Jiang Jieshi’s) officially reviled Guomindang regime, China’s universities had reached a height unequalled under the People’s Republic.

Because my subject was so hot, the author also became a hot item. Reviews of my book proliferated; reporters besieged me with requests for interviews. And my history of Lianda, of which the English edition had sold fewer than 500 copies from 1998 to 2013, reached the 20,000 mark less than two years after the publication of its Chinese translation.

Most interesting was my personal experience in talking about my book in universities and book stores in Beijing, Shanghai, Nanjing, Xiamen, and Qingdao. For the first time I came into contact with audiences of educated young Chinese. I quickly had to reassess my preconception of the political mentality of the younger generation, an image left over from the 1990s. I had assumed that these young men and women were chauvinists, supportive of ultra-nationalist rants, hostile to whatever their leaders labeled as foreign interference in the realm of ideas and values, and more receptive of ideologies that bordered on fascism than on anything akin to Jefferson or even Mao.

My moment of truth came at my very first public lecture, at Xiamen University. Following my talk, a gentleman in the back row stood up and asked how an American, whose armed forces ran around the world seeking excuses to interfere in the affairs of inoffensive nations, could stand up in front of an audience and prattle on about liberal values.

My own response to this question is less interesting than the fact that virtually the entire audience sprang to support an old American professor’s defense of liberal values against a challenge from this young Chinese critic of U.S. imperialism.

Wow!

On a broader level, I realized that I was seeing up close what I already sensed from daily life in China: In striking contrast to a political elite – self-perpetuating, insulated from the people in whose name it ruled, and paranoid in defense of its privileges – sectors of China’s civil society were creative, energetic, vibrant, searching fearlessly for answers.

The question remained as to how widespread and how representative was the kind of critical thinking and open discourse in which I had been privileged to participate. But the fact that it existed at all gave reason for hope.

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