Misunderestimating China

Toward the end of his new book, The Return of Great Power Rivalry, Matthew Kroenig offers sensible if tentative advice for responding to China’s ambitions for technological leadership:

U.S. government investments in basic science and R&D have been critical in past technological breakthroughs, including nuclear power and the Internet. . . and the United States could do more to invest in the technologies of the future. Democracies are often slow to build consensus for a problem, and that helps them to avoid mistakes. But when a national consensus is achieved, they can mass resources toward a problem just as well as any autocracy. And Washington is beginning to awake to this new Sputnik moment. When it does, it will be well positioned to compete.

During the preceding 200 pages, though, Kroenig does little to elicit a sense of urgency with respect to China’s challenge. Instead, he presents a set-piece argument that autocracies in general and China in particular will inevitably fail to compete against democracies. Prof. Kroenig, who teaches at Georgetown University and directs a strategic studies program at the Atlantic Council, offers a complacent reading of China’s position today—hardly the makings of a Sputnik moment. He seems to be searching for something like the Spanish expression “mañana,” but without a connotation of urgency.

The first half of the book surveys the history of conflicts between democratic and authoritarian regimes with a disconcertingly selective choice of facts. The second half discusses China and, more briefly, Russia as today’s authoritarian challengers. The two parts of the book fit together poorly. The reader has the feeling that the author originally set out to write yet another comparison of democracy and autocracy, and later decided that a Chinese angle would elicit more interest.

Democracy and Autocracy

Much of Kroenig’s historical account is less than satisfying. The Peloponnesian War is a pivotal issue in this discussion, as the only antique contest between a democracy and an autocracy of comparable strength. Why democratic Athens lost to authoritarian Sparta is a conundrum that long has bedeviled political theorists. Most admirers of Athens, Donald Kagan and Victor Davis Hanson for example, attribute Athens’ defeat to avoidable policy mistakes. Kroenig has another explanation, one that recalls Winnie the Pooh’s remark to Christopher Robin that he had encountered the wrong sort of bees: Athens simply was the wrong sort of democracy. He writes:

Most devastating to Athens’s war effort was a strategic blunder chosen freely in the assembly: the decision to embark on the Sicilian expedition in 415 BC to aid its beleaguered ally Segesta in the fight against its democratic rival, Syracuse.

The failed Sicilian Expedition was the turning point in the war, and it was the result of all citizens in the Assembly voting on the number of ships to be sent to Sicily. Just imagine the chaos if the United States had held an online referendum to select the proper U.S. force levels in Afghanistan.

Athens succeeded due to its open system of government, but, in the end, fell due to its systems of direct democracy. . . . Political theorists, like Machiavelli, celebrated open government, but denigrated direct democracy, such as that the prevailed [sic] in Athens, as tyranny of the majority.

Still, although its hegemony did not last forever, Athens helped show the way for how open states can attain supremacy over autocratic rivals.

That is a galumphing example of the True Scotsman Fallacy. (“No Scotsman eats sugar with his porridge;” “My uncle Angus is a Scotsman, and he eats sugar with his porridge;” “Ah, but no true Scotsman eats sugar with his porridge.”) In fact, Thucydides explained quite clearly why the Athenian mob wanted to attack Syracuse “on a slight pretext, which looked reasonable, [but] was in fact aiming at conquering the whole of Sicily. . . . The general masses and the average soldier himself saw the prospect of getting pay for the time being and of adding to the empire so as to secure permanent paid employment in the future.” I refer the reader to my 2017 notice of Graham Allison’s Destined for War in the Claremont Review of Books for a more detailed discussion.

Napoleon did not command a citizen army of the kind that fought at Gettysburg or Omaha Beach. Rather, he raised an army of French soldiers who were driven by ambition, with “a field marshal’s baton in their rucksacks.”

Another case of Procrustean selection of facts is Kroenig’s account of the Napoleonic Wars. He attributes Napoleon’s early victories to the republican character of France and its levee en masse which “would introduce the world to total war.” It seems odd, though, to draw a bright line between a republican phase of Napoleon’s conquests ending with his coronation as emperor in 1804, and a later imperial phase, given that his greatest victories occurred in 1805 at Austerlitz and 1806 at Jena. It is just as odd to characterize as “republican” Napoleon’s one-man rule as First Consul from 1799 and as First Consul for Life after 1802.

Napoleon did not command a citizen army of the kind that fought at Gettysburg or Omaha Beach. Rather, he raised an army of French soldiers who were driven by ambition (with “a field marshal’s baton in their rucksacks”); by the time he marched into Russia in 1812, moreover, half of his army was made up of foreigners with the same aspirations. As Talleyrand told Napoleon, you can do anything with bayonets except sit on them, by which he meant that the composition of Napoleon’s army required him to march them to Russia. Napoleon’s contemporaries, Friedrich Schiller for example, saw him as another Wallenstein, who raised mass armies during the Thirty Years’ War on the same premise. Kroenig restricts his account of that war—the most devastating in modern European history—to a report of the revolt of the Dutch Republic against Spain, a minor affair within the grand dynastic struggle between French Bourbons and Austro-Spanish Hapsburgs that killed two-fifths of the population of central Europe. This is shoehorn history in the service of a shopworn thesis.

China’s Technological Capabilities

From the first half of his book we may surmise that Kroenig hasn’t read Thucydides (not to mention Schiller), and from the second half, that he hasn’t read the newspapers. “Many swoon over China’s supposed lead in AI,” he writes, “but AI requires microchips, and China’s semiconductor industry is woefully behind. . . . When the United States imposed a trade ban on Chinese tech giant ZTE in April 2018, for example, the firm announced that it would have to shut down. It simply could not operate without access to U.S. microchips.”

That was then. Contrary to Kroenig, China’s leap into self-sufficiency in chip design marked a new and troubling phase in Sino-American competition. In December 2018 Huawei announced a new line of microchips designed by its chip subsidiary HiSilicon to power smartphones (the Kirin series) and high-end servers (the Ascend series). These compete directly with the products of American chip designers like Qualcomm and Nvidia. Huawei now makes smartphones and 5G base stations with zero American components, and its American competitors now fear that Huawei might cut chip prices and drive them out of the Asian market, which accounts for more than 70 percent of their sales.

The threat of a semiconductor price war has persuaded the Trump Administration to delay proposals for strict US content rules to stop Huawei from obtaining chips fabricated overseas using American technology. America’s efforts to restrict Chinese access to semiconductors have only accelerated China’s drive for self-sufficiency, which has advanced much faster than most industry experts imagined possible.

Kroenig concedes that “the Chinese firm Huawei is currently the world leader in next generation, 5G wireless technology,” but adds that “many Western countries from Australia, to Poland, to the United States have banned Huawei because they will not allow a potentially hostile CCP [Chinese Communist Party] to control the digital infrastructure of the 21st century.” The qualifier “many” is misleading: Britain, France, Germany, Spain, Italy, and other NATO members all will use Huawei 5G equipment. Not only is the Chinese equipment better and cheaper than the competition’s, but Huawei has already struck industrial partnerships with European capital-goods and auto producers to extend its lead in 5G into smart manufacturing, artificial intelligence, autonomous vehicles, and a wide range of other technologies that Huawei calls the “Fourth Industrial Revolution.” All of this is promulgated in streaming video from Huawei’s 2019 Shanghai Connect Conference, accessible on the company’s website.

For the first time in its long history, China has succeeded in recruiting Western innovators on a large scale. 50,000 foreigners now work for Huawei, including some of Europe’s best scientists and engineers in the field. They conduct most of Huawei’s basic R&D, with a budget more than double the combined efforts of the company’s main competitors. In addition, Huawei funds hundreds of high-tech startups and academic laboratories.

Huawei has been doing this for a decade in the full light of day. The United States was shocked when Britain ignored urgent American demands to keep Huawei out of its new 5G broadband network. It should have seen that coming a decade ago. In 2012 then British Prime Minister David Cameron lauded Huawei’s commitment to invest $2.5 billion in the UK. Why was the Trump Administration taken aback when London brushed off its demands eight years later?

Kroenig doesn’t think the Chinese innovate (at least not recently; a thousand years ago China invented gunpowder, the Bessemer process, the magnetic compass, the clock, and moveable type). Whether China can innovate or not, however, is moot. They have succeeded in recruiting a critical mass of Western innovators.

This calls to mind an historic example. In 1258, the million people of Baghdad sheltered behind 18-foot-thick walls as the Mongol army approached. The Abbasid Caliph Al-Musta’sim rejected its demands for tribute. The Mongols were lightly armed horsemen, the Abbasids believed; what could they do against the vast fortifications of Baghdad? But the Mongol chieftain Hulagu Khan brought with him 1,000 Chinese artillery experts, according to a contemporary Persian account. It took them three weeks to breach the city walls, after which the Mongols made a pyramid of the heads of the million people of Baghdad.

Chinese Growth

China’s economy, Kroenig avers, is much smaller than America’s, and “some Chinese academics have estimated that the country’s true growth rate is about 1.5%. . . . Other market analysts believe that it is closer to zero and declining.” That is a striking statement for any visitor to China who has watched a dozen cities in China’s interior mushroom into megalopolises during the past decade. Kroenig’s footnoted source is a 2015 offering from an out-of-work “credit manager for a mid-sized US bank” writing on a crowd-sourced financial message board. Whether one believes China’s official GDP estimates or not, verifiable economic indicators track the official GDP numbers. Electricity production, for example, rose by 210 percent between 2008 and 2019.

Chengdu was a third-world slum 20 years ago but now resembles a futuristic movie set studded with new steel-and-glass skyscrapers.

It is true that, in US dollar terms, America’s economy is larger, but the World Bank estimates that China’s economy in 2018 was $4 trillion larger than ours in terms of purchasing power parity. Adjusting for the real cost of hiring an engineer, building a plant, or traveling by high-speed train from Shanghai to Beijing, China’s economy is much larger than the dollar conversion of its local currency would indicate. Both the US dollar and the purchasing power parity measures have their uses, but the latter is what applies to the cost of new high-tech investments or military acquisitions. Kroenig doesn’t mention the World Bank estimate.

Kroenig says that he has visited empty cities in China’s interior, proof of the wastefulness of its authoritarian regime. Has he visited Chengdu, which 20 years ago was a third-world slum, and now resembles a futuristic movie set studded with new steel-and-glass skyscrapers? China has moved nearly 600 million people from the country to the city in the past 40 years (the equivalent of the whole of Europe from the Urals to the Atlantic, or two Americas) and has built or rebuilt cities to house them. The cities have to be built before people move, and an error rate of five percent would produce “ghost cities” with room for 30 million Chinese.

It is true, as Kroenig argues, that China’s financial system lags behind the country’s economic ambitions. Housing makes up 79 percent of urban and 61 percent of rural household wealth. By contrast, real estate is roughly one-quarter of US household wealth. The average Chinese home costs nine times the average annual income of Chinese households, and the Chinese Academy of Social Sciences warned in 2019 that any further increase would harm economic growth. By contrast, an average home costs only four times the average annual income in the United States. Stocks comprise only eight percent of Chinese household wealth versus a third in the United States. This reflects the Chinese people’s lack of trust in capital markets and corporate management. As a result, China depends far too much on inefficient, state-owned banks to make credit decisions. Nonetheless, China’s capital markets are humming in the high-tech market. Shanghai’s nascent high-tech stock market, STAR, has minted dozens of billionaires since it opened in July 2019.

Great Power Rivalry

As noted, Kroenig asserts that America “will be well positioned to compete” with China once it adjusts to “this Sputnik moment.” This should not be taken for granted. Google founder Eric Schmidt warns that China soon may surpass the United States in artificial intelligence, a catch-all term for the information technology that will drive innovation during the present century. Some of China’s accomplishments in the field are stunning. Using locational data from hundreds of millions of smartphones, China identified probable clusters of coronavirus infection. Big data analysis combined with large-scale forensic testing enabled China, according to their numbers, to bring the rate of new coronavirus infection down to zero by the third week of March 2020 while Western countries still were struggling to understand the progress of the disease.

I share Prof. Kroenig’s conviction that democracy is superior to authoritarianism, but that does not guarantee that every democracy will prevail over every autocracy. The Allies defeated Hitler in large measure because of Hitler’s own blunders, as historian Andrew Roberts argued convincingly in his book The Storm of War. Most of the foreign policy establishment believed that the Soviet Union would win the Cold War until the Reagan Administration undertook the greatest peacetime military buildup in US history. China in one respect is the most formidable competitor the United States has ever faced, the only one with an economy comparable in size to America’s. We have not yet arrived at a Sputnik moment, and Kroenig’s dismissive and often inaccurate reading of China’s capabilities is yet another indication that we have not taken the full measure of the problem.

Reader Discussion

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on April 20, 2020 at 09:38:00 am

Goldman is one hundred percent on target about the Chinese threat and about the unreliability and worthlessness of our so-called European allies. All I would add is how American universities--including my local one University of Illinois Champaign-Urbana--in their greed for money are training thousands of Chinese nationals. Since those universities can not be trusted to act patriotically, the government must act by ending all student visas for not only Chinese nationals but for other enemies and untrustworthy friends (e.g., the moving force behind the Iranian atomic buildup is a MIT Ph.D.)

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John Braeman
on April 20, 2020 at 12:01:57 pm

Quick updates+:
1) UK has now dropped Huawei as a result of ChiComm Party duplicity / deceit arising from the ChiComm Flu.
2) "China identified probable clusters of coronavirus infection. Big data analysis combined with large-scale forensic testing enabled China, according to their numbers, to bring the rate of new coronavirus infection down to zero by the third week of March 2020 while Western countries still were struggling to understand the progress of the disease."
Not quite true. chiComms have again provided false and inaccurate information and have been forced to concede that a 2nd wave of ChiComm flu has arisen in Wuhan. Apparently, their probability algorithms are not as effective as the essayist and the ChiComms assert.

However, Goldman is correct when he alludes to the potential for defeat of democracies both in past wars and the future. Not only WWII but also the Civil War were razor close in many respects and but for some poor decision making on the part of the eventual losers, the outcome could have been different.
It strikes me that far too many policy experts, the commentariat and the citizenry suffer under the false understanding that we, unique in all history, will not "let it happen here" (OK, bad paraphrase). As we have invariably won in the past, we will continue to prevail. Moreover, our prowess AND our MORAL superiority will ultimately convince our adversaries that we will prevail. We believe further that our (self) perceived invulnerability will ultimately convince our adversaries to adopt our ways, means and methods.
One need only look at how well we have induced change into ChiComm thinking and behaviour to know that the facts belie such assertions. It is clear in economic and political terms that we have compelled no such change.
Are we to be surprised if the assertion is also false in a military sphere?

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on April 20, 2020 at 13:06:04 pm

Indeed... This is the "End of History" argument, Fukuyama's assumption that with the end of the Cold War, the West had achieved just such a balance of democratic government that everything would now revolve in stable orbit around it. The 'experts' and commentariat dread the thought of being proven wrong. Dare we say they 'cling bitterly' to their beliefs?

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on April 20, 2020 at 12:16:37 pm

As I read this review, I could only see, in my mind's eye, Joe Biden saying, "The Chinese are going to eat our lunch.? C'mon, man."

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Robert Berard
on April 20, 2020 at 13:12:04 pm

For decades political pundits have said that only Nixon could have opened the door to Red China because Nixon had closed it. If that is so then it must also be said that Nixon not only opened the door to China, he opened the door for China and " loosed (Satan) out of his prison (to) go out to deceive the nations which are in the four quarters of the earth, Gog, and Magog, to gather them together to battle..." Revelations 20:7-8.

For the next 44 years, after Nixon loosed the dragon upon the earth until President Trump arrived in 20016, the U.S. played a fool's game with Red China. At first we professed to hold to the democratic principle that "Nationalist China" was still the real China while we sought and failed to use the Red Dragon as a pawn against the Soviets. That was a fool's venture as even a fool like Kissinger would have known had he observed the recent history of close military and diplomatic alliances between Red China and the Soviets in killing 110,000 Americans while defeating the U.S. in the Korean and Vietnam Wars. Then we played the fool's game of attempting to make peace with our rising enemy by pretending it was our friend. We agreed to a process of rethinking our relationship with Nationalist China while at the same time giving Red China control of vital national security assets, first relinquishing to Red China our control of the Panama Canal and second pushing the Brits to relinquish to Red China control of Hong Kong, the world trade center of the Pacific.

Then Red China saw its green light and began the insidious process of embedding itself deeply into American political and economic life. It illegally funded Clinton's presidential campaign in 1996, forever winning support of the Clinton Cartel, and with the allure of the world's largest consumer market, Red China incited Wall Street's endemic greed, thereby winning the eternal support of W. Bush and the Republican Party. Red China solicited and obtained from three U.S. presidents very special, preferential trade advantages with the U.S. and also the incomparable power, economic advantages and trade privileges of WTO membership, incredibly acquiring even the extraordinary WTO advantages and privileges reserved for a "developing country," an economic fiction which Red China fully exploited (and continues to exploit) to the great detriment of the U.S.

Red China gained all this from the West while giving up nothing. It offered only a psychological pittance to the power of our imagination, the false hope of the U.S. and Europe that if the West treats Red China respectfully, extends the hand of economic benefit to its imprisoned people and diplomatic respect to the totalitarian Chinese Communist Party which rules them, then Red China would, in turn, adhere to the rule of international law, behave respectfully toward the West and lessen the restraints of dictatorship over the Chinese people.
None of that happened.

Instead, on the mere foundation of the West's delusional expectations, Red China very quickly built the new, powerful, massive contemporary China Lobby of Wall Street banks, K-Street lobbyists, U.S. mega-corporations, the U.S. Chamber of Commerce, the Business Roundtable, major American universities, powerful Senators and Congressmen on key committees and Governors in states that are economically important to Red China. All of these American entities were eager to gain access to and profit greatly from Red China's massive consumer market and its inexhaustible pool of cheap (slave?) labor. They quickly became "clients" of Red China and "useful idiots" to the CCP, beholden to Red China's economic will and supportive of Red China's political way. They quietly looked the other way on moral and economic realities when it was profitable or politically necessary to do so. "Nationalist China" became Taiwan, "Red China" became China, and the Nationalist China policy became a "two China policy" cum a "China policy."

The public relations power of Madison Avenue and Red Chinese was then set about the task of working magic, of convincing people in the U.S. to believe a patently obvious lie, that an international trade market that was anything but free should be seen as a "free market" and that a "free market" (as Adam Smith and anyone who isn't against capitalism know) can work magic, especially the magic of "Shazzam," the magic of converting those nasty old Communists and that hostile old Red China (with whom we had just fought two wars) into friendly, free-marketeers, "one-world" capitalists who would join with the U.S. to make us rich and to make the world peaceable.

At last, with "free market China" we would achieve the second coming of Samuel Huntington's "end of history," the eschaton America had sought in vain since the disintegration of the Soviet Union.

As should be clear from Mr. Goldman's alarming book review and my summary of the origins, history and true nature of the U.S.'s current incestuous relationship with Red China, the matters of America's counter-attack, of disengaging and re-engaging with Red China are fraught with economic complexity, political obstacles and national peril. Aggressive and comprehensive counter-attack, intelligent dis-engagement and self-serving re-engagement with Red China must be founded on fear for America's national security, not complacency resting on fantasy or trust grounded in Wall Street greed. National security and America's self interest must be the raison d'etre of U.S. policy and behavior on all matters Chinese.

There are a few politically-easy, strategically-important steps that could be taken now:
1) Bar all of Red China's students from admission to U.S. universities. That will cut the theft of intellectual property. Further, it is mere common sense that a nation must not provide a STEM education to its military, scientific, technological and economic enemy.
2) Prohibit all U.S. corporations from relocating their manufacturing operations in Red China. Those which have already done so must relocate or face a prohibition on sales in the U.S.
3) Prohibit the transfer of any and all US intellectual property to Red China's agents and businesses.
4) Require full SEC 10-b5 risk disclosures by all corporations seeking to sell stock and raise funds on US stock and commodity markets of any and all ties, directly or indirectly, to the CCP, to any Red Chinese government entity and to any entity owned, operated, controlled or influenced by the CCP or the Red Chinese government. The economic risks that must be disclosed to investors would include the ubiquitous threats a) of Red China's disruption of corporate markets and interference in corporate management, b) of market disruption due to man-made disaster caused by Red China' endemic political and economic corruption, d) of market disruption due to Red China's likely inability to respond adequately to natural and man-made disasters which can disrupt if not destroy markets and c) of market disruption caused by the ubiquitous absence within Red China of the rule of law, its complete denial of religious liberty and the CCP's pervasive repression of civil liberties.

The last requirement, that of enforcing full and adequate SEC 10b-5 disclosure, is an easy, straightforward step of enforcing current U.S. federal securities law. Yet it targets the lifeblood of China's economy because it could substantially affect and dramatically decrease the investments of US and world investors in Red China's economy. It is the most simple and most important of the strategic defense steps that can be taken. Yet it is the greatest, most immediate economic challenge the US can direct at Red China's hostile economic intentions.

And, last but not least, let's resume our tried and true original China policy of treating Taiwan as the real China. After all, unlike Red China, the pretender to the title, it follows the rules of international law, abjures international piracy and thuggishness, stands as a model of republican democracy and free market capitalism and is our ally. It is to America in the Far East what Israel is to America in the Middle East. And, to that end, let us stop the verbal nonsense of calling the real China "Taiwan" and of calling Red China "China." The world is Orwellian enough without freedom-loving Americans voluntarily contributing to the Communist lexicon of newspeak.

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on April 20, 2020 at 15:36:16 pm

And one more thought about "responding to China’s ambitions for technological leadership:''
Let us in the West and in the Pacific Rim agree to cease and desist from using "Covid-19" to describe the "Wuhan Virus."

The moniker "Covid-19" is but a bureaucratically-ambiguous, morally-euphemistic, factually-misleading pseudonym aimed at deflecting the scientific truth as to the source of the pandemic and diverting the legal blame for causation and aggravation of the pandemic from where they factually and lawfully belong, solely and squarely on Red China. The pernicious wording, "Covid-19,'' also lacks credibility because it was concocted by the World Health Organization. The WHO on matters of public health has shown itself to be an arm of the CCP's Ministry of Propaganda.

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on April 21, 2020 at 17:01:50 pm

As always Goldman rightfully warns us of the rise of an ominous foe. Keep up the good work.

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Jason P
on April 21, 2020 at 22:23:16 pm

Chinese technology isn't better, it is cheaper. And that comes with a costs. One is the cost of quality, not in the hardware but in software, and support that come with the product. Chinese companies are light-years behind. It is hard to even design or incorporate chinese products into hardware, because the documentation is half-baked. Part of this stems from a culture of doing 'good enough', and there are many comparisons that can be drawn between Chinese products and western products where the Chinese product is 'good-enough'. While they might steal our technology, they can't steal quality. If they ever do wake up and realize that is what customers want, we might be in trouble.

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