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.