08/19/2020_ In one of my posts in May 2020 I described the status of the relations between the USA and China as a Chilly War, just one step away from a Cold War. The two countries have meanwhile descended into a very destructive cycle of mutual sanctions, consulate closures, bellicose speeches, especially following China’s introduction of the new national security law in Hong Kong. Efforts to decouple the US economy from China’s, at least in the field of high tech, are in full swing as tensions mount in both the South China Sea and the Taiwan Strait. The EU is apparently at a loss how to officially respond to these escalations, desperately waiting for Germany to take the lead as the rotating President of the Council of the European Union. (refer https://www.mijngroeve.nl/history/merkel-china-the-moment-of-truth/)

While the West has been fully pre-occupied with the Covid-19 crisis, we are at the same time witnessing what I would call the unravelling of the China Dream…Mutual perceptions are rapidly changing between China and the West. Western and Chinese decisions and actions in the coming 6-12 months are likely to shape the mutual relations for decades to come…and that relationship is likely to be quite different from the past 30 years…

Xi’s calculations

One wonders what exactly drove Chairman Xi to so rapidly introduce the new security law in Hong Kong the way he did. Did he miscalculate by pushing through the law or was it a stroke of genius exploiting the fact that the rest of the world was absorbed by Covid-19? Or does Xi believe his Hong Kong moves will in the end not endanger his (economic) relationship with the West as the latter -in his view – needs China more than vice-versa because the PRC is recovering earlier and faster from Corona than the rest of the globe? Does he think a new American President will surely aim for detente and restoration of all economic ties with Beijing? Was/is he convinced Europe will never speak with a united voice in its foreign policy towards China? Does he reckon he can continue to rule and divide the Continent?

Whereas the EU has been reluctant to take concrete actions against Beijing for Chinese aggression in f.e. the South China Sea or for repeated human rights violations, Xi’s decision regarding Hong Kong could have a serious backlash in all major European capitals. China’s recent behavior risks to be increasingly viewed as a confirmation of the formal arrival of a new Chinese foreign policy: one that reflects the country’s readiness to defy international agreements and to ignore, reform or overturn the current global governance system, transforming institutions, agreements and norms in ways that only mirror Beijing’s values and priorities.

One, in other words, that could induce a much more coordinated European response than before, as the European conclusion could be China has predominantly turned into a systemic rival instead of a partner and competitor. As known, such an opinion and perception have already gained firm ground in American politics over the past decade.

Merkel’s moment of truth

As I mentioned in my post on “Merkel’s moment of truth”, the EU can no longer pretend it will just be business as usual with China: as a matter of fact, the so much hoped for EU-China investment agreement, prepared over a period of over 7 years and 31 rounds of talks, is in serious jeopardy. In June Merkel requested to delay the scheduled EU-China summit for September, which was meant to cement the agreement, officially due to the Corona-virus. But could perhaps doubts have been growing within the EU over the wisdom of such an agreement in the context of the rapidly increasing American – Chinese tensions? Or could strong concerns have arisen about China’s willingness and commitment to truly reach and execute an agreement? Tellingly, a new date for the summit still has not been announced…

It has been reported there was/is still a major disagreement between European and Chinese trade negotiators on some of the main issues regarding investment protection, market access and climate policies: a September summit without substance could have easily turned into a major embarrassment for both sides. Europe wants a level playing field for its companies working in China, meaning a significant decrease in Beijing’s support for state-owned enterprises and subsidies for key domestic industries. The main purpose for China of such a bilateral agreement would be to facilitate entry into the European market.

China’s key problem

The key problem: China’s first wave of reforms and its entrance into the WTO in 2001 have created strong vested interests in the PRC that clearly favor maintaining the status quo. Those include many in the state-owned sector and industries as well as central and local CCP officials and their families and friends, who have become very rich after China’s opening up to the West. China and the CCP elite have tremendously profited from its participation in the Western financial-economic system and acceptance into the WTO.

After Xi’s introduction of the new security law in Hong Kong, skeptical European voices about China’s reliability and Xi’s trustworthiness must have only gotten louder…In the wake of the Corona-crisis, Chinese officials have been pointing out Europe is providing masssive subsidies to save its own domestic industries, calling the EU’s position in the trade negotiations hypocritical…

In short, Europe’s investment agreement is in danger of fizzling out, just like Trump’s Phase 1 trade deal with China. Implicit in these agreements are Western demands for Chinese economic and political reform which Xi is unwilling and/or unable to make. The fact is that the relatively easy parts of Chinese reform were already undertaken before Xi’s rise to power: what remained were the more complex components that infringe upon the core of Party power and those vested interests.

Europe’s growing awareness

Seeing the recent and strong American bipartisan support in Congress for comprehensive action against China, European politicians must have finally realized a very tough American policy against the PRC will last regardless of who wins the upcoming presidential election. Indeed, US policy towards the PRC could become even tougher under Joe Biden, whose administration could be less interested in negotiating bi-lateral trade agreements and more focused on addressing other troublesome aspects of China’s policies, such as its actions in Xinjiang, Tibet and the South China sea. The major difference with the Trump administration could be a Biden Presidency is more likely to aim for a multilateral diplomatic front against such Chinese behavior, making matters even more challenging for Xi.

Xi’s confidence

Did Xi conclude it was an acceptable risk to lose the European investment deal when he made up his mind about Hong Kong? Was he confident the loss of such a deal could be compensated by trade with other countries and by the expansion of his Belt and Road initiative? Was he willing to sacrifice this deal, believing action in Hong Kong had the highest priority? Did he see the lasting unrest in the city as a big threat to China’s national security and to his own power and position, as well as to the one-party rule by the Chinese communists and the envisioned reunion with Taiwan?

Or did he want to make it clear to the world China already considers itself a superpower, unafraid to challenge the West as it deems it has reached sufficient global influence and leadership, economic and military strength, in particular in the Asian region, to protect its sovereignty, interests and security? Has this confidence or superiority feeling been the rootcause of Xi’s decision and has it triggered the bullying behavior of Xi’s overseas diplomats, who have been constantly delivering threats to their counterparts as part of an apparent campaign to install international fear ( respect ???) for Zhongguo, the Middle Kingdom?

Questions to which we naturally don’t have definitive answers as unfortunately the Chairman’s decision making process about Hong Kong is shredded in secrets due to China’s lack of political transparency and the absence of a free press in the PRC.

The Chinese Dream

For more than two millennia, monarchs who ruled China proper saw their country as one of the dominant actors in the world. The concept of Zhongguo -the Middle Kingdom, as China calls itself—is not just geographic. It symbolizes that China is the cultural, political, and economic center of the world. It has been the Chinese communist party’s goal and ambition to make China strong and the center of the world again, ensuring the country would never again have to suffer humiliations as inflicted upon imperial China by the colonial powers in the past.

For most of the CCP’s history, the party has actually been looking to the West in trying to move China out of its own mold. Marxism, socialism and communism are not original Chinese inventions after all… A century ago the Chinese Communists believed by picking communism they were adopting the best, most recent Western ideological novelty to guarantee future prosperity and glory. Sadly Mao Zedong brought the Chinese economy to the brink of total collapse during his reign of communist terror. Mao’s successor, the much more pragmatic Deng Xiaoping, reset China’s trajectory to economic growth and modernization by closely re-aligning the country with the US and Western led financial-economic system from the 1980’s onward.

In 1989, the Chinese government violently cracked down on democracy protestors in Beijing and elsewhere in the country, which generated widespread international condemnation and some sanctions. But China quickly managed to rebuild its reputation by increasingly embracing multilateralism and integration with global governance institutions. Beijing signed multilateral agreements it had previously rejected. In the first decade of the twenty-first century, the PRC often proved willing to play by international rules and norms, seemingly evolving into a responsible stakeholder in the international system as the West had hoped for. The PRC managed to re-gain trust around the world.

China’s resurgence

What has changed over the past decade? Perhaps things first started to really alter after the 2008 US financial crisis. Before that event the majority of Chinese decision makers seemed convinced China should stick to the financial and global governance system built by the West. Part of the CCP leadership even appeared to be open to implement elements of the American political system into Chinese domestic politics. However, after the eruption of the financial crisis, the CCP gradually began to move in another direction.

While losing confidence and faith in the US economy, the Chinese also began to downgrade the value of the American political system. Many in China probably became convinced that the US was in irreversible decline, a view validated by a vast amount of declinist literature available in the West. Maybe the party elite got more and more the feeling that China was not just on the rise but already quite close to replacing the USA as the next superpower. Why aim for domestic political or economic reform if China’s success was undeniably proven?

Consequentially the PRC tried to shape the global governance system more offensively, pushing its model of political and economic development, based on extensive state control over politics and society and a mix of both market-based practices and statism in core sectors of the economy. In parallel it greatly expanded its foothold in many key international bodies, and even founded its own organizations outside of the existing international framework.

The second important reason for the change is the rise to power of Xi Jinping. Xi is a socalled “princeling”, the son of one of the founding members of the People’s Republic of China, Xi Zhongxun. Whereas the Chinese CCP party elite settled for a more collective leadership style after Deng Xiaoping’s death in 1997, Xi managed to reverse this trend after he came to power in 2012. In the eyes of Xi politics had to take precedence over economics (meaning absolute obedience to the Party = himself) if China was to move into the next phase of its development and expansion of its global power and influence. The princeling took advantage of the prevalent mood in the CCP depicting the USA as a power in decline, presenting himself as the strongman who would realize the China Dream: putting China back at the center of the world.

Xi Jinping’s dreams

Between 1982 and 2018, the constitution stipulated that a Chinese President could not serve more than two consecutive terms. In 2018 this practice was dropped when Xi was appointed President for life, becoming the “Chairman of everything.” Xi had his critics within the Party silenced or arrested. He has demanded complete obedience to the Party not just from party members but from other members of society too. He has employed modern technology to control social media and introduced the surveillance state.

Xi now dominates the Party and the central decision-making apparatus to an extent truly unprecedented since Mao Zedong. He has been aggressively promoting the “China Dream” and the “rejuvenation of the Chinese nation”, concepts originally launched by the CCP at its inception 100 years ago, when China found itself in a completely different position.

As I highlighted in another post, Xi and his wife even claim to be very much inspired by Mao Zedong… Xi has criticized and punished those who have sought to undermine Mao’s image by separating out the years of Mao Zedong’s devastating rule from those of the post Mao-reform era, even though Xi’s own father was purged during Mao’s Cultural Revolution… https://www.mijngroeve.nl/music/smasher-of-the-week-23_wang-kun-the-red-girl-with-the-white-hair/

Xi has suggested that China is willing and eager to step up in global leadership in those areas that the US is abdicating from, redressing the relationship with the US and in particular with the Asian region. The Chairman has launched a grand (investment) plan to connect Asia, Africa and Europe via a 21st century silk road, made up of a “belt” of overland corridors and a maritime “road” of shipping lanes as well as digital connections.

Xi’s dream of restoring China’s former imperial glory has generated an extremely aggressive stance on territorial issues. To give this new, self-confident and expanding China its proper identity and image the Chinese President has stirred up a bizarre mix of nationalism blended with marxism and neo-confucianism, showcasing the CCP as the genuine inheritors of the imperial past.

Xi does regularly admonish party members not to “betray or abandon” Marxism. Simultaneously Xi has said that the CCP is the “successor to and promoter of fine traditional Chinese culture.” This is more than ironic as at its foundation in 1921 and in particular after it took power in 1949, the CCP presented itself as a radical break with the past, blaming confucianism and Chinese tradition as the rootcause of China’s imperial decline… Nowadays the CCP claims to inherently embody these two elements in order to legitimize its continuation of absolute power which solely can ensure China’s stability, future prosperity and eternal fame….

The China dream of the West

For hundreds of years, the West has had its own share of dreams and perceptions of China, ranging from a mystical paradise, to a land of limitless opportunities to the empire of evil. Businessmen today are still dreaming of all those Chinese buying their products just like entrepreneurs did in the past. Major difference is today’s China has for many entrepreneurs really turned into a vast market and crucial manufacturing hub, though with a lot of caveats and drawbacks (think of IP theft, forced technology transfer, concerns about corruption, bribery and fear of arbitrary government reprisals or interventions etc).

The majority of Western politicians believed, hoped or dreamt trade and economic growth would (ultimately) lead to political reform in China and a strong trend towards more democracy and a peaceful integration into the world economic system. Some probably never even bothered to think about the longer term implications of China’s rise and preferred to adopt an opportunistic attitude without showing much interest in China’s geopolitical strategy or the domestic developments inside the PRC. Their priority primarily was to allow their countries and enterprises to benefit as much as possible from business and trade as long as circumstances would permit.

Even esteemed European political leaders such as Merkel and Rutte, strong proponents of the business first and “wandel durch handel” approach, seem to have difficulties in facing up to the implications of China’s ambitions and Xi Jinping’s rise to power. For the first time in several centuries, the largest economy in the world could finally not be Western and ruled by a leadership that does not (want to) share the same consensual values and political structures as those in the West. However, also for the first time, the world’s future largest economy will not enjoy the highest living standards in addition to still being confronted with enormous challenges moving forward (think f.e. of keeping the balance between economic growth and environmental protection, the constant pressure to deliver economic growth to legitimize the one-party dictatorship and the development of a high tech industry), leaving strong opportunities for further economic engagement for the West. How to deal with such an unprecented case in history?

As has been pointed out by my former university professor Tony Saich, political transitions are rare and there is no necessary reason why China might follow its East Asian neighbors into becoming a robust democracy. Seldom do major political transitions occur during periods of economic growth. Political reform is more likely to happen within a system under severe stress. Of course we can’t exclude a coup against Xi or him stepping down if he would run the economy into the ground. But currently there are no signs of economic disaster -the Covid-19 impact notwithstanding- in the PRC, nor of Xi losing his grip on power or planning to scale down his ambitious plans (such as Belt and Road) for his country.

Tipping points

Ironically, the US – China phase I trade agreement should perhaps be interpreted as the formal kick off of the partial decoupling of the world’s two biggest economies. After its signature the mutual relationship rapidly went downhill, exacerbated by China’s initial handling/cover-up of the Corona-crisis. Maybe in a similar vein Xi’s introduction of the new security law in Hong Kong on July 1 2020 should be regarded as the official end of the Western Dream about China. Apparently Xi felt compelled to unilaterally decide Hong Kong’s autonomy, formally guaranteed for 50 years in 1997 via the British-Chinese joint declaration, had passed its selling date.

But this action could turn out to be the beginning of the end of Xi’s own China Dream too. Obviously Xi will portray the new law as part of the PRC’s rightful campaign to restore order in Hong Kong and to bring (Greater) China back to its former glory. As said, maybe he even sees his decision as an expression of strength, symbolizing the consolidation of China’s superpower status and global leadership position.

Hong Kong, however, was a very important bridge between China and the West. This bridge has been seriously damaged if not forever destroyed by Xi. The West has not failed to notice: China’s image as a responsible stakeholder in the international system has been (permanently?) damaged by Xi. Trust has been shattered. What does Xi for example have in store for Taiwan?

It’s one thing to say you are a global leader, it’s another to be perceived as one (as Trump has also noticed). While it’s undeniable US global influence and leadership have greatly weakened under the inconsistent and chaotic Trump government, the USA’s global demise is everything but irreversible or certain. As has been described in various posts on this website, in f.e. technology the USA still reigns supreme, though China/Huawei has been posing a serious challenge in 5G and A.I.

Again, Huawei

But even in Europe the signs for Huawei’s future are ominous: the UK has officially decided and communicated that telecom operators will be prohibited from purchasing/using any Huawei equipment. Moreover, all existing Chinese equipment in the UK network must be completely replaced by 2027. The French are effectively doing the same but in a more diplomatic way. French authorities have told local telecoms operators planning to buy Huawei 5G equipment that they won’t be able to renew licences for the gear once they expire. They have also urged those operators not currently using Huawei to avoid switching to Chinese equipment.

Though Huawei is not officially banned, the administrative restrictions would amount to a de facto phase-out of Huawei within France’s 5G networks latest by ~2028. The majority of the Huawei gear licences will only be for three to five years, while most of those for equipment from European rivals Ericsson and Nokia are receiving eight-year licences. It is generally said getting a ROI on 5G equipment/mobile networks does take more than 5 years. It’s hard to see how operators would like to invest in equipment which can only be deployed up to a max of 3-5 years.

The final decisions of the Germans are still to be announced. A special committee of the Dutch parliament will have a closed (!) technical briefing on Sept 5 on the progress of the 5G roll-out and the extra security measures that have been taken (refer also https://www.mijngroeve.nl/history/holland-huawei-and-5g-wat-next/ ). I wouldn’t be too surprized if Germany and the Netherlands will opt for the diplomatic solution as well, i.e. still temporarily allowing Huawei equipment in the socalled periphery of the network, but quietly targetting a complete replacement and phase-out by ~2028 by means of administrative restrictions towards the telecom operators.

China’s global leadership

The current American weakness does not automatically mean that China can assume leadership. China is without a network of allies that the US still enjoys. Democratic alliances against China are surfacing around the world irrespective of Trump’s America First policies. China’s bellicose overseas diplomats have been exposed for lack of leadership qualities. Next there is tremendous anxiety in the Asian region about China’s territorial claims. Even on trade, it’s uncertain if China will (be able to) set the rules moving forward. No doubt China is and will remain the central economic player in Asia, but for security most of the the region still is/wants/prefers to be dependent on US military power.

In short, China is still far from being seen and treated as a global leader. It’s confronted with global distrust. https://www.mijngroeve.nl/history/corona-and-5g-china-and-the-global-trust-crisis/ It isn’t the center of the world yet. Xi’s China Dream and Belt and Road could still explode in his face: this could perhaps ultimately put China’s political system under stress and lead to transformation. We can only hope the CCP will pick up again from where it left off over a decade ago– that is, implement genuine economic and political reform…

Obviously it would be much better for the world and international peace if the CCP would reverse its current course and re-seek inspiration from the West and its democratic governing model, while adhering to global governance institutions. The Party elite had better ask itself if the concentration of power with the “Chairman of everything”, Xi Jinping, and his global strategies are what the PRC really needs if it wants to materialize its China dream…

Facing up to the new reality

Yet hope should no longer be the West’s best guide. The US and the EU need to abandon any unrealistic expectations that they can foster regime change. Instead they should focus on China’s vulnerabilities and the question how to best shape China’s external behavior, which means continuing dialogue and engagement where possible without being naive.

In the very short run, both the US and China should work towards a crisis communication and management system, such as was in place between Washington and Moscow in the days of the Cold War, in order to be able to quickly respond to eventual military incidents and keep them in check. The two governments could also try to find common ground by making COVID-19 vaccines available to the rest of the world, instead of turning the vaccine race into another prestige & PR battle.

As for the longer term, the West should face up and deal with the realities of China’s rise, its external behavior and global strategy. The crucial variable regarding whether China will be successful in its strategic goals will be the democratic world’s domestic, economic, military and diplomatic strength and resolve, and not just Chinese actions. The EU should not forget that despite 4 years of rants and threats coming out of the White House, Europe and the US still share the same core values. The US with its allies and partners can successfully compete with China, there is no reason for extreme fear or deep pessimism in this respect.

EU strategy

At the same time the EU should also anticipate a very likely scenario in which a long term confrontational relationship between the US and China, controlled by a form of managed competition to avoid conflict and to allow for limited cooperation, will be the maximum achievable outcome. Europe should of course stimulate both countries to engage in quality diplomacy to realize this managed competition and escalation control. The PRC will have to accept that there are limits to what the US and its allies will tolerate when it comes to unilateral acts that seek to alter the status quo in the South China Sea, Taiwan, or with the Senkaku Islands.

The EU and all its member states should prepare its business communities, local governments and populations for the new realities in the relationship with China and have them quickly wake up to them, without falling into the Sinophobia trap or an anti-China crusade. The EU should clarify the red lines China shouldn’t cross. As I wrote in my previous post, Merkel and her fellow European leaders should start to point out to China, the European business community and the electorate what the EU must/wants to defend in the exchange with the Chinese and what China will lose if it continues the path Xi has taken.

What we need is a EU China strategy…. https://www.mijngroeve.nl/history/holland-europe-china-strategic-questions/ …yet be aware: things aren’t going to be the way they used to be…

see also: Tony Saich, ” What Does General Secretary Xi Jinping Dream About? “, Ash Center Occasional Papers , August 2017, https://ash.harvard.edu

Francesco Sisci, “China’s broken bridge to Western ideals”, July 15 2020, https://asiatimes.com/

https://www.reuters.com/article/us-france-huawei-5g/france-wont-ban-huawei-but-encouraging-5g-telcos-to-avoid-it-report-idUSKBN2460TT

for historical and more recent Chinese propaganda posters, check out http://chineseposters.net/

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