[Paleopsych] WP: Advantage, China

Premise Checker checker at panix.com
Wed Aug 3 22:59:06 UTC 2005

Advantage, China

    Advantage, China
    In This Match, They Play Us Better Than We Play Them

    By James McGregor
    Sunday, July 31, 2005; B01

    BEIJING -- We're losing the intelligence war against China.

    No, not the one with spy satellites, human operatives and electronic
    eavesdropping. I'm talking about intelligence : having an intelligent
    understanding of and intelligent discussions about China -- where it's
    heading, why it's bidding to buy major U.S. companies and whether we
    should worry. Above all, I'm talking about formulating and pursuing
    intelligent policies for dealing with China.

    The Chinese government today understands America much better than our
    government understands China. Consequently, the Chinese government is
    much better at pulling our strings than we are at pulling theirs.
    China's top leaders, diplomats and bureaucrats have a clear framework
    from which they view the United States, and they are focused and
    unified in formulating and implementing their policies toward us.

    In contrast, our government's viewpoint on China is unfocused,
    fractured and often uninformed. Is China still the Red Menace of the
    Cold War or a hot new competitor out to eat our economic lunch? Both
    views as well as a hodgepodge of other interpretations can be found in
    the halls of the White House, Congress and the Pentagon. Add to that
    confusion a vicious domestic political culture that brooks no
    compromise, and the chances of formulating a coherent China policy
    approach nil.

    Playing the barbarians off against each other has been a core tenet of
    Chinese foreign policy since the imperial dynasty days when China's
    maps depicted a huge landmass labeled the "Middle Kingdom" surrounded
    by tiny islands labeled England, Germany, France, America, Russia and
    Africa. China was the center of the world and everyone else was a
    barbarian. That's why the Chinese are delighted by spectacles such as
    when rival members of a U.S. congressional delegation screamed at one
    another in front of their Chinese hosts in the Great Hall of the
    People. And what should they think of the time top Chinese officials
    laid out clear policy objectives to an American business audience and
    a U.S. cabinet member responded by saying "Jesus loves the Chinese

    Since the 1989 Tiananmen Square massacre, China policy has been a
    political football that American politicians kick back and forth to
    score points against one another. In the 1990s, it was a penalty-free
    game because the United States had the upper hand. China needed our
    capital, technology, know-how and insatiable consumer market to build
    its economy, as well as our blessing to join the World Trade
    Organization (WTO).

    But those days are over. China's raging consumer market, its massive
    export machine, voracious appetite for global resources and more than
    $700 billion in foreign exchange reserves puts the ball in its court.
    It is difficult to overstate the transformation that has swept China
    in the past 15 years. To frame it in terms of comparable historical
    changes in the United States, China has been simultaneously
    experiencing the raw capitalism of the robber baron era of the late
    1800s; the speculative financial mania of the 1920s; the
    rural-to-urban migration of the 1930s; the emergence of the first-car,
    first-home, first-fashionable-clothes, first-college-education,
    first-family-vacation middle-class consumer boom of the 1950s; and
    even aspects of social upheaval similar to the 1960s.

    Today Chinese government officials and business executives admire,
    fear and pity the United States. They admire our entrepreneurial
    culture, free markets, legal system and ability to unemotionally
    discard what doesn't work while our best-in-the-world universities and
    enormous R&D capabilities create new products and services. China's
    economic reforms over the past 25 years have been aimed at creating a
    Chinese variation of the U.S. economic system and its ability to
    unleash entrepreneurial instincts and harness markets to build a
    world-beating economy.

    China's fear stems from seeing our high-tech military machine in
    action. I will never forget standing in front of the Beijing train
    station during the first Gulf War, amid a sea of Chinese workers,
    thousands of whom had stopped their bicycles in the street to watch
    slack-jawed as huge outdoor TV screens displayed footage of American
    missiles screaming down Baghdad smokestacks. Just a few blocks away in
    the leadership compound of Zhongnanhai, Chinese officials imagined
    such destruction raining down on Beijing and realized that their
    strategy of defending China with swarms of peasant soldiers was as
    outdated as Maoist philosophy. They immediately embarked on a
    multi-decade plan to build a military as advanced as ours.

    Chinese pity comes from their belief that we are a country in decline.
    More than a few Chinese friends have quoted to me the proverb fu bu
    guo san dai (wealth doesn't make it past three generations) as they
    wonder how we became so ill-disciplined, distracted and dissolute. The
    fury surrounding Monica-gate seemed an incomprehensible waste of time
    to a nation whose emperors were supplied with thousands of concubines.
    Chinese are equally astonished that Americans are allowing themselves
    to drown in debt and under-fund public schools while the media focus
    on fights over feeding tubes, displays of the Ten Commandments and how
    to eat as much as we can without getting fat.

    China is all about unity, focus and leverage. Chinese officials and
    business executives are obsessed with a single question: What
    advantage do I have over you? No surprise then that Chinese officials
    are delighted to be funding ever larger portions of America's budget
    deficit. They know that if they sat out one U.S. Treasury auction, the
    U.S. stock markets would tumble. They yawn when Congress threatens to
    impose huge tariffs on Chinese imports, knowing that the resulting
    huge price increases at Wal-Mart, Best Buy and the Gap would cost some
    members of Congress their jobs. And while the Chinese do not relish
    sharing a border with the nutso North Koreans, they are happy to turn
    this bad situation to their advantage. The Bush administration
    desperately needs China's help in quelling the hermit kingdom's
    nuclear ambitions while we are bogged down in Iraq.

    Still, China isn't even a fraction as powerful as it pretends to be.
    Beneath the bluster, it is a nation beset with internal problems.
    Pollution chokes its air and water. The growing gap between the haves
    and have-nots and rampant government corruption are triggering almost
    daily demonstrations. And China has no ideology other than enriching
    itself. The relentless commercial drive that has shaken China out of
    its imperial and socialist stupor has now become an end unto itself,
    leaving a population that is spiritually adrift. So far rapid economic
    growth, looser lifestyle strictures and straightforward political
    repression have held things together, but the Communist Party
    leadership knows that it needs a different formula for long-term

    From a U.S. perspective, China's untempered commercialism suggests a
    nation out to milk us of everything it can. What is being lost in our
    vicious battles over China policy is that China and America have
    manageable differences and many complementary interests. With an
    intelligent and consistent China policy, the United States could help
    China and itself at the same time.

    I offer these humble suggestions as a patriotic American who has lived
    in Beijing for 15 years -- and as a person who respects the Chinese
    people and what they are accomplishing.

    Domestic politics should stop at the U.S. border. Trench warfare on
    China policy between the political parties and executive branch
    factions only plays into China's hands.

    Stop preaching instant democracy. After the Tiananmen massacre,
    China's state media engendered a "nationalism of resentment." Aimed at
    cooling the ardor that young Chinese felt for America, the media
    portrayed the United States as having a secret agenda to keep China
    poor so that America can stay rich. A key part of this message is that
    America wants China to democratize because it will plunge the country
    into chaos. Those who survived the insanity of the Cultural Revolution
    see the point. Even Chinese people I know who are unhappy with their
    government believe that a nation with two millennia of top-down rule
    can only pluralize gradually. America can best help China inch toward
    political pluralism by trying to strengthen China's court system and
    rule of law and by making visas plentiful again for Chinese to attend
    our universities and public policy forums.

    Let Chinese companies purchase or merge with U.S. companies unless the
    American company has genuine advanced military technology. We should
    also require reciprocity. Take the recent China National Offshore Oil
    Corporation Ltd. (CNOOC) bid to purchase Unocal Corp. Hysteria led to
    passage of a ridiculous House resolution by 398 to 15 expressing
    national security concerns about the deal, which involved a scant 0.8
    percent of U.S. oil production. Instead, the United States should have
    responded as China would: Use the deal as leverage. America's
    politicians should have welcomed the CNOOC deal as long as China
    changed its own oil policies, which prevent foreign companies from
    operating gas stations in China, compel them to use Chinese companies
    when exploring for oil and almost always offer exploration leases for
    foreigners at the edges of promising fields to help China pinpoint the
    location of the biggest reservoirs for its own drillers.

    Develop smart, workable rules on technology exports. Since the
    mid-1990s, China has been able to purchase almost any commercial
    technology it desires from Japan, Israel, Russia or the European
    Union. Bogged down in a bureaucratic quagmire of ever-changing rules
    and approval processes, U.S. machine tool makers and silicon chip
    equipment manufacturers have fallen behind. If this continues, we will
    endanger our own national security base by weakening our technology
    companies and their R&D capabilities. Nevertheless, many in Washington
    favor "catch-all control" regulations that could, for example, block a
    U.S. truck engine manufacturer from doing business with a Chinese firm
    that supplies some engines for Chinese army trucks. European and
    Japanese truck engine makers doubtless will be deeply grateful.

    Vigorously push trade issues that provide a long-term win-win for
    China and its trading partners. Our focus should be intellectual
    property rights (IPR) protection. China's original modernization model
    was to invite foreign firms to manufacture for export in
    joint-ventures with Chinese companies. China was then supposed to
    learn to build its own companies and products. But many huge companies
    have been built through the wholesale theft of intellectual property
    and rampant copying of products. Within a three-block radius of my
    Beijing apartment, there are several dozen shops selling any Hollywood
    movie or American television series of note for $1 per DVD, copies of
    Prada and Louis Vuitton handbags for $10, nearly perfect copies of
    Callaway or Taylor Made golf clubs for $150, and fake North Face
    parkas for $35. Copied pharmaceuticals, car parts and the whole gamut
    of industrial products are plentiful across China. Worse, more and
    more such products are being exported. Chinese piracy is rapidly
    undermining political support for China in Congress and hampering the
    growth of its most innovative companies.

    China knows the problem needs fixing but fears job losses and
    potential unrest in the towns and villages that host copycat
    factories. New U.S. Trade Representative Rob Portman could take a
    lesson from a predecessor, Charlene Barshefsky, who drafted a road map
    to guide China to WTO accession. As with WTO, China lacks the
    political will or consensus to come up with a plan on its own. The
    U.S. government should also back a new effort by the U.S. Chamber of
    Commerce and the American Chamber of Commerce in China to rate Chinese
    provinces and cities by their level of IPR enforcement. Public
    embarrassment and internal competition for foreign investment may
    prove to be stronger motivators than foreign complaints.

    I understand America's genuine security concerns regarding China. But
    they should not be overblown to the point where they undermine our
    economic security. I also understand that reaching a political
    consensus isn't easy. But I am worried about the erosion of the
    sensible center. Chinese and U.S. politicians share the blame. As a
    global economic power, China can no longer employ IPR policies
    appropriate for a banana republic. And responsible members of Congress
    can no longer gin up China hysteria to get votes.

    The stakes are getting too high.

    Author's e-mail: [2]jlmcgregor at jlmcgregor.com

    James McGregor is a journalist-turned-businessman and former chairman
    of the American Chamber of Commerce in China. His book "One Billion
    Customers: Lessons From the Front Lines of Doing Business in China"
    (Simon & Schuster/ The Wall Street Journal Books) will be
    published in October.

More information about the paleopsych mailing list