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

James McGregor – The Washington Post

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 people”?
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 success.
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: jlmcgregor@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.
© 2005 The Washington Post Company

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