The Taiwan Strait is probably the most dangerous place on Earth. Some informed people may disagree. They may point to the continued trouble in the Middle East and the persistent threat of terrorists. However, nowhere in the world is as dangerous and potentially devastating as the Taiwan
Strait.
Most Chinese, irrespective of the differences in their political beliefs, want to see Chinese reunification within their lifetimes. Chinese reunification may be postponed for one decade or another but it is seen by many as the ultimate conclusion to the century of humiliation that China suffered at the hands of European and Japanese imperialism and colonialism.
Presently, many Americans are becoming aware of the rise of China. Their media are beginning to have more substantial and objective reports on China. The image of China carried over by the June 4,
1989 incident at Tiananmen Square is gradually replaced by an image of a modern open economy which is developing at a sustained annual rate of 9 percent for more than 25 years. Americans want to benefit from this sustained economic growth, but they also wish to see peace and stability in the Pacific region. Furthermore, they wish to see human rights respected and upheld in China.
At the same time, Americans are unsure how they should deal with the thorny issues of Chinese reunification. Through consistent and persistent public relations campaigns, Taiwan has instilled among American politicians and the American public the image that Taiwan is good and the People’s
Republic of China is bad. Human rights activists and religious leaders also depict the PRC as ugly as well. So we do have the good, the bad and the ugly.
The American government is fully aware of the problems arising from the demand of a sizeable group of Taiwanese people to have a permanent separate entity from mainland China. Americans hope that the problems can be resolved with time. Hence, they hope that both sides of the Taiwan Straits would not seek unilateral change of the status quo. This amounts to the very ambiguous situation which translates simply and directly into: no war, no peace, no unification and no independence.
During normal times, such ambiguity may be the wisest choice for the American government.
However, we are living in an uncertain world. In this uncertain world, anything can happen and can overwhelm us by surprise. No matter what contingency plans are made, Americans and Chinese may be caught by surprise. We can travel back in time to the events leading to the outbreak of the First
World War, when the two opposite alliances did not believe that a war could happen. Still the war came about because of the assassination of a nobleman in Austria. Millions of lives were lost during i

this war. Furthermore, the sheer tragedies of this war led directly to another even more devastating war, the Second World War.
In an uncertain world, enlightened leadership is called for to reduce all possible uncertainties. One way is to achieve Chinese reunification at an earlier date before a separate cultural consciousness develops in Taiwan and among a new generation of Taiwanese people. Such development would make
Chinese reunification all the more difficult. In this respect, we can draw a few lessons from the case of
Hong Kong. During the British colonial rule of Hong Kong, Hong Kong has developed a distinct cultural consciousness from that in the mainland. This is not just due to differences in the political and economic systems. Hong Kong citizens were encouraged to think of themselves as Hong Kong people rather than as Chinese. After 1997, the Hong Kong government and Beijing have to exert much effort to correct this attitude. In other words, there is a limit to Beijing’s patience in dealing with a recalcitrant Taiwan. Eventually, the status quo cannot be preserved. Chinese reunification will be achieved even at high costs.
Many Chinese people in mainland China believe that the Taiwan problem was created by the
United States. President Kennedy once said: “Problems are created by men. Therefore, they can be solved by men.” Americans can play a leadership role in facilitating the process of Chinese reunification, thereby winning the hearts and minds of the Chinese people and their leaders. In reciprocity, the Chinese will try to win the hearts and minds of the American people and their leaders.
Reciprocity is at the heart of Chinese culture and civilization. This is far superior to building a missile defense system that can cost far more than $100 billion and yet may prove technologically inadequate and ineffective because of increasing sophistication in China’s missile delivery systems.
To those who are firm in their political beliefs and dogmas, we can retreat to science and religion.
As pointed out by Huston Smith in his book, Why Religion Matters: The Fate of the Human Spirit in
An Age of Disbelief , neither communism in the East nor progress in the West filled the spiritual hollow in the human makeup. As for the belief that the Age of Reason would make people sane, that reads today like a cruel joke. In the Nazi myth of a super-race (which produced the Holocaust) and the
Marxist myth of a classless utopia (which produced the Stalinist Terror and Mao’s Cultural Revolution), the twentieth century fell for the most superstitions the human mind has ever embraced. Modernity’s coming to see the gods it worshiped for what they were – idols that failed – was the most important religious event of the twentieth century. Physics teaches us that human beings are not and cannot be perfect. When I was an undergraduate at California Institute of Technology, we all read the three volumes of The Feynman Lectures on Physics . Professor Feynman is, of course, one of the greatest theoretical physicists in the twentieth century. He was a recipient of the Nobel Prize in physics. ii

In Volume I, Professor Feynman raised the question: why natural laws are nearly symmetrical but not perfectly symmetrical? This applies to a whole range of important, strong phenomena – nuclear forces, electrical phenomena, and even weak ones like gravitation. How is that nature can be almost symmetrical, but not perfectly symmetrical. We might think that the true explanation of the near symmetry of nature is this: that God made the laws only nearly symmetrical so that we should not be jealous of His perfection. Thereby, we, human beings, are not perfect and cannot be perfect.
If nature is not quite symmetrical, how much symmetry can we expect in human affairs? There can be asymmetrical warfare between America and China even when America possesses far greater firepower than China. Only the Soviet Union would attempt to seek symmetry with the United States by building equal nuclear firepower in a MAD (Mutual Assured Destruction) confrontation. It is enough for China to possess sufficient nuclear warheads and their delivery systems to penetrate
America’s shield and blow up major population centers. Then there is asymmetric information and ignoring it may lead to the end of a free-market capitalism because of possible turbulence in the unruly and under-regulated financial markets. Then there is the vertical, asymmetric God-person relationship.
In religion, both liberals and conservatives have their values. The virtue of liberalism is tolerance and the virtue of conservatism is the energy it can infuse into life through the feeling of certainty that the universe is on one’s side. In a way, liberals do not recognize how much an absolute can contribute to life, and in assuming that absolutes can be held only dogmatically, which is not the case.
Both the strength and dangers of liberalism pertain to life’s horizontal dimension, which encompasses human relationships (i.e. relationships between equals), whereas those of conservatives pertain to the vertical, asymmetric god-person relationship. The sobering fact for religious liberals – the one that is causing them to lose ground to conservatives – is that, of the two dimensions, the vertical relation is more important. It argues nothing against justice and compassion to say that those virtues are less important than God, for the sufficient reason that God anchors them in the nature of things. Is compassion rooted in ultimate reality, or is it only an admirable human virtue? That is a vertical question pertaining to worldviews. Liberals inherited their exemplary passion for social justice from parents and grandparents who (for all of their social concern) nailed the horizontal arm of the Christian cross to its vertical arm which (in standard rendition) is longer to symbolize its priority. In their declining concern for theology and worldviews, liberal Christians have in effect turned the cross on its side and made its horizontal arm the longer of the two.
Thanks to the marvels of microphotography, we can now see single nerve cells, and what catches the eye is their dendrites, waving in the air like the tendrils of sea anemones in the hope – so it appears – of touching the dendrites of another cell. When two dendrites do touch, they lock arms and, iii

as result, their cells stand a better chance of braving life’s perils. It is religion in embryo, for religio in
Latin means “to rebind,” and bonding and rebinding are what religion is all about. Because human beings have derived from bonding, it becomes incumbent on them to bond with others. “Be ye members one of another,” St. Paul counseled. Confucius’s version reads, “Within the four seas all men are brothers.” Maybe, we can all work toward a bond between Americans and Chinese! Not who we are, which points toward differences, but what we are, which points to similarities. What is our basic essence? Our basic essence is relationship between human beings, a bond so to speak. Within the four seas, all men are brothers.
Science and religion transcend nationalism, materialism, groupism, multiculturalism, capitalism, socialism and communism. We value our hopes, dreams, intuitions, glimpses of transcendence, intimations of immortality, mystical experiences, the elegance of natural laws and our sheer joyfulness at the grandeur of the Universe revealed to us by modern science and technology.
From science, we learn that nature is not symmetrical. From religion, we learn that the God-person relationship is asymmetrical. Applying these lessons to the concerns of the West and Japan with the rise of China, we can say that the relationship between the People’s Republic of China and the Republic of China is asymmetrical. To deny that as some Taiwanese do is a futile effort. Americans should realize and fully grasp this asymmetry. In doing so, they can help restore peace and prosperity in East
Asia. Politics is the art of the possible. Presently, Chen Shui-bian, president of the Republic of China, and his staunch supporters are pushing Taiwan into a permanent separate entity from mainland China.
They are, by all means, heroic and admirable. However, it should be recognized that those people who seek independence for Taiwan mostly grew up in an island colonized by Japan and later ruled harshly by Generalissimo Chiang Kai-shek and his Kuomintang followers. That is why they wanted selfdetermination and democracy in the first place. Many of their objectives, such as democracy, personal freedom, market capitalism, human rights, have been achieved. They should realize that an independent Taiwan is politically impossible. Only certain hawks in American Congress would clamor for recognition of an independent Taiwan. All the countries that have diplomatic relationships with the
PRC would not give recognition to an independent Taiwan nor would they vote for the admission of an independent Taiwan into the United Nations.
For over fifty years, the United States has been the guarantor of peace in East Asia. It can continue to play this role if it recognizes the danger inherent in an ambiguous policy toward Chinese reunification. Both Beijing and Taipei seek the support of Washington to further their interests. In a way, Washington has been “cool” to both Beijing and Taipei. However, the time has come for a more positive role to be played by United States. Just as the United States has helped solve the German problem in Europe, the United States can help solve the Taiwan problem in Asia. By solving the iv

Taiwan problem in due course, Americans can write a new chapter in world history. In Asia, we may witness the formation of a “Holy Alliance” for political stability, economic growth and technological innovation. The twenty-first century may even go down in history as a Pacific Century. How events may develop and how history may unfold depend critically on the mission of the United States to bring about long-lasting peace and sustained economic growth in this part of the world. As Jesus said,
“Blessed are the peacemakers for they shall be called sons of God.” God Bless America!
Terence Kwai
President
China Specialists
Hong Kong Special Administrative Region
People’s Republic of China
July 2006 v

My parents came from a place near Hangzhou in East China that boasts many famous figures in contemporary Chinese history, such as the late Premier Zhou Enlai and novelist Lu Xun. My father claims to be descended from the ruling family of Zhou Dynasty in ancient China (1046 B.C. – 256
B.C.) My father went to Shanghai to start a business. After World War II, he went to Hong Kong and then to Cambodia, where he built a fortune. However, because of the Indochina War which eventually swept into Cambodia, my father lost most of his assets. He came back to Hong Kong with few resources. Having to support an extended family in Hong Kong and in China, he could not afford to send all of his children for overseas higher education. I grew up in Hong Kong and attended a
Jesuit secondary school, Wah Yan College, S.J. (Hong Kong), where I was exposed to European history and the Bible. I was fortunate to be awarded generous scholarships and the Josephine de
Karman Fellowship to study mathematics and applied mathematics at California Institute of
Technology. My advisor at Caltech, Professor Joel Franklin, a great applied mathematician himself, suggested to me that I should consider studying economics and business administration at Harvard.
Once again, I was fortunate to be awarded generous scholarships and the 1907 Foundation Fellowship to study in the MBA/DBA Program at Harvard Business School. In the Doctoral Program, I studied under Professor John Meyer, an intellectual giant himself with keen insights into many things. He was a professor at the Harvard Business School, a professor at the Kennedy School of Government and a professor at Harvard University’s Department of Economics. I am thus very much indebted to the American people for their generosity. At Caltech and Harvard, I had laid down a solid foundation for my life-long learning. I worked, for a while, for two Fortune 100 companies in United States and then I returned to Asia. I was invited to join an American management consulting firm and, later, a
Swiss management consulting firm in their Asian practices. Years later, together with a few friends, I founded China Specialists, a research and consulting firm, based in Hong Kong.
Let me briefly explain why I write this book. One can characterize the present world as an uncertain world. To start with, Hong Kong is, in a way, a microcosm of a turbulent world. The One
County, Two Systems concept, based on which Hong Kong was returned to the People’s Republic of
China, is unprecedented in world history. No wonder Fortune magazine had a cover story: The Death of Hong Kong , on the eve of the return of Hong Kong to China.
In the early Nineties, Hong Kong faced a multitude of problems. First, the British had a poor history of decolonization as witnessed in the case of India and Pakistan and in the case of Singapore and Malaysia. Second, the One County, Two Systems concept advocated by Deng Xiaoping is unprecedented in world history. Many Hong Kong citizens were shaken by the June 4 Incident in
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Tiananmen Square and were considering emigration to foreign countries, particularly Canada and
Australia, which are members of the British Commonwealth. Third, a number of American and
British think-tanks were suggesting that the People’s Republic of China would soon disintegrate, following the footsteps of the Soviet Union. Fourth, the last governor of Hong Kong, Chris Patten, was introducing democracy into Hong Kong at turbo-speed. In nearly one hundred and fifty years,
Hong Kong was governed by the British with little pretension to democratic ideals. To hand back
Hong Kong with honor to China, Mr. Patten was destroying the social fabric of harmony that had been existing in the Hong Kong society since the turmoils in mid-sixties.
I attempted to make a contribution towards the stability of Hong Kong. I wrote a monograph entitled The Future of the British Business in Hong Kong . It was sent to the chief executives of
British business in Hong Kong. British business dominated the Hong Kong economy in several strategic sectors, such as banking, telecommunications, aviation, electricity generation and distribution, trading and premium commercial real estate. The Future of the British Business in Hong
Kong and subsequent work cautioned the chieftains of the British business that it would not be in their interests if the pace of democratization in Hong Kong was too rapid. Even Chris Patten had to bow to the pressure exerted on him by the British big business in Hong Kong.
Hong Kong was returned to China on July 1, 1997. Tung Chee-hwa was appointed as Chief
Executive of the Hong Kong Special Administrative Region (HKSAR). In his 1997 policy address,
“Building Hong Kong For a New Era”, Mr. Tung said, “In years gone by, the people of Hong Kong, mostly Chinese, have created a miracle that is Hong Kong. Now, being our own masters, I have no doubt we will be able to create an even better future for our city.” Hong Kong calls for a leader with political skills of the highest order – and an abundance of good luck. Mr. Tung lacked vision and failed to develop a coherent strategy for Hong Kong. He believed that promises and good intentions could substitute for the development of concrete policies. After his first term of five years, there were popular demands for Tung to step down. In May 2005, Tung resigned and was replaced by Donald
Tsang Yam-kuen, a top civil servant. Mr. Tsang was educated at a Jesuit secondary school in Hong
Kong and was further educated at the Kennedy School of Government at Harvard University. It remains to be seen how a bureaucrat can maintain social harmony and further economic growth in
Hong Kong. Any system of government, whether democratic or not, faces the need to establish legitimacy in the eyes of its citizens. Delivering a rising standard of living to the majority of those citizens is, under many circumstances, the most reliable way to do so. Conversely, falling incomes undermine the legitimacy that new political structures so badly need. While economic growth makes a society more open, tolerant, and democratic, such societies are, in turn, better able to encourage enterprise and creativity and hence to achieve even greater economic prosperity. Tung Chee-hwa, inexperienced in government affairs, failed to deliver sustained economic growth during his seven
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years of administration. He was unceremoniously removed from his office in mid 2005 by the central authorities in Beijing.
In mid-2004, I compiled a book, Essential Reading for the Transformation of the Political
Economy of Hong Kong , and disseminated it to the political parties and several top government officials in Hong Kong. A learned and thoughtful man may speak before a crowd and get no positive reaction whatsoever. A real demagogue, on the other hand, will distill his thoughts into a few simpleminded expressions and soon have enough admirers to run for public office. It is a requirement for the job. For, en masse , mankind can neither understand complex or ambiguous thoughts nor remember them. The masses have never thirsted after truth. They turn aside from evidence that is not to their taste, preferring to deify error, if error seduces them. Whoever can supply them with illusions is easily their master; whoever attempts to destroy their illusions is always their victim.
In a recent poll, Hong Kong citizens were more concerned with freedom and economic prosperity than with democracy. Basically, I have faith in the future of Hong Kong. Indeed, Hong Kong may be a beacon to the world as to how conflicts arising from different political and socioeconomic systems may be resolved over time 1 .
From Hong Kong, my interest turned to Japan. I was commissioned by JETRO (Japan External
Trade Organization), the international arm of Japan’s Ministry of Economy, Trade and Industry, to undertake three studies:
China’s Challenges in the Twenty-first Century
, The Transformation of the
Political Economy of China , and Japan and China: Prospects for Economic Partnership . I have been an advisor to several major Japanese corporations on strategies for success in China. My interest in
Japan was kindled by these activities and I turned to studying, in earnest, the Japanese people, their history, government and business. I have developed a good understanding of the Japanese people and their institutions.
With a good understanding of China, Japan and the United States, I came to believe that the twenty-first century could be a Pacific Century. The Pacific Century can benefit China, America,
Japan, a yet-to-be-unified Korea, and Southeast Asian countries. However, we are only at the dawn of the Pacific Century. For things to work out, the Sino-American relationship has to be improved.
At the crux of the relationship is the Taiwan problem. The Chinese and Americans must come up with a constructive solution to the Taiwan problem. However, the present situation is not optimistic.
China has already surpassed the United States to become Japan’s largest trading partner. However,
China is uneasy about Japan. As a ritual, Japanese Prime Minister Junichiro Koizumi pays annual visits to the Yasukuni Shrine, where Japan’s past wars are glorified. A new Japanese defence review identified China as a threat. Its Self-Defence Forces outlined three scenarios of a potential Chinese
3

invasion and are making preparations accordingly. Moreover, America’s military is closely coordinating with Japan, redeploying its troops and strengthening its command and combat capabilities near Taiwan. More specifically, with the latest statement over Taiwan, the US and Japan are poised to use their joint military forces to deter, deny and ultimately defeat potential Chinese military action across the Taiwan Strait.
Let me turn to two well-known Americans for their sage advice. In his book, Blowback: The
Costs and Consequences of American Empire (2000), Professor Chalmers Johnson, author of the classic, MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925 – 1975 , wrote:
China owes no obeisance to the United States. From 1950 to 1953, at great cost to itself, it fought the American military to a stalemate in Korea. A new policy of containment toward
China once again implies the possibility of war, just as it did during the Cold War vis-à-vis the former USSR. The balance of nuclear weapons prevented that war, but this may not work in the case of China, where great asymmetries in manpower between China and any single external power or alliance will always exist. China has the capacity to deter an American use of nuclear weapons by threatening retaliation against U.S. cities. There is also a much firmer foundation for a Chinese government’s resistance to external threats in Chinese nationalism than there was at the time of the British, French, or Japanese depredations over the past 150 years. Many Americans do not evaluate Chinese nationalism correctly, thinking it is whipped up by Communist Party propaganda to suit its purposes. But like American nationalism after
Pearl Harbor, it is actually rooted in concrete historical experiences of victimization, including Japan’s attempt to establish a protectorate over China in 1915, its creation of a puppet regime in Manchuria in 1931, and its invasion of the whole country in 1937. The
Chinese pose no threat to the territory of the United States, but the Americans (and the
Japanese) have done so in the past and conceivably still could directly threaten China. A war with China would almost certainly bankrupt the United States, radicalize China, and tear
Japan apart.
2
He gave the following sobering comment:
The question is whether the United States can adjust to the emergence of a new great power in
Asia. Will it deal more effectively and less bloodily with China than, say, the former hegemon Great Britain did in the early twentieth century, when it failed to adjust to the emergence of new centers of power in Germany, Japan, and Russia? The current trend of events is not promising.
3
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In his book, Does America Need a Foreign Policy? Toward a Diplomacy for the 21 st
Century ,
Henry Kissinger wrote:
Taiwan had become a deeply symbolic issue for many Americans. It was the inheritor of the legacy of goodwill acquired by the Nationalists for their staunch resistance to Japanese imperialism in the Second World War. And it became a symbol for the so-called China lobby, which was outraged by the Communist victory in the Chinese civil war and was determined to prevent its culmination in the takeover of Taiwan. Many – including those of us who engineered the opening to China – had great sympathy for the effort of the Chinese on Taiwan to create a meaningful and democratic basis for an autonomous existence. A wide consensus has always existed in the United States opposed to the forcible return of Taiwan to China.
But the issue is also profoundly symbolic for Beijing. Taiwan was where the dismemberment of China started – the first province to be annexed by colonialists. Its unification with the mainland is considered even by Chinese who do not share the views of the governing party as a “scared national obligation” which can be deferred for practical or tactical reasons but never abandoned.
4
Most great statesmen were less distinguished by their detailed knowledge (though a certain minimum is indispensable) than by their instinctive grasp of historical currents, by an ability to discern amidst the myriad of impressions that impinge on consciousness those most likely to shape the future. This caused that ultimate “realist” Otto von Bismarck, who engineered the unification of
Germany in the Nineteenth Century, to sum up his vision of statesmanship in a reverential statement:
The best a statesman can do is to listen to the footsteps of God, get hold of the helm of his cloak, and walk with him a few steps of the way 5 .
Chinese reunification is inevitable. Any attempt to halt it will be futile. Were Taiwan to achieve formal American recognition of a separate status, as some of its spokesmen and supporters now seem to seek, this would risk a military confrontation and guarantee a political crisis that would divide Asia and turn Taiwan’s role in the resulting tensions into a global issue.
Twenty years ago, I wrote an article stating that since the fall of the Qing Dynasty in 1911, China has undergone a turbulence not unlike the religious wars in Europe. In medieval Europe, obligations were personal and traditional, based neither on common language nor on a single culture; they did not interpose the bureaucratic machinery of a state between the subject and the ruler. Restraints on
5

government derived from custom, not constitutions, and from the Universal Catholic Church, which preserved its own autonomy, thereby laying the basis – quite unintentionally – for the pluralism and the democratic restraints on state power that evolved centuries later.
In the sixteenth and seventeenth centuries, this structure collapsed under the dual impact of the
Reformation, which destroyed religious unity, and of printing, which made the growing religious diversity widely accessible. The resulting upheaval culminated in the Thirty Years’ War, which, in the name of ideological – at that time, religious – orthodoxy, killed 30 percent of the population of
Central Europe.
Out of this carnage emerged the modern state system as defined by the Treaty of Westphalia of
1648, the basic principles of which have shaped international relations to this day: The treaty’s foundation was the doctrine of sovereignty, which declared a state’s domestic conduct and institutions to be beyond the reach of other states.
Since the fall of the Qing Dynasty, the Chinese people have endured great hardship and suffering.
It is time for China to carry out socio-economic reforms to prove what Mencius, China’s Second Sage, says about human nature:
Opportunities of time vouchsafed by Heaven are not equal to advantages of situation afforded by the Earth, and advantages of situation afforded by the Earth are not equal to the union arising from the accord of Man.
When Heaven is about to confer a great office on any man, it first experiences his mind with suffering, and his sinews and bones with toil. It exposes his body to hunger, and subjects him to extreme poverty. It confounds his undertakings. By all these methods, it stimulates his mind, hardens his nature, and supplies his incompetencies. Men for the most part err, and are afterwards able to reform. They are distressed in mind and perplexed in their thoughts, and then they arise to vigorous reformation. When things have been evidenced in men’s looks, and set forth in their words, then they understand them. If a prince have not about his court families attached to the laws and worthy counselors, and if abroad there are not hostile states or other calamities, his kingdom will generally come to ruin. From these things, we see how life springs from sorrow and calamity, and death from ease and pleasure.
6
Being a Chinese, I believe that what Mencius says applies to this generation of Chinese leaders and the Chinese people. They will be leading China into a century of great achievements and great contributions to the world.
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In 1984, I wrote a book entitled Strategic Planning and Control: A New Dimension to Asian
Business . It was published by The Hong Kong Management Association. My boss, Robert Travis, an
American who was in charge of the Asian practice of the international management consulting firm I was working for, wrote:
Without attempting to provide arbitrary answers, Mr. Kwai skillfully addresses many fundamental questions about how East Asian enterprises should plan and operate … The book itself illustrates one of the primary advantages of the Oriental approach to management in the way that controversial issues are presented for consideration without forcing a position or conclusion. The reader then has an opportunity to objectively reflect on these issues.
In a way, this is the approach adopted in this book.
In 1995, Qian Ning, the son of Qian Qichen, China’s former foreign minister and a deputy prime minister, wrote a book entitled Chinese Students Encounter America since his return from graduate studies in the United States. The book became an instant bestseller in China. He wrote about the
Chinese students in America:
An America scholar surveyed Chinese students on the subject of returning to China. The results showed that the reasons for staying in America was quite specific: low living standards in China, the inflexible personnel system, poor facilities for scientific research, and limited opportunities for personal growth. The reasons were easy to understand. But the reason some chose to return was primarily an abstract patriotic sentiment. The American scholar was deeply puzzled by this result, since patriotic sentiment is a rather stale concept in American society.
He was puzzled, perhaps because he had overlooked a simple fact: China in modern times has been a weak country, and that weakness has saved patriotic sentiment from going out of fashion among Chinese.
For China, sending students abroad was not a simple gesture of cultural exchange but, rather, the shouldering of a burden in its determination to further the country’s development. This was a reality that the students had to face.
This was a very Chinese way of thinking. It seemed as if the students not only had to bear the heavy burden entrusted by history, but they also had to be willing to make personal sacrifices.
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History showed, however, that it was precisely this Chinese sentiment that sustained the spirit of the nation. The sentiment allowed China, after enduring more than a hundred years of humiliating weakness and poverty, to see a ray of light at the dawn of the twenty-first century.
7
This book is dedicated to those Chinese students who returned to China after completing their studies in the United States. Dr. Albert Schweitzer, the German doctor who went to Africa to practice medicine, says, “one thing I know: The only ones among you who will be really happy are those who will have sought and found how to serve.” 8 We hope to serve China and the Chinese people. In writing this book, we hope to make a small contribution toward the betterment of the Sino-American relationship.
During the Twenty-first Century, there would be nothing more significant than the Rise of China.
Richard Nixon, former president of the United States, says: “China now is awakening, and it may soon move the world. Exotic, mysterious, fascinating – China from time immemorial has tantalized the imagination of Western man. However, even the prescient Tocqueville, who predicted 150 years ago that the United States and Russia would emerge as two great contending world powers, could not have foreseen that the nation that potentially could decide the world balance of power in the last decades of the Twentieth Century, and that could become the most powerful nation on Earth during the Twenty-first Century, would be China.” 9
The question is, of course, how the rest of the world would react to the Rise of China? In one way or another, the Rise of Germany and the Rise of Japan in the late nineteenth and early twentieth centuries had brought about two world wars. Is China a strategic partner or is it a strategic competitor?
Probably, China is a strategic dilemma.
We believe there are seven possibilities for the eventual unfolding of the Twenty-first Century.
They are as follows:
1.
A unipolar world with the American Empire preaching and conducting Pax Americana ;
2.
A European century;
3.
The East versus the West;
4.
An Asian century;
5.
A Chinese century;
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6.
A multipolar world; and
7.
A Pacific century
Everybody is impressed by the Revolution in Military Affairs as demonstrated by American armed forces during the two Iraq wars. The United States is spending $400 billion in its military budget. It can fight four wars anywhere in the world at the same time. Its powerful aircraft-carrier groups patrolled the oceans and seas of the Earth. As a military power, America is unchallenged for at least several decades if we do not take into consideration asymmetric warfare. Only the Soviet
Union was stupid enough to match the American military might in a roughly symmetric configuration to produce a MAD (Mutual Assured Destruction). Asymmetry, not symmetry, rules in the universe.
However, we should remember that the Roman Empire fell apart not because the Roman legions fell apart; it was because the empire’s economy fell apart. Today, America is an empire of debt. Thus, under its heavy debt, the unipolar world would fall apart.
What about a European Century? With a highly educated and productive population of almost
400 million people and a $9 trillion economy, Europe today has the wealth and technological capability to make itself more of a world power in military terms if Europeans wanted to become that kind of world power. Europe has not the slightest intention of keeping up with the American military might. Thus France might increase its defense budget by 6 percent, prodded by the Gaullism of
President Jacques Chirac. The United Kingdom might make an even greater commitment to strengthening and modernizing its military, guided by Tony Blair in an attempt to revive, if on a much smaller scale, an older British tradition of liberal imperialism. But what is “Europe” without
Germany? And German defense budgets, today running at about the same percentage of gross domestic product as Luxembourg’s, are destined to drop even further in coming years as the German economy struggles under the weight of a stifling labor and social welfare system. European analysts may lament the continent’s “strategic irrelevance.” Consider the qualities that make up the European strategic culture: the emphasis on negotiation, diplomacy, and commercial ties, on international law over the use of force, on seduction over coercion, on multilateralism over unilateralism. It is true that these are not traditionally European approaches to international relations when viewed from a long historical perspective. But they are a product of more recent European history. The modern European strategic culture represents a conscious rejection of the European past, a rejection of the evils of
European Machtpolitik . As German Foreign Minister Joschka Fisch put it in a speech outlining his vision of the European future, “The core of the concept of Europe after 1945 was and still is a rejection of the European balance-of-power principles and the hegemonic ambitions of individual states that had emerged following the Peace of Westphalia in 1648.” 10 The European Union is itself
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the product of an awful century of European warfare. The Europeans, who invented power politics, turned themselves into born-again idealists by an act of will.
The integration of Europe was not to be based on military deterrence or the balance of power. To the contrary, the miracle came from the rejection of military power and of its utility as an instrument of international affairs – at least within the confines of Europe. European integration shows that compromise and reconciliation is possible after generations of prejudice, war and suffering. The transmission of the European miracle to the rest of the world has become Europe’s new mission civilistrice . Just as Americans have always believed that they had discovered the secret to human happiness and wished to export it to the rest of the world, so Europeans have a new mission born of their own discovery of perpetual peace.
The Twenty-first Century may not be a European Century. There is divergence in views between
Europe and the United States. America’s power and its willingness to exercise that power – unilaterally if necessary – constitute a threat to Europe’s new sense of mission. To deny the validity of the new European idealism is to raise profound doubts about the viability of the European project.
There is still fear of sliding backward that still hangs over Europeans, even as Europe moves forward.
Europeans, particularly the French and the Germans, are not entirely sure that the problem once known as the “German problem” really has been solved. Neither France under François Mitterrand nor Britain under Margaret Thatcher was pleased at the prospect of German reunification after the end of the Cold War; each had to be coaxed along and reassured by the Americans. Nearly six decades after the end of World War II, a French official can still remark: “People say, ‘It is a terrible thing that
Germany is not working.’ But I say, ‘Really? When Germany is working, six months later it is usually marching down the Champs Elysées.’” Perhaps it is not just coincidence, therefore, that the amazing progress toward European integration in recent years has been accompanied not by the emergence of a European superpower but by a diminishing of European military capabilities relative to the United States.
What about a century of pitting the East against the West? At present, Europeans and
Americans do not share a common view of the world. Europeans have developed a set of ideals and principles regarding the utility and morality of power, that are quite different from those of Americans.
Europe is entering a post-historical paradise of peace and relative prosperity, the realization of
Immanuel Kant’s “perpetual peace”. The German problem was first solved by the presence of
American troops in continental Europe and then within the framework of European economic and political integration.
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What constituted the West? It was the liberal, democratic choice of a large segment of humanity living on both sides of the Atlantic Ocean. With the fall of the Berlin Wall and the disintegration of
Soviet Union, this community has stretched all the way to Eastern Europe. With less need to preserve and demonstrate the existence of a cohesive “West”, it was inevitable that the generosity that had characterized American foreign policy for fifty years would diminish after the Cold War ended.
Post-Cold War Europe was not particularly interested in maintaining a cohesive West. Proving that there was a united Europe took precedence over proving that there was a untied West. The present gap between the United States and Europe today may be traced in part to Europe’s decision to establish itself as a single entity apart from the United States. The schism between Europe and the
United States eventually led to unilateral action taken by the United States, as in the case of the recent
Iraq War, when the only European country that lent support to the invasion of Iraq by American armed forces was Great Britain. When no weapons of mass destruction had been found in Iraq, the
United States may not be able to count on Great Britain as an ally in the future.
The West faces a dilemma. In their passion for international legal and political order, Europeans have no intention of supplementing American power with their own. The net result is a weakening of power that can be projected by a collective group of liberal democracies around the world. Today, we cannot speak of “the West”. We can only speak of the United States of America and, hopefully, a united Europe.
In the East, the story is also complicated. Japan had modernized herself quite early and was regarded by most Asians part of the West because Japanese lost no time in adopting Western institutions and practices. China was, and still is, regarded as the genuine Orient. China was under
Manchu control from 1644 to 1911. The introduction of Western technologies and institutions would not have been to the advantage of the Manchus. Such “racial conflicts” did not exist in Japan. China was a more “attractive” country for the Western powers to conduct international trade with than Japan.
In fact, while China was suffering from the Opium War, no Western power showed much interest in
Japan. Under such a situation, the Japanese educated under Tokugawa Confucianism were able to quickly establish national consensus and develop nationalism without violent revolution. When faced with the Western powers, Japan had three potential advantages.
The first was the traditional Confucian culture which made Japanese people industrious, cooperative and submissive. They could be led to learn hard, work hard and save hard in a harmonious social environment. The second advantage was the advantage of being the late developer.
When Western economies created new industrial technology and business methods and institutions,
Japan could copy the new approaches without the costs or the slow process of inventing and
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developing them. Both Japan and China shared these two advantages. Japan could utilize them to the full since the Meiji Revolution, while it would take another hundred years for the Chinese to fully utilize them. The third advantage (one that China did not have) was the lack of natural resources and potential markets. The poverty of Japan might explain why it was not invaded by the Western powers, unlike China. Moreover, the conflicts which occurred between China and the Western powers might have helped Japan’s ruling class to become aware of the necessity of industrialization (i.e. militarization in the early period of industrialization). Because of the historical differences in the cultural stocks of Japan and China, it is quite “reasonable” for the Chinese to have developed a mind
“less adaptive” to Western ideas and to have exhibited a little more loyalty to tradition than the
Japanese. Cultural loyalty often reduces the speed of learning. Learning from other cultures often requires the denial, if not the destruction (or at least some aspects) of one’s own culture. In action, timing is often more important than reasoning. This may be especially true when a society is located at points of bifurcation (for instance, the choice between socialism and capitalism). In complicated situations of socio-economic structural changes, to lose one opportunity means heavy “punishment” in the long term.
Historically, man has improved his ability to cope with his environment through the exchange of techniques and knowledge between cultures. Greece learnt from Egypt, Rome from Greece, the
Arabs from the Roman Empire, medieval Europe from the Arabs, Renaissance Europe from the
Byzantines, and Japan first from China, and then from the West. All these interactions led to cultural change. But flexibility of mind may be either a strength or a weakness. The timely switch of the
Japanese mind towards Western culture and away from Chinese culture as its master proved to be a great strength; the adaptation of Western ideologies such as Marxism among the May Fourth’s youth generation in China, on the other hand, failed to quickly bring about an industrial China. Mao Zedong said that when heat is applied to a stone and an egg, the fact that a chicken comes from one and nothing from the other is due to their internal structures. Both Japan and China were economically, militarily and politically weak in the globalizing world in the Nineteenth Century. Both China and
Japan were challenged by the Western powers; but they reacted in different ways. Japan proved to be by far the most able student of economic modernization. Without a highly adaptive mind, it is difficult to explain how Japan could learn how to devise new economic institutions and to mobilize resources for the acquisition of new skills and technologies without at the same time destroying traditional social structures and values.
By 1880, the Chinese were still confident in their own tradition, professing little need for Western goods and ideas. This sense of self-confidence stemmed from China’s historical role in East Asia. In spite of occasional invasion by nomadic tribesmen from the north, the Chinese felt secure in their sense of superiority since the Chinese culture and society had always been able to absorb and
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assimilate alien forces. Due to China’s superior cultural position in East Asia and its history of cultural creativity, it took the Chinese mind some time to recognize and admit the newly-created
Western civilization’s equality to, not to mention superiority over, Chinese civilization. On the other hand, Japan had developed an inferiority complex in response to the “Middle Kingdom” image of
China. This also explained how Japan’s new political leaders, in the late nineteenth century, were not so much interested in whether their cultural hegemony was being undermined but were mainly concerned with how fast they could catch up with the West through absorption of Western science and technology. In contrast to the Japanese samurai , the Chinese bureaucrats tended to spend much of their time on matters of China’s cultural hegemony.
Today, China is learning both from the West and Japan. The Chinese people are good in synthesis and are strong in creating new ideas, new practices and new institutions. In time, China and
Japan will have to accommodate each other’s interests and to ameliorate their relationship. It is very likely that we shall witness the formation of a powerful, integrated production system between China and Japan, that can rival, in every aspect, the production systems in America and in Europe. China provides Japanese manufacturers with the opportunity to build state-of-the-art facilities unencumbered by obsolete design and outdated machinery, serve a high-growth market, and tap a future innovation source. Japanese firms have come to the realization that China can be a vital part in their bid to remain competitive. They are preparing for what they call somewhat reluctantly the Chinese Century by sharpening R&D competencies and building the supply chain necessary for China-based manufacturing, including a new international airport near Nagoya that will handle mostly China flights. The October 31, 2005 issue of Newsweek International carries an article, Why Japan has no friends in Asia . It may be an American oversight. While General Motors and Volkswagen are boasting of their profitable operations in China, Japanese businessmen are quite reserved about the profitability of their Chinese operations. They would rather discuss their success and aspirations within their dust-free boardrooms or in expensive restaurants in Tokyo or Osaka. Thus, there is a schism in the West, but there is a growing interest in integration in Asia Pacific.
What about an Asian century? Many people are talking about the potential of China and India.
Clyde Prestowitz, President of the Economic Strategy Institute in Washington, D.C. has written a new book entitled Three Billion New Capitalists: The Great Shift of Wealth and Power to the East , which was published in 2005. Shortly after gaining independence from Great Britain, Prime Minister
Jawaharlal Nehru established seven campuses for the Indian Institute of Technology. India achieved worldwide fame for software development after IBM had pulled itself away from India because it refused to transfer technology and disclose trade secrets to India.
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Personally, I have some reservations about the economic prospects of India. Having been trained at California Institute of Technology, I observed how the graduate students and undergraduates performed in computing at Caltech. Writing excellent software or codes is not a matter of relative costs in labor. It may be true that a programmer in the United States earns $80,000 in a year whereas his or her counterpart in India earns $11,000. The best software is probably 80 percent creativity and
20 percent sleeplessness. Chinese aerospace engineers and software scientists are proving themselves to be world class when the Shenzhou VI space exploration rocket re-entry vehicle, carrying two
Chinese astronauts, landed within one kilometer away from the destined landing spot in Inner
Mongolia in October 2005. In 1997, the cover of an issue of Beijing Youth Weekly carried the message: “Chinese Defeat Kasparov!” The magazine noted that two of the six members of the IBM research group that programmed “Deep Blue” were Chinese Americans. Kasparov is, of course, the world’s reigning chess grand master.
Nations can find that their competitive edge against China can suddenly disappear with the movement of a single person. In May 2004, Steve Chen, one of the most admired designers of supercomputers in the United States, joined Galactic Computing Shenzhen Co., Ltd., a company backed by Hong Kong investors and several Chinese universities. The enterprise, set up to create world-class supercomputers in China, has already showcased a computer fast enough to place it among the top 250 fastest computers in the world. “In terms of momentum in supercomputing, China is the most rapidly ascending country in the world,” David Keyes, a professor of applied mathematics at Columbia University, told the New York Times
. In an October 2004 story headlined “China to lead supercomputing sector,” the China Daily declared that the country may well be home to the world’s fastest supercomputer in 2005, and that “the nation will hold all intellectual property rights to the bionic processor and its relevant applications.” Chen, who immigrated to the United States from
Taiwan in 1975, did graduate work at the University of Illinois and later worked for supercomputing pioneer Cray Research. Chen told the Times that he joined the Chinese company because venture capital for supercomputing had dried up in the United States.
The problem with India is threefold. First, India does not have a comprehensive manufacturing base that can rival that of China. As pointed out above, Deng Xiaoping’s monumental decision to undertake economic reform at home and open China to the world coincided, in timing, with the globalization of the West and Japan. Chinese Diaspora in Hong Kong, Taiwan and Southeast Asia ignited the growth of the Chinese economy. China has received well over half a trillion dollars in foreign direct investment since the adoption of her Open Door Policy. Furthermore, the Chinese people have the highest saving rate in the world. Such domestic savings fuelled the rapid expansion of the Chinese economy. India came late and missed the great opportunity. It would be difficult for
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India to build up a comprehensive manufacturing base. Certainly, software is important, but software is not the only thing that matters.
Second, India’s state religion is Hinduism, which is a religion, philosophy and social system characterized by belief in reincarnation, worship of several gods, and the caste system. Hindus consider that all the things they do in their lives have an effect on the form in which they will be reincarnated. Many poor Indians give up struggles in life, hoping that they may be reincarnated into someone better. Furthermore, there are millions upon millions of Indians who are classified as
Untouchables. They are left behind while the Indian economy is progressing. Hinduism is the only religion in the world that does not carry a universal message.
Third, in geographical terms, the Indian subcontinent is somewhat isolated. India is not embedded in the fast developing supply chains of global giant firms. It is also far away from important markets. It takes time to solve the logistics problems. India did not experience great warfare except during the expansion of the Mongolian Empire. Indians were submissive to the British
Raj. The heritage left by the British colonial rule may not be a blessing to Indians. The world does not need too many management or philosophy gurus. The world needs people who have hindsight, insight and foresight. India’s achievements are found only in pockets of excellence, at least for the time being.
Furthermore, China and India have not great relationships with each other. New Delhi (of India) and Islamabad (of Pakistan) both are formulating nuclear doctrines, and there is a great danger that the conflict over Kashmir could escalate into a nuclear confrontation. Given the short warning time, crisis stability becomes at once essential and impossible as both countries face the nightmare of having to make instantaneous but error-prone decisions in quick response. The pressure exerted on the command-and-control systems could be excruciating, and the possibility of an inadvertent and unauthorized launch of nuclear weapons cannot be ruled out. Although China (along with the United
States) did attempt to play the role of a mediator between New Delhi and Islamabad in the wake of the
May 1998 nuclear tests and during the Kargil crisis, it met with serious Indian opposition, primarily because New Delhi regarded Beijing as being part of the problem rather than part of the solution.
New Delhi needs to dispel misgivings in Beijing that India is playing the democracy card to gain
U.S. recognition of its global and regional aspirations to the extent that it may be willing to play junior partner in a U.S. global strategy to contain China. Prospects for cooperation between India and
China exist if the right conditions for peace can be identified and promoted. However, the force of the security dilemma could also drive the two countries into an arms competition that would be
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economically costly, geopolitically destabilizing, and militarily risky. Managing this critical bilateral relationship poses a daunting challenge to policymakers in Beijing and New Delhi.
That said, we should say something nice about India. Mohandas Karamchand Gandhi was a great statesman (1869 – 1948). He led the Indian struggle for independence from British rule, using campaigns of civil disobedience and spending several periods in prison. His philosophy of nonviolence influenced people all over the world and won him the title Mahatma (“great soul”). He was assassinated shortly after independence was achieved. India has produced great scientists, mathematicians, philosophers, artists and great businessmen. Some people say that the Swedes are the least religious people in the world and the Indians are the most religious people in the world. We expect that the Indians will have accomplished much in raising their standard of living by mid-twentyfirst century. India will be a great nation among the first league of nations during the second half of the twenty-first century.
The Middle East is part of Asia. However, as pointed out later, its oil is running out.
Modernization of Arab states is not easy although it can be done. The Middle East can be succinctly summarized as a war with no end in sight. It is both heroic and tragic. Thus, the Twenty-first
Century may not be an Asian Century.
Being a Chinese myself, modesty would require me to say that the Twenty-first Century would not be a Chinese Century.
Hence, we are left with the choice between a multipolar world and a Pacific Century. A multipolar world may be unstable because there will be clashes of civilizations as so eloquently addressed by Professor Samuel P. Huntington of Harvard University. More importantly, there would be clashes of all kinds of nationalism. There would be American nationalism, European Union’s
“nationalism”, Japanese nationalism, Indian nationalism, Chinese nationalism, Arabs’ “nationalism”, etc. Out of all these kinds of nationalism, there might be alliances of various kinds. We would be back to “Square One”. For example, American nationalism might be allying with Japanese nationalism against Chinese nationalism. Indeed, our children and grandchildren will be inheriting a world that is no less dangerous than the Cold War.
So, we are left with no choice. It is the choice of no choice. The Twenty-first Century perhaps can be a Pacific Century. However, it is not preordained. How to reach that goal depends crucially on how the Taiwan problem is solved.
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Taiwan is a time bomb, but it is also the “Gordian Knot” for the American Empire. The story is told that when Alexander the Great invaded Persia, he abolished the offices of the Persian oligarchs and introduced a democratic form of government in their place. In many cases he did not replace the
Persian satraps (governors) if popular opinion was positively disposed toward them, but was quick to replace where it wasn’t. He became very popular among the populace because now they had a say in who ruled over them.
Gordium was where all the Macedonians met up in May 333BC. The city was named after a
Macedonian called Gordius (reputedly the father of King Midas), who had left his home country to settle down in Gordium, and eventually had become the ruler of all Asia. This was several centuries before Alexander. According to the local myth, Gordius had arrived there in a wagon, which still stood in the Temple of Zeus, set in a citadel in the city’s center. The wooden farm wagon featured a strange knot that held it to its yoke. Anyone who could untie the knot, the myth ran, would become the lord of all Asia. Alexander had an immediate yearning to see if he could untie the knot. He went up to the temple in the citadel, near which ran the only trade route connecting Troy to the ancient city of Antioch in today’s Syria. The knot, made of cornel bark, was highly complex in nature and it wasn’t clear where the knot’s beginnings were and where lay its ends. It is what is popularly called a
Turk’s head knot. Alexander, after observing the knot for a while, pulled the pin that ran through the knot, holding the yoke of the wagon to the shaft. Others say he drew his sword and hacked the knot in two – creating the metaphor “cutting the Gordian knot.” Whatever happened definitely helped propagate the myth that Alexander had cut the knot. Thunder and lighting that night were immediately interpreted as a sign of pleasure from the gods, helping create a myth about his divine origins. He managed to create a cult around him by seeking external corroboration for his divinity or by demonstrating, as at Gordium, that no problem was beyond him. When he started off he was still a young, unproven leader. The more external validation he could receive for his role in the world, as well as for his leadership and intellectual prowess, the more likely it was that people were going to get over any lingering hesitation to follow him in his campaign.
Glory in the ancient world, unlike in the modern day where it stands for fame, fortune or power, was tied to apotheosis – the process of becoming immortal like the gods. There were three ways of becoming immortal: one was through achievements so remarkable that one lived on through the tales of bards; second, more Judaic in tone, was to live on vicariously through one’s children, and finally one could best the greatest of the divine heroes. We believe that Alexander was following the final way to assuring his divinity. The Greeks kept their religious mysteries quiet, but as scholars like
Werner Burkert have written, their myths and dramas pointed toward the Egyptian desert, from which many of their heroes had come, and where they hard achieved immortality. Cutting the Gordian knot
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had furthered Alexandra’s divine aspirations and helped him strongly position himself for the conquest of Asia, but Egypt might grant him a spot on Mount Olympus.
Had not Alexander the Great passed away at the tender age of thirty-three, there would be no
Roman Empire. Roman legions would be no match for the Greek phalanges. The Hellistic
Civilization might be the greatest civilization on Earth. Without the Roman Empire, there would be no Holy Roman Empire, no unification of Germany under the “blood and iron” policy of Chancellor
Otto von Bismarck, and no Third Reich.
Taiwan is the Gordian knot for the American Empire.
Throughout this book, I have quoted from a number of sources among the one hundred books I had read for the purpose of writing this book. These books are quite up to date. First, many of these authors have more insights than I have. They also carry more weight because they are Americans.
Second, I do not want to quote them out of the context. Third, I want to provide the reader with many different perspectives so as to enrich the contents of the book. In a way, this book is made unique from most other books on China in that it serves as a forum where different opinions are presented rather than as a learned book where rigorous arguments are made to support a specific point of view.
But more importantly, I believe the following advice: Listen a hundred times; ponder a thousand times; speak once. This is also what ancient Chinese sages believed in. According to the classic of
Daoism, those who have wisdom talk little and those who talk much seldom have wisdom.
Finally, throughout this book, I have made my best attempt to portray the truth as I know it. At
Caltech, my Alma Mater’s motto is: Truth Shall Make You Free. During its relatively short history,
Caltech has been honored in many ways for its intellectual achievements. Its alumni and faculty members have won thirty-two Nobel Prizes in physics, chemistry, medicine and peace. Caltech, MIT
(Massachusetts Institute of Technology) and the National Institute of Health are the three national treasures of the United States.
We have made our best attempt to make this book informative, interesting, and insightful. Surely enough Americans can reflect on the various issues associated with the Rise of China. If Americans do not face the problem posed by Taiwan squarely, there could be warfare, yes even nuclear warfare, between America and China. Of all the decisions a free people must face, questions of war and peace are the most solemn. That is why this book is written. We may err in one way or another in our exposition in this book. However, this book addresses the most solemn issues in the Sino-American relationship. We are not a mouthpiece of the Chinese government. We do not excel in salesmanship.
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We do not articulate particularly well with a foreign language. We do not possess outstanding persuasive power. We do not have great original thoughts. We do not posses the great depth of knowledge of China scholars in America. We only hope that Americans and Chinese can live in peace, harmony and prosperity until Thy Kingdom Come.
The Chinese Civilization can definitely enrich itself by learning from the aspirations, values, ways of life, and the profound experiences of the American Civilization. In time, both of these great civilizations can work together on many projects and problems that necessarily arise in our global village.
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More than a few times, nations have found themselves fighting wars that began or escalated by accident or inadvertence. World War I is a spectacular example. By 1914, two alliances of nations
(the Triple Alliance and the Triple Entente), locked in an arms race, faced off against each other in
Europe. Both sides were armed to the teeth and were convinced that peace could be and would be balanced by the balance of power they had achieved: in the presence of such devastating military force, surely no one would be crazy enough to start a war.
Then, on June 28, 1914, Archduke Francis Ferdinand of Austria-Hungary and his wife were assassinated by a Serbian nationalist. Such an event would be of very limited significance in normal times. But these were not normal times. In the presence of enormous ready-to-go military forces, the assassination set in motion a chain of events that rapidly ran out of the control of Europe’s politicians and triggered a war that nobody wanted.
Within two months, over a million men were dead. By the time the war was over in 1918, 9 to 11 million people had lost their lives in an absolutely pointless war, the worst war the world had ever seen. The losers of the war, Germany in particular, were demanded to pay heavy reparations. These reparations wrecked the German economy and gave rise to the Nazi Party, which promised to restore wealth and power to the German people. Within two decades after the Great War, the Nazis and their allies once again plunged the world into war – a far more destructive war – that left some 40 to 50 million people dead (half of them civilians) and gave birth to the atomic bomb. The American bomb project (the Manhattan Project) was supported by Albert Einstein and started primarily out of fear that the Nazi Germans might develop such a devastating weapon first. There may be many links in the chain of events, but there is , in fact, a connected chain of events leading from the accidental war we call World War I to the gas chambers in the concentration camps at Auschwitz, the devastation of
World War II, and the fear of nuclear holocaust that cast such a heavy shadow over the second half of the twentieth century. Yet the whole terrible chain of events might have been prevented, but for a simple failure of communications. The Kaiser had sent the order that would have stopped the opening move of World War I (the German invasion of Luxembourg on August 3, 1914) before the attack was to begin. But the messenger arrived 30 minutes late. In a classic understatement, the messenger who finally delivered the belated order said, “a mistake has been made.”
A hundred years later, there was an assassination attempt on President Chen Shui-bian and his running mate, Annette Lu, on March 19, 2004 as they were campaigning for Taiwan’s presidential
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election. The bullet scratched the skin of Chen’s abdomen and hit the knee of Lu. Chen and Lu were rushed to a nearby hospital. Hours later, they emerged from the hospital, cheered by their supporters.
It is impossible to know how far the shooting influenced the poll outcome, but the sympathy vote must have played a part. Mr. Chen was four points behind the coalition of the Kuomintang and
People First Party in the polls at the time the gunman struck. The following day, he secured victory by an extremely narrow margin. It is arguable that the apparent assassination attempt was the decisive moment in the campaign.
This alone was enough to make the circumstances suspicious. For three weeks after the election, aggrieved supporters of the rival camp demonstrated in huge numbers in front of the presidential palace. There were, indeed, many suspicions. It is unclear, for example, how the gunman was able to escape when there were thousands of security officers, police and supporters of the president at the scene. But no evidence has been found to show that the shooting was staged. A committee set up to investigate the incident was dominated by the opposition and reached findings that appear to have been based more on political leanings than evidence.
The police investigation has hardly been more successful. Hundreds of raids have been carried out and thousands of suspects investigated. But the gun is still missing – and so is the culprit. A man was identified by the police, but he killed himself soon after the shooting. So the assassination attempt remained a mystery. However, the question remains: would there be another assassination attempt on Chen Shui-bian and Annette Lu? Even after President Chen has served his second term, would there be an assassination attempt on his successor? If such an attempt is successful, Taiwan could plunge into chaos, and, depending on the circumstances, there might be declaration of independence by Taiwan.
The Chinese People’s Liberation Army (PLA) may have to intervene to restore order in Taiwan and bring about Chinese reunification. The question, then, is how the U.S. Government may react to the Chinese deployment of armed forces. Several months after President Carter’s recognition of the
People’s Republic of China on January 1, 1979, the American Congress passed the Taiwan Relations
Act. The Act only allows Washington to “make available to Taiwan such defense articles and defense services in such quantity as may be necessary to enable Taiwan to maintain a sufficient self-defense capability”. Apart from the arms sales, the Act in no way spells out, or obligates, the United States to take military action. Whatever else the United States might do to defend Taiwan has been left deliberately vague in such a sentence in the Act, which reads:
The President and the Congress shall determine, in accordance with constitutional process, appropriate action by the United States in response to any such danger.
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In other words, the President alone, if he does not have the support of the Congress, cannot determine what this “appropriate action” is, other than selling weapons to Taiwan. Therefore, while noting that any mainland Chinese military adventure would be viewed with “grave concern”, successive administrations since 1979 have never explicitly spelled out military means as an
“appropriate action.” However, if the PLA takes military action to restore order in Taiwan, the U.S.
Government may view the Taiwan Relations Act in the context of the many security treaties and alliances in Asia with countries such as Japan, the Philippines and Thailand. Not coming to the defense of Taiwan against the PLA may mean a loss of Washington’s credibility in Asia. Thus, it is very likely that the United States would intervene militarily.
Since the end of World War II, there have been more than 150 wars, taking the lives of over 23 million people. More than 90 percent of them were fought in the less-developed countries. The point is that no two nuclear countries have been at war with each other. Two wars had been quite close to nuclear wars: the Korean War and the Vietnam War. The question is: if America comes into war with
China over the issue of Taiwan, would the conventional war develop into nuclear war?
We, human beings, are fallible and the many complex technological systems we built and are building have many problems that are often undetected until some time in full operation. Many problems have been documented by Lloyd Dumas in his excellent book,
Certainly, we don’t want a nuclear war, but a nuclear war may come about because we are fallible and our complex systems may not work well. Professor
Dumas was very thorough in his documentation. Let us just draw two instances based on the material in Professor Dumas’ well-researched and alarming book.
1
Early in the morning of June 3, 1980, the displays at the Strategic Air Command suddenly showed a warning from NORAD (North American Aerospace Defense Command) that two SLBMs
(Submarine-Launched Ballistic Missiles) had been fired towards the United States. Eighteen seconds later, the warning indicated that more SLBMs were on their way. SAC (Strategic Air Command) immediately sent its crew to fly 100 B-52s towards the Soviet Union. These bombers were armed with nuclear bombs that were powerful enough to destroy any nation on earth. Launch crews in landbased missile silos across the United States were also ordered to be ready for launch orders. Ballistic missile submarines at sea were alerted. Special battle-control aircraft, ready to take over if normal command centers failed, were prepared for take off. The American military was ready for
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Armageddon. Just then, the warning disappeared. Suddenly, the displays at SAC again showed an attack warning from NORAD, this time indicating a barrage of Soviet land-based missiles flying towards the United States. Then, the displays at the Pentagon indicated Soviet submarine-launched missiles, not land-based ICBMs, were heading towards America. Clearly, there must be something wrong.
What turned out to be wrong was that a faulty computer chip (costing 46 cents) was randomly generating “2”s instead of “0”s in the transmissions from NORAD to each of the different command centers. The faulty chip was the immediate problem, but there was a basic design error. The NORAD computer was not programmed to check the warning messages it was sending against the data it was receiving from the attack warning sensors to make sure they matched. This kind of error-checking capability was quite routine in the commercial computer systems in those days. Yet the software that ran a key part of the world’s most dangerous technological system did not have this basic safety precaution. In fact, problems in software usually do not surface until some time into its operation.
This is a fact well recognized by computer scientists and programmers, no matter how skillful they are.
We cannot be certain that we will not be running into Armageddon again. This time, it would be devastation unheard of.
Even after the Cold War, we still have false alarms from time to time. On January 25, 1995,
Russian warring radars detected the launch of a rocket from the Norwegian Sea. About the size of a
U.S. submarine-launched Trident missile, it seemed to be heading towards Moscow, with projected impact in only 15 minutes. The radar crew immediately sent the warning up the chain of command to
President Yeltsin. Yeltsin opened the special briefcase that contained the codes needed to launch a nuclear counterattack. Alarms sounded on military bases all over Russia, alerting the nuclear forces to prepare to attack. Tension rose as the stages of the rocket separated, making it look as though several missiles might be headed for the Russian capital. Just a few minutes before the deadline for response, senior Russian military officers determined that the missile was heading far out to sea and was not a threat to the Russian homeland. The crisis was finally over.
The rocket that the Russians detected turned out to be an American scientific probe designed to study the aurora borealis (northern lights). It was sent aloft from the offshore Norwegian Island of
Andoya. Norway had notified the Russian embassy in Oslo in advance of the launch, but somehow “a mistake was made” and the message never reached the right people in Moscow in time. If during peaceful times, we have had so many incidents that can lead to a nuclear war, how can we be so certain that a conventional war between America and China would not develop into a nuclear war?
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Most American nuclear warheads are fitted with safety devices called Permissive Action Links
(PAL) that prevent them from being armed without proper authorization. There are also other devices built into the launch systems of land-based nuclear-armed missiles to prevent unauthorized launch.
The protections are carefully designed, but it is always possible that someone with sufficient knowhow, equipment, and access to PALs could work a way to defeat them.
The common belief that the President of the United States is the only one who has the authority to order the initial use of American nuclear weapons may be technically correct, but it could not be true in practice. It the system was set up so that it was not possible to use nuclear weapons without the direct command from the president, a determined attacker could disable U.S. strategic nuclear forces by killing the president before striking the rest of the nation. A highly centralized command center would lead to the same problem. Alternate command centers are one protection against the decapitation of military command.
Military commanders have had the authority to order the use of American nuclear weapons for decades. Presidents Eisenhower, Kennedy and Johnson all predelegated the authority for emergency use of nuclear weapons to six to seven three- and four-star generals. President Carter and President
Reagan empowered senior military commanders “to authorize a SIOP (Single Integrated Operating
Plan) retaliatory strike and to select the SIOP option to execute.” In short, there have been a lot more
“fingers on the button” than most of us realize. Given the many ways in which human beings can fail, this makes accidental war more likely. This kind of decentralization can be very dangerous despite its military logic.
On the whole, there is an elaborate set of controls in place to prevent accidental or unauthorized firing of American land-based ICBMs. However, more than a third of the U.S. strategic arsenal is carried on nuclear submarines, whose missiles are armed with thousands of city-destroying warheads.
While submarine missile launch procedures require a number of people to act jointly, there is no external physical control against launch. Because of their training and experiences in living together as a cohesive unit, members of the armed forces may be particularly vulnerable to being drawn into the fantasy world of a charismatic but deeply disturbed commanding officer. The ability of a charismatic leader to involve followers in acting out a script that the leader has written is greatly enhanced if the followers can be isolated from outside influences.
In a typical nuclear submarine, the crew is confined to the cramped quarters of a large metal tube sailing below the surface of the ocean. Encased day and night in a totally artificial environment from which there is no respite, the captain and ranking officers abroad have nearly complete control over
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the living and working conditions of the crew. The chain of command on the ship begins with the captain and is clearly specified. Obedience is expected from the crew, which has, of course, been thoroughly trained to obey orders. There is no external physical control over the arming and launching of the nuclear-tipped missiles the submarine carries. Though they are not authorized to do so without orders from the highest command authority, the captain and crew of a nuclear submarine are capable of launching all the nuclear weapons on board by themselves at any time. And each single submarine carries enough offensive nuclear firepower to destroy any nation on earth.
Under these conditions, a charismatic captain who commands the loyalty and trust of both officers and crew is in an almost ideal position to lead them wherever he wants them to go. If the captain has become deluded, paranoid or otherwise enveloped in an internal fantasy world, while still maintaining enough contact with reality to appear sane, the stage is set for disaster on a scale that could dwarf even the horrors unleashed by a genocidal maniac like Adolf Hitler.
If a war breaks out between America and China, a charismatic captain and crew may just believe that it is their “sacred” mission to save the world from the Chinese communists. If they launch their
SLBMs at China, there will be a nuclear war between America and China.
If the foregoing discussion seems somewhat far-fetched, let us review several incidents documented by Professor Dumas in his profound and impressive book, Lethal Arrogance : Human
Fallibility and Dangerous Technologies .
2
At the end of the Cold War, Bangor, Washington, was one of the most heavily armed cities in the world. This submarine base is home to some 1,700 nuclear weapons, about 1,500 of them aboard
Trident nuclear missile submarines. There are additional nuclear weapons stored at Bangor’s
Strategic Weapons Facility, the only site on the West Coast for assembling and loading Trident missiles for the Pacific Fleet. There was enough nuclear firepower in Bangor to destroy any country on earth many times over.
More than a thousand military personnel in the area were on active nuclear duty, certified by a special Pentagon program as physically and mentally reliable. This program is known as Personnel
Reliability Program (PRP). In practice, the PRP covers everyone who works with nuclear weapons, guards them, has access to authenticator codes needed to fire them or is part of the chain of command
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that releases them. All of the following events took place in a single year, that is, within twelve months.
One of those certified as reliable was an 18-year-old marine, Lance Corporal Patrick Jelly.
Claiming to be a reborn soldier killed in Vietnam, he had threatened to kill himself for weeks. Still, he was kept on active duty. Then at 9:30pm, on January 14, 1989, while standing guard over the fearsome nuclear arsenal stored at the Strategic Weapons Facility, Jelly shot himself in the head with his M-16 rifle. Jelly had remained PRP certified until his death.
Tommy Harold Metcalf was another soldier who was certified as physically and mentally fit. He was a fire-control technician on the Trident submarine Alaska . He was directly involved in maintaining, targeting and firing the sub’s 24 ballistic missiles, each of which carried a number of city-destroying nuclear warheads, totally nearly 200 city-destroying nuclear warheads. On July 1,
1989, Metcalf went to the home of an elderly couple, apparently in response to the ad put up by them for the sale of their motor home. He killed both of them. He was eventually arrested. Metcalf was
PRP certified as reliable at the time of his arrest.
In early August 1989, Commander William Pawlyk was arrested after stabbing a man and a woman to death. Pawlyk was subsequently sentenced to life imprisonment. He had been commander of Submarine Group 9 at Bangor and had served abroad the nuclear submarine James K. Polk for five years. He was head of a reserve unit in Portland, Oregon at the time of these murders. He was also
PRP certified until his arrest.
Shyam Drizpaul was assigned to duty abroad the nuclear submarine Michigan . Like Tommy
Metcalf, he was a member of the missile launch team, certified as physically and emotionally healthy.
On January 15, 1990, he shot and killed a fellow crew member in the lounge at his living quarters, then another in bed. Afterward, while attempting to buy a 9mm pistol at a pawnshop, he grabbed the gun from the clerk, shot her to death and critically wounded her brother. Fleeing the scene of that crime, he checked into a motel near Vancouver and used the same weapon to kill himself. He was also PRP certified at the time of his death. All of these incidents occurred between mid-January 1989 and mid January 1990. It had been a bad year at Bangor.
If you are thinking that there is something unreal, something unique about this set of stories, think again. Not only are these stories real, they are anything but unique. They turn on problems of human fallibility and technical failure that are embedded in the fabric of everything we do. While we have been drawing on incidents in America, similar events may probably have taken place in China as well.
But the Chinese do not, as a rule, make public incidents or events connected with the Chinese military
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establishment. In the event of a conflict between America and China, both Americans and Chinese can make mistakes, and the result can be a devastating nuclear war between America and China.
Surely, no sane national leader would launch a retaliatory nuclear strike until an attempt has been made to verify that the triggering event really did mark the beginning of a nuclear war. However, it is likely that verification will fail because there will not be enough time to decide whether or not to retaliate without being sure that the attack is actually under way. In such a situation, people tend to believe what they are predisposed to believe. Will the Chinese military leaders be predisposed to believe that the Americans will attack with nuclear missiles? Or, turning it around, will American military leaders be predisposed to believe that Chinese will attack with nuclear missiles?
If the PLA has to fight against Taiwan’s armed forces, Chinese leaders may warn Americans to stay out of the conflict. But American political and military leaders have many factors to consider.
American intervention may be quite likely. Under such circumstances, the Chinese political and military leaders will be predisposed to believe that America is bent on quick victories, as in the case of the Iraq War, where high-tech warfare played a large role. Under such high tension, any conventional warfare could develop into a nuclear war.
If a war does break out between America and China, terrorists may find this a God-given opportunity to seek vengeance on America. It is quite likely that terrorist groups around the world may have atomic bombs in their possession. They may launch an attack on a Chinese city or an
American city. During moments of tension, nobody will really investigate into the sources of such bombing. The Chinese will be led to believe that it is the Americans who did the bombing; likewise, if the explosion takes place in an American city, Americans will think it is the Chinese who did it. It is easy to talk about limited nuclear warfare. However, emotions will rule over reason. Such a terrorist act will lead to an unpredictable exchange of nuclear warheads. The terrorists will be happy that they have finally revenged themselves on America. In Chinese culture, this practice is called killing someone with a third party’s sword.
Thus, the twentieth century has seen more than 250 wars that have taken the lives of more than
100 million people. We start the twenty-first century with the terrorists’ acts on September 11, 2001.
Whether the Iraqi War is justified is another story. But the fact remains that if China and the United
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States were to clash militarily in the early twenty-first century, the Taiwan Strait would be the most likely location. This statement is probably a statement that is readily accepted by most China scholars in the United States. However, it is the proposition in this book that such military clashes can lead to a nuclear war between these two nuclear powers. Leaders in Washington, D.C. and Beijing should perhaps examine alternative solutions to the Taiwan problem. By insisting on a vaguely worded
Taiwan Relations Act and trying to come up with a Taiwan Security Enhancement Act does not solve the Taiwan problem. Solving the Taiwan problem to the satisfaction of the people in Taiwan can be a prelude to solving other security, economic and financial problems in Asia and, perhaps, in the world.
At least, the twenty-first century need not be as bloody as the twentieth century.
Time Magazine named Albert Einstein as Man of the Century. Its rationale was that the twentieth century was a century of great scientific and technological achievements. Many people agree that
Einstein is the greatest theoretical physicist in the twentieth century. However, Einstein’s greatest theoretical contribution was his special theory of relativity. Based on that theory, we have nuclear power and nuclear weapons. Einstein’s legacy to us is the stockpile of over 18,000 nuclear warheads in a small number of countries in the world. We hope that we will not use any of these warheads anywhere in the world. But if we did, we might usher a period of nuclear winter. That would indeed be Armageddon fulfilled. Before we examine what a nuclear winter is in the following chapter, let us add a few interesting points about Chinese culture and Chinese history.
Akira Iriye is Charles Warren Professor of American History and Director of the Edwin O.
Reischauer Institute of Japanese Studies at Harvard University. He delivered The Edwin O.
Reischauer Lectures, China and Japan in the Global Setting in 1989, which were subsequently published by the Harvard University Press.
He said:
It would be wrong to say that China’s traditional elites had been entirely unfamiliar with the idea of power defined in military terms, but in contrast to the West, Chinese political and bureaucratic / intellectual leaders had tended to see themselves as belonging to a society that was conceptually more as a culture (or a civilization) than as a military power. This seems to have been the case as early as the Han period. Military force had at best been a necessary evil to maintain domestic order, not something in which the society would take particular pride or through which it would compare itself with others. Wars had been fought of course, but, in
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contrast to the West, where the multiple existence of nation-states after the sixteenth century almost always presupposed the possibility of war, in China most military conflicts took the form of protecting the Middle Kingdom against the nomads, barbarians of the steppes.
Within the Great Wall, which separated the two kinds of societies, military force was of much less significance than culture as a symbol of authority and greatness.
It would be interesting to investigate when the Chinese began to view their country as a military power. By the 1870s, some at least were speaking of the need to build up armed forces to cope with the changing world around China. This period corresponded to a particular phase in modern European history where five or six modern nation-states defined themselves as great powers and viewed each other as potential enemies.
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He commented:
But it could just as plausibly be argued that the emphasis on military power was precisely what characterized the modern states of Europe and that, coming from a nonmilitary tradition, it was no mean achievement for the Chinese to accept the fact that, if their country were to gain respect abroad and to protect itself, they would even have to be willing to go to war, for war was considered then the ultimate test of a nation’s power.
4
The above remarks may be an oversimplified account of Chinese history.
In 1979, Deng Xiaoping delivered a crucial speech outlining the government’s approach to system reform. At the core of this approach was an acute awareness of the possibility of system disintegration, and the awful consequences that would follow for the Chinese economy and society.
At present, when we are confronted with manifold difficulties in our economic life which can be a series of readjustments and by consolidation and reorganization, it is particularly necessary to stress publicly the importance of subordinating personal interests to collective ones, interests of the part to those of the whole, and immediate to long-run interests … Talk about democracy in the abstract will inevitably lead to the unchecked spread of ultrademocracy and anarchism, to the complete disruption of political stability and unity, and to the total failure of our modernization program. If this happens then the decade of struggle against Lin Biao and the Gang of Four will have been in vain, China will once again be plunged into chaos, division, retrogression and darkness, and the Chinese people will be deprived of all hope. (Deng Xiaoping, 1979: 55)
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When Deng Xiaoping issued his warning, he had at the center of his thinking the age-old preoccupation of Chinese political thought: system stability. China has experienced long periods of system disintegration. The “dynastic cycle” was a regular phenomenon, with high levels of bureaucratic efficiency at the start of each dynasty, followed by a gradual disintegration of the morality and effectiveness of the central government.
The dynastic cycle was so regular and so devastating when it entered a downward path at the end of each dynasty that the theme of avoidance of “great turmoil” ( da luan ) has been the focus of all
Chinese political thought from the earliest times right through to the present day. At the core of the
Chinese reform program after the death of Chairman Mao was a resolute belief in the need to prevent
China’s political economy from disintegrating and the country descending into “big turbulence”, which would deprive the Chinese people of all hope.
The consequences of political disintegration in China have been horrific. The end of the Song dynasty (960 – 1279) saw a protracted war fought by the Mongols to conquer the country, one of the bitterest and most prolonged wars of conquest in world history. The country as a whole lost perhaps a third or more of its population by the time the war was over. The loss around 35 million is a staggering one for the era. Not only were large numbers of people put to the sword, but crops and grain stores were systematically destroyed so that vast numbers starved to death. During the long years of military struggle, regular government activities of water control and famine relief were substantially in abeyance, further aggravating the terrible direct effects of the war. The conflict produced huge disruption to the transport system, undermining the beneficial effects of trade and the division of labor.
The end of the Ming dynasty (1368 – 1644) was accompanied by severe decline in the administrative capabilities of the rulers. There were widespread rebellions in the second quarter of the seventeenth century. The turmoil was made even worse by the Manchu invasion and the conquest of
China Proper. This took the form of a prolonged struggle between the Ming armies and the Manchu invaders. Moreover, it took the new rulers many years to pacify the main part of the country. It is estimated that the Manchu conquest cost China about one-sixth of her population, say 25 million people.
The weakening of the Qing dynasty (1644 – 1911) in its final phase was accompanied by intense civil disturbance. Following the usual pattern of the decline of dynasties, the increased corruption and fiscal weakening of the central government undermined its capability to organize efficiently the military and public works. Beginning with the outbreak of the insurrection of the White Lotus religious sect in 1796, China entered an epoch of great civil disturbances, which culminated in the
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Taiping Rebellion (another religious sect) of 1851 – 64. Overlapping with the Taiping Rebellion was the prolonged warfare associated with the Nien Rebellion. These wars were marked by slaughter of both military and civilian populations on a scale difficult to imagine by both modern war ethics.
Altogether these mid-century “religious” rebellions probably accounted for a decline in population of over 50 million. These “religious” rebellions could easily match the loss of human lives and immense suffering during the Thirty Years War in Europe, which totally devastated Germany and left France the most powerful nation on continental Europe. The Thirty Years War was partly religious in nature.
China knew religious conflicts on a large scale before it turned against Falongong, a religious sect in
China now.
The collapse of the Qing dynasty was not followed by the establishment of another dynasty which was able to establish a peaceful environment within which the economy could recover, people could begin to live a more secure and prosperous life, and the population could again start to grow. Instead, it was followed by decades of disunity and turmoil. This was interrupted only briefly in the late 1920s and early 1930s by a degree of stability over a significant part of the country. For most of the first half of the twentieth century, China lacked any kind of central political organization. After 1928, the
Communists were repeatedly at war with the Nationalists. In its gravely weakened political state,
China was unable to resist the Japanese invasion in 1937. This was followed by war with Japan until
1945. As soon as Japan surrendered to the allied forces, full-scale civil war once again broke out between the Nationalists and the Communists. Under these conditions, population growth was only around 0.8 percent per annum over the period 1912 – 49. What is the point? The point is that China needs long lasting peace to become a great civilization again.
However, the Chinese people did not bow to the Mongol and Manchu invaders. They fought bravely. So Americans should not underestimate the Chinese by simply believing that a first strike of missiles could wipe out China’s ICBM (Intercontinental Ballistic Missiles) installations and brought the Chinese leaders and the Chinese people to a recognition of their military weakness. Americans should also realize that the Chinese leaders would not so easily forget the bitter lessons of the great turmoils produced by the religious sects, the White Lotus in 1796 and the Taiping Rebellion (1851 –
64).
On May 1, 1995, a small group of Americans were assembled at LBJ (Lyndon Johnson) Library.
Among them was Robert McNamara. He was in tears. He admitted that what he had done as
Secretary of Defense from 1961 to 1968 was terribly, terribly wrong. Mr. McNamara was never really cut out to be an empire builder. The typical empire builder goes to his grave with the belief that
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he has done his people a great service. In 1945 when Berlin was near starvation and surrounded by
Soviet troops, the Führer complained about the ingratitude of the German people.
McNamara had been an outstanding student at Harvard Business School and had run Ford Motor with the statistical tools he learnt from the U.S. Air Force. But he was unprepared for Vietnam. Had he ever read Sun Tzu or Clausewitz or Caesar or Bonaparte? Had he learnt anything from the French after they had been defeated by the Vietnamese. He knew little about Vietnam.
The only people in the West who had any understanding of the Vietnamese were the French. The
Americans, particularly the American leaders, ignored them because they were losers. Since the time of Napoleon, the French did badly in warfare even in those battles that they won. By contrast, every war the Americans fought – at least since the War between the States – had been a reasonable success.
The only exception was the Korean War, which we shall turn to shortly. McNamara was one of the group assembled around President John Kennedy, who were deemed the best and the brightest.
McNamara was the youngest Secretary of Defense in American history until the time of Rumsfeld
(who assumed this title twice in his lifetime). McNamara was badly in need of some Gallic cynicism.
Americans believed that it was both their sacred duty and national interest to stop communism spreading all over Asia. Losing China to the Chinese communists was bad enough. Losing Indochina would be a fundamental error. Thus, America was determined to stop the advances of communism in
Indochina. After American troop levels in Vietnam reached half a million, and nearly half of a trillion dollars (adjusted to year 2000 dollars) had been spent, and non-combatants were being killed at the rate of 1,000 a week, Americans came to their senses. The idealists left the State Department and the
Defense Department. Realists, led by Henry Kissinger, came in and figured out how to withdraw from Vietnam in the least disgraceful way.
The Vietnam War, lasting from 1961 to 1975, was far bloodier than Americans were used to think.
In this conflict, America lost 58,000 soldiers. The Vietnamese lost an estimated 3.8 million, according to McNamara’s estimate. To bend the Vietnamese to Americans’ will, Americans stepped up their bombardment in both South Vietnam and North Vietnam. The expected the Vietnamese would succumb to such pressure and would come to the table for negotiation. But the Vietnamese did not show up. It was as if the Vietnamese simply could not count. They simply would not count the losses in human lives and the damages to their property inflicted by the mighty American armed forces.
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It made absolutely no sense to McNamara. So, he raised a question to the Vietnamese delegation sitting opposite him in Hanoi, 30 years later. How come all the misery we inflicted on the
Vietnamese did not bring them to ask for a settlement? Tran Quang Co replied:
I would like to answer Mr. McNamara’s question. I must say that this question of Mr.
McNamara has allowed us to better understand the issue. During the coffee break, an
American colleague asked me if I had learned anything about the U.S. during the discussion of the past few days. And I responded that I have learned quite a lot. However, thanks to this particular question, I believe we have learned still more about the U.S. We understand better now that the U.S. understands very little about Vietnam. Even now – in this conference – the
U.S. understands very little about Vietnam.
When the U.S. bombed the North and brought its troops into the South, well, of course, to us these were very negative moves. However, with regard to Vietnam, U.S. aggression did have some positive use. Never before did the people of Vietnam, from top to bottom, unite as they did during the years that the U.S. was bombing us. Never before had Chairman Ho Chi
Minh’s appeal – that there is nothing more precious than freedom and independence – go straight to the hearts and minds of the Vietnamese people as at the end of 1966.
5
Americans learned nothing from the French experience. De Gaulle warned Kennedy that
Vietnam would be a graveyard for American soldiers. It was a “rotten country,” he said, unsuitable for Western ways of war. But in the inflationary boom of the first “Guns and Butter” administration, that of Lyndon B. Johnson, Americans thought that they could do what the French could not do. They spent far more money than the French and lost far more men, but Giap beat them, just as he had the
French. But the Vietnam War was not the first war American lost in Asia. We have to go back a few steps in time.
Almost from the moment that Emperor Hirohito announced Japan’s surrender on August 15, 1945,
Americans decided to let bygones be bygones. But seen from a Japanese point of view, the war’s aftermath continues to this day: Japan’s response to the shame of defeat has been sublimated in economic development. On the morning of August 30, 1945, General Douglas MacArthur’s plane took off from the Philippines, and by early afternoon, it had entered Japanese airspace. He landed at an airbase on the outskirts of Tokyo. The occupation had begun the way it was destined to continue – in a blaze of MacArthurian triumphalism.
Tokyo’s plan for dealing with MacArthur quickly became apparent. Everyone has a weakness and MacArthur’s was vanity. Tokyo perceptively determined to treat MacArthur as an ersatz emperor,
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lavishing on him all the pomp and splendor he evidently craved. The substance of power, however, would remain firmly in other hands (it should be remembered that emperors have always been accorded a purely ceremonial role in Japan). MacArthur’s first taste of imperial splendor came as his entourage left the airbase for his luxury quarters in a Yokohama hotel. Japanese soldiers lined the route, each one facing away from the entourage. Some in the American party may have taken this as an insult, but MacArthur knew that for the Japanese it was a reverential posture. It had been previously reserved only for Emperor Hirohito, the Son of Heaven, on whom the Japanese were not allowed to gaze directly. Drunk on all the attention lavished on him by the Japanese press, MacArthur quickly concluded that he had wrought a cultural sea change in Japan. Thus was born the myth of
Japan’s “Americanization”.
By 1947, MacArthur was so confident of the Japanese people’s acceptance of American values that he gathered his men for a spectacular Fourth of July parade right past Emperor Hirohito’s palace.
During the following week, the celebrations were featured as the top item in the movie newsreels shown in Japanese cinemas, complete with a short explanation of the American Revolution. But the idea that the two countries as different as the United States and Japan could achieve an easy partnership seemed from the start to be doomed to disappointment. On virtually every issue of culture and philosophy, Americans and Japanese were positioned then as now at opposite extremes of the world spectrum (with Europe, Russia, and China generally positioned somewhere in between and usually in the time zone order). Whereas Americans, for instance, believe in having everything out in the open, the Japanese prefer to read between the lines. Whereas Americans view the world as a battle between clearly identifiable right and wrong, the Japanese see ethical issues as a study in various shades of gray. Whereas Americans believe in crusades and Pauline conversions, the
Japanese believe in bending like a reed and striking while the iron is hot.
In short, the stage was set for a double talk. The Americans, in their eagerness to believe in miracles, projected onto the Japanese a much more thorough commitment to Westernization than was actually there. The Americans seemed to have been totally disarmed by the friendly reception they received in Japan. The Americans had expected to be treated with hostility or at least sullenness by the defeated Japanese. But Japanese leaders, in a classic demonstration of Japanese culture, had decided to spring a pleasant surprise. A week before the occupation began, they launched a major press campaign tutoring the Japanese on how to make the forthcoming encounter as friendly as possible for all concerned – and virtually every Japanese citizen compiled.
No one was more charmed than MacArthur. MacArthur had come to Japan with vengeance in his heart, determined that for the next twenty-five years, “the Japanese will have a hard enough time eating.” Almost immediately, however, he began backing away from this stance. And within just two
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weeks, he announced his conviction that the Japanese, on the strength of a few days’ contact with the
GIs, had become firm admirers of “the free man’s way of life in actual action.”
From the moment the atom bomb destroyed Hiroshima, however, the Japanese found it expedient to make an outward display of cooperation with America’s agenda. Japan decided to play the model prisoner, gracefully putting up with every indignity the quicker to regain its freedom. It is clear that most of the time there was no true meeting of minds between the Americans and the Japanese. When the Japanese say something that does not make sense, the Western listener may well be missing some important piece of the Japanese cultural jigsaw – or the Japanese may simply be giving their idea of a polite “no comment.” In effect, the Americans were wrestling with the shogun’s ghost. In a country where for centuries one could lose one’s head for saying the wrong thing, the art of speaking ambiguously was second nature. It has remained so to this day. The Japanese people often display an ability to mount elaborate rituals in which everyone is merely acting a part. When MacArthur prescribed a switch to democratic mode, everyone talked about individualism and acted out noisy scenes of political pluralism. The Japanese people’s theatrical performance is rooted in a highly institutionalized dichotomy between what the truth is and how that truth is described for pubic consumption. The public version, called the tatemae , is often fanciful and is invariably misleading.
True reality is called the honne and is generally disclosed only to superiors and other “insiders” with a well-recognized right to know. Insidership is a relative term: sometimes the insiders are members of a company, sometimes of an industry cartel, sometimes (as in dealings with foreigners) the entire
Japanese establishment. Much of what passes for political reporting in the Japanese press is really tatemae , and the only thing certain is that the real meaning is different from what the papers print.
The occupation’s most visible achievement was to group more than five thousand Japanese officers, soldiers, and civilians for war crimes. At least nine hundred were executed and nearly five hundred were given life imprisonment. The war crimes proceedings reached their climax in the early morning of December 23, 1948, when the Americans hanged Japan’s wartime leader, Hideki Tojo, at
Sugamo Prison in Tokyo. Also hanged that morning were six other top wartime leaders. Before mounting the scaffold, Tojo and three other condemned men shouted three times in unison, “
Tenno heika banzai ” – may the Emperor live ten thousand years. Tojo had consciously offered himself as a sacrifice to shield Emperor Hirohito. The other accused war leaders also tried to present a front of decorum and fortitude. None of the thousands of Japanese accused of war crimes had attempted to flee the country before the Americans caught up with them. This contrasted markedly with the behavior of the Nazis. In facing their fate with resignation, Japan’s leaders were in effect sending the same message the young kamikaze pilots had sent: the Japanese are different.
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By encouraging Washington to believe that the whole world was rapidly converging toward
American values, MacArthur is principally to blame. In March 1949, he told the Osaka Mainichi newspaper: “Now the Pacific has become an Anglo-Saxon lake.” After being detached from the
Chinese orbit by Japan’s defeat of China in 1895, Korea by 1910 had been fully absorbed into the
Japanese empire. Yet the Korean people’s experience of Japanese colonialism down to 1945 had only deepened their sense of nationalism. After 1945, they found themselves caught again in the vortex of power politics and divided like the German people under two separate regimes that represented the strategic needs and social aims of the Soviet- and American-led power blocs of the cold war. When
North Korea with Soviet backing suddenly invaded South Korea on June 25, 1950, China again became involved in the fate of her one-time tributary.
The North Korea surprise attack was at once condemned by the United Nations Security Council.
(The Soviet Union, having boycotted the Council, was not present to cast a vote.) President Truman, mindful of the historical lesson of the 1930’s in China and Europe – that aggression unchecked fostered more general warfare – interpreted the North Korea attempt at unification by force as a case of aggression by one sovereign state against another. He committed the United States forces to defend South Korea and at once secured the support of the United Nations in the name of collective security. All allied forces were put under the unified command of General Douglas MacArthur.
Beijing was unwilling to join the Soviet-armed North Korean aggression against South Korea.
The Chinese Communist leaders evidently hoped to seize Taiwan from the Nationalists, but this was prevented when President Truman ordered the American Seventh Fleet to stop invasion either way across the Taiwan Strait. As the Korean War developed, China’s chief strategic concern was the security of her principal industrial base inherited from the Japanese in south Manchuria.
MacArthur demonstrated the offensive power of modern military technology with a massive amphibious landing on September 15 on the west coast at Inchon, the port for the capital, Seoul. This was a gamble that succeeded brilliantly and was soon followed by recovery of Seoul and destruction of the North Korean invasion.
The Untied States forces crossed the 38 th parallel in early October and pushed north toward the
Yalu River, which runs between China and Korea. They now expanded their aim from repulse of the
Northern invasion to an ill-advised effort to reunite Korea by force. General MacArthur was determined to achieve great victories as he was thinking of being a candidate for the American presidency. Mao was not sure whether MacArthur intended to invade China as well, doing the job of
Chinese unification for the Nationalists. China issued a clear warning of intervention, and in mid-
October massively organized Chinese Communist “volunteers,” and units of Lin Piao’s Fourth Field
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Army secretly began to cross the Yalu into North Korea. Marching long distances through the mountains by night, lying hidden from air reconnaissance by day, they waited until, by late November, they totaled 300,000 or more. Unexpected Chinese flank attacks suddenly forced the American motorized columns, which were in a thrust towards the Yalu, into a costly retreat of 275 miles in the winter cold, all the way back to the south of Seoul. But China’s attempt in her turn to use her vast resources of manpower to unify Korea by force was now contained by United Nations firepower that eventually produced a stalemate along the 38 th parallel.
Truce talks began in July 1951 and dragged on at the border post of Panmunjom for two years.
During this period, fighting continued and the Chinese forces in Korea were built up with heavy
Soviet weapons. The 142,000 casualties suffered by the United States made the Korean War the fourth largest in American history up to that time. South Korean casualties were estimated at 300,000,
North Koreans at roughly 520,000, and Chinese at perhaps 900,000. An armistice was finally signed on July 27, 1953. If General MacArthur’s dream was to become the next American president by winning the Korean War and perhaps driving Mao out of Beijing as well, he was defeated. In a sense,
America had lost a war in Korea.
Although the Vietnamese people are very proud of defeating the mighty American armed forces by forcing Americans to withdraw from Vietnam, the Chinese were part of that victory. This is because American armies did not invade North Vietnam, partly mindful of the bloody intervention by
China in the Korean War almost two decades earlier.
Americans have defeated Iraq twice. So thanks to their Revolution in Military Affairs, Americans can now proclaim absolute superiority in military power.
In his book, The Iraq War , John Keegan writes:
The war was launched because Saddam Hussein, President of Iraq, refused to cooperate with
United Nations inspectors in their search for his forbidden weapons of mass destruction. Yet even after his defeat laid the whole territory of Iraq open to search, such weapons eluded discovery. Mystery surrounded the progress of operations. Iraq fielded an army of nearly
400,000 soldiers, equipped with thousands of tanks, armored vehicles and artillery pieces.
Against the advance of an invading force only half its size, the Iraqi army faded away. It did not fight at the frontier, it did not fight at the obvious geographical obstacles, it scarcely
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fought in the cities, it did not mount a last-ditch defense of the capital, where much of the world media predicted that Saddam would stage his Stalingrad … Perhaps most mysteriously of all, much of the population of Iraq, the ordinary town dwellers and country people, exhibited a complete indifference to the war going on around them, carrying on their everyday lives apparently oblivious of its dangers 6 .
On December 13, 2002, a party of American troops from the 4 th Infantry Division, revisiting a farm already searched but now with better information, uncovered the entrance to an underground hiding place. When the trapdoor was lifted, a bedraggled and heavily bearded Saddam was found cowering inside. He held up his hands and announced, “I am the President of Iraq and I am ready to negotiate.” He was swiftly transferred to American military custody.
When the war engulfed their country, the people who ought to have been most affected by it, the population of Iraq itself seemed scarcely ready to give it their attention. American cheerleaders had predicted that the invading army would be overwhelmed by the gratitude of the liberated once it appeared on Iraqi territory. Opponents of the war, particularly in the media, puzzled at first by the lack of opposition the invaders encountered, consoled themselves with a prediction of their own that when the American army reached Bagdad, it would be resisted block by block, street by street. There would be a Stalingrad-on-Tigris. Saddam commanded some 400,000 men in uniform, 60,000 of them in his loyalist Republican Guard. The coalition high command expected them to fight. Its soldiers, particularly the younger men who had never been in battles, were prepared for bloody battles. They were to be largely disappointed. Ultimately, there is no mystery about the collapse of Saddam’s regime and the failure of his people to fight his last war. Saddam had waged war against Iraq itself, repeatedly, relentlessly, revengefully. He had exhausted the will of the population to do anything for him and it was entirely appropriate that he should have been driven as a last resort to seek refuge underground in the soil of his tortured country.
China is not Iraq. American hawks can boast of wiping out China’s ICBM installations with a first strike of missiles. They can also talk of building a national missile defense system that can cost in excess of $100 billion and yet is still unproven in technology. It was RAND Corporation which conceived the concept of First Strike and Second Strike. It was Robert McNamara who endorsed the concept of MAD (Mutual Assured Destruction). China could fight back if American hawks believed that they could eliminate China’s nuclear force. This is addressed in greater detail in the following chapter. But remember: China is not just known for her culture and civilization. Chinese history is also bloody history because the Chinese did not bow to the Mongol and Manchu invaders. They also did not bow to the Japanese invaders. Chinese also fought the United Nations armed forces to a standstill in Korea.
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We have to go back some time in world history to find a combination of might and right.
Presently, the combination of American might and American right is unique in contemporary history.
However, this combination does not guarantee the perpetuity of Pax Americana . We should, by all means, avoid a worst-case scenario. This requires enlightened leadership on both sides of the Pacific
Ocean and, what is more, a profound sense of the heavy burdens of responsibility placed on the shoulders of the leaders of the American and Chinese peoples. American politicians can speak ill of the Chinese leadership. But while eloquence is a great gift for politicians, mouthing conventional wisdom eloquently is not necessarily great leadership.
Too many American politicians and even some China scholars in America are mouthing conventional wisdom eloquently. They are not necessarily leaders. In this uncertain and precarious world, great leadership is called for. We hope that a new generation of American and Taiwanese leaders will come along in 2008 or soon afterward so that the Taiwan problem can be addressed with vision, political wisdom and consummate diplomatic skills. Leaving the Taiwan problem as it is, we may end up in a worst-case scenario, in which America and China would be involved in a nuclear war that neither side has wishes for in the first place.
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Since the Gulf War of 1991/92, China has been rapidly modernizing its armed forces and has basically abandoned Mao’s concept of people’s war. Chinese missile development is a case in point.
In 1995 and 1996 Beijing used a series of missile tests to intimidate Taiwan. Research equipment was carried on the missiles, but their payloads could just as easily have been explosive warheads. The first tests were apparently precipitated by President Lee Teng-hui’s visit to the United States in June 1995.
China was angered by the implication of diplomatic recognition bestowed on Taiwan by President
Lee’s visit. The second tests were triggered by the Taiwanese elections of March 1996, during which
President Lee seemed to flirt with the idea of Taiwanese independence. Beijing has long said that any declaration of independence could result in the use of force to return Taiwan to China.
The urgent question among U.S. observers was: what was the Chinese leadership up to with such missile diplomacy? What were they trying to signal? Did it represent the political leaders bowing to pressures from the military, and if so, what did this say about the future direction of Chinese foreign policy? Such questions are like the old practice of Kremlinology: fragments of speeches and other bits of information were placed together to make long-term forecasts of Soviet behavior.
But what the tests really showed was the learning curve of Chinese missile technology. The first tests took place in July 1995, when the Chinese fired two DF-15 missiles daily for three consecutive days. The DF-15 (DF standing for Dong Feng, or East Wind) is a mobile missile with a range of 600 miles. It is launched from a trailer, which can be hidden from satellite or aerial reconnaissance in the same way that Saddam hid his SCUDs during the Gulf War.
The 1995 tests were not a success. Of the six missiles fired, one had to be destroyed over China because of a guidance malfunction. Two others hit the far outer edge of a predestinated target zone.
Intelligence reports suggest that for the three missiles that landed inside the target zone, accuracy was poor. The standard measure of missile accuracy is the circular probable error , the radius of a circle centered on the target within which half of the missiles will fall. Using this, the DF-15 in 1995 had an accuracy of 2.4 miles. With this accuracy, it would be ineffective with a high explosive warhead.
Only a nuclear weapon, or perhaps a chemical or biological weapon, would possess the necessary kill radius to compensate for the poor accuracy. When another test was conducted in March 1996, matters had changed considerably. Four missiles were launched at two target areas, rather than one, in the
South and East China Seas, one near the Taiwanese port of Kaoshiung and the other near the port of
Keelung. This time all four missiles landed with near pinpoint accuracy.
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How could accuracy have improved so dramatically in only eight months! First, it must be understood what an amazing achievement this was. In 1958, the Atlas, the first American long-range missile, had an accuracy of one mile. Since accuracy was such an important factor, a tremendous amount of research was devoted to improving it. Only by the early 1980s did the U.S. Minuteman III and Pershing II missiles get down to accuracies measured in hundreds of feet or less. Likewise, in the late 1950s, the Soviet SS-6 missile had an accuracy of one mile. Only with their SS-18s and SS-19s in the early 1980s did the Soviet achieve accuracies of a few hundred feet. What took the United
States and the Soviet Union twenty-five years to accomplish, China duplicated in eight months.
The DF-15 missile has what is called an inertial navigation system. This is an onboard computer programmed to keep the missile on a path predetermined before launch. Once launch, there is no further communication with the missile. With pure inertial navigation, there is no new information on whether it is on or off course. It is difficult, but not impossible, to achieve high accuracies unless the computer aboard is extremely advanced, comparable to American or Soviet guidance technology in the 1980s.
This requirement was thought to be beyond China’s capacity in 1996. It is possible that the
Chinese obtained such a system from Russia, or that engineers obtained the know-how there and built it themselves. Another possibility is that a mid-course correction was fed into the missile guidance system when it was in flight. An in-fight missile’s position can be obtained from navigation satellites.
Then the programmed flight path can be compared with where the missile actually is.
Deviations between the two can be calculated by the onboard guidance computer, with the results fed to a small propulsion system to put it back on course. China has a research program to link the
DF-15 to navigation satellites. If so, this would be a much faster way to improve missile accuracy.
Whatever the method, evidence pointed to Chinese confidence that accuracy had improved. The impact areas for the tests were moved from one hundred miles off Taiwan in 1995 to twenty miles offshore in the 1996 exercise.
The implications of Chinese missile improvements are ominous for Taiwan. Paul Bracken, a professor of political science at Yale University, has said in his book, Fire in the East: The Rise of
Asian Military Power and the Second Nuclear Age (1999) that launching forty-five missiles with conventional warheads, China could virtually close the ports, airfields, water works, and power plants, and destroy the oil storage of a nation that needs continual replenishment from the outside world.
This could be done with minimal civilian casualties.
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Since 1996, Taiwan has taken steps to reinforce its defense capabilities. A number of books has been written on the modernization of China’s People’s Liberation Army (PLA) and Taiwan’s military strengths. The better ones include:
1.
China’s Techno-Warriors: National Security and Strategic Competition from the Nuclear to the Information Age (by Evan A. Feigenbaum, Stanford University Press, 2003).
2.
China’s Strategic Seapower: The Politics of Force Modernization in the Nuclear Age (by
John Wilson Lewis and Xue Litai, Stanford University Press, 1994).
3.
Modernizing China’s Military: Progress, Problems, and Prospects (by David Shambaugh,
University of California Press, 2002).
4.
Peace and Security Across the Taiwan Strait (Ed. Steve Tsang, Palgrave MacMillan Press,
2004).
5.
China and the People’s Liberation Army: Great Power or Struggling Developing State?
(by
Solomon M. Karmel, MacMillan Press, 2000).
6.
Dangerous Strait: The U.S.-Taiwan-China Crisis (ed. Nancy Tucker, Columbia University
Press, 2005)
We shall draw on the information on the Internet as well as the information provided in Sheng
Lijun’s book, China and Taiwan: Cross Strait Relations Under Chen Shui-bian . Dr. Sheng is a senior fellow at the Institute of Southeast Asia Studies in Singapore. His book seems to be the best researched book on the strategic capabilities of China’s PLA. It was published in 2002. Since China is making steady progress in upgrading its military strengths in many ways, we have to update the information in this book with data provided on the Internet. This information on the Internet is up to
August 2005. We leave the reader to update the information provided in this book. The Internet has become a handy tool in research. We are more concerned with the broad trends.
China’s first Intercontinental Ballistic Missile (ICBM) was the DF-5. It was the first tested on
May 18, 1980 with Deng Xiaoping at the Command Post in Beijing. The DF-5 has a range of 7,500 miles and beyond. Basically, it can reach any target in the United States. It is a two-stage, liquidpropellant rocket with a 3-megaton or 5-megaton thermonuclear warhead. American intelligence sources said that China has 20 DF-5 deployed.
China is further developing its Intercontinental Ballistic Missiles with DF-31 and futuristic DF-
41 – that will be equipped with a low-power propulsion technology, a new technological breakthrough that can alter the path of offensive weapons. In other words, the two missiles can alter their flight
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paths, making efforts to intercept them very difficult. The DF-31 is a three-stage, solid-propellant rocket. It can carry a 2.5 megaton thermonuclear warhead or three 90 kiloton nuclear warheads. Thus, both DF-31 and DF-41 are MIRV (Multiple Independently-targetable Re-entry Vehicles) or MRV
(Multiple Re-entry Vehicles). They are solid-fuelled, vehicle-mounted, vehicle-erected and vehiclelaunched, thus giving China a stronger strategic deterrence than it previously had. The DF-31 success was so spectacular that the PLA has deployed at least 24 of these missiles by the end of 2004.
Because DF-31 missiles are mobile, it is difficult to locate them, much less to destroy them. Not much is known about DF-41. It is also a three-stage, solid propellant rocket, which can reach any target in the United States. China also has deployed at least 400 DF-11 tactical missiles and at least
400 DF-15 tactical missiles, and has another 20 plus DF-4 ICBM with a limited range of 4,500 miles.
It is a two-stage, liquid-propellant rocket with a 3-megaton thermonuclear bomb. China also has deployed 10 DF-25 IRBM (Intermediate Range Ballistic Missiles) with a range of 1,500 miles. It is a two-stage, solid-propellant rocket, carrying three 250-kiloton nuclear warheads.
The PLA Navy (PLAN) currently has eighty submarines in service. Seventeen of them are nuclear attack submarines, designated as 091 and 093. There are five 092 or Xia -class ballistic missile nuclear submarines (SSBN). It started the 094 SSBN Project at the end of 1980s and three
094 SSBNs have been commissioned. Another three SSBNs will soon join the service. Compared with the 092, the 094 is much quieter and harder to detect. It is equipped with a C4ISR system
(command, control, communications, computers, intelligence, surveillance and reconnaissance system) and the Julang (Great Wave) – 2 missiles (that is the equivalence of DF-31). The 094 launch missiles from under water while the older 092 model cannot do submerged launching. The 094 carries sixteen missiles, each of which can be MIRVed or MRVed, with from three to six nuclear warheads mounted on each. In other words, one 094 can launch ninety-six missiles. If the PLA builds at least six 094s, as reported, they can attack 576 targets all over the world at the same time. As a strong deterrence against U.S. aircraft carriers, the PLAN is using Russian Victor III design to upgrade two nuclear attack 093 submarines. The PLAN is also developing a new submarine-launched cruise missile based on its C-801 cruise missiles.
In May 2002, there were reports that the PLAN had signed a contract with Russians to purchase eight Kilo 636 diesel-electric submarines for US$1.6 billion. These submarines are much more advanced than the four Kilo submarines received by the PLAN in 1995-98. They are equipped with two new-generation weapon systems. a) Klub anti-ship cruise missiles with a range up to 200 km; no counterpart has been invented in the world. They have three stages: The first two define movement at subsonic speeds, the third goes into operation in 20 km from the target at supersonic speed, which guarantees
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invulnerability from enemy air-defense weapons and destroys the enemy’s ship. The Kilo-
636 submarine with the Klub system is capable of salvo firing of missiles simultaneously from six torpedo tubes and not only at surface targets, but also at submarines. b) The Shkval torpedo, whose speed reaches at 100 meters per second. After launch under water, it flies through the air and descends by parachute into the region where the hostile ship was detected and then again travels under water. Under such conditions, the commander of the targeted submarine simply cannot perform an anti-torpedo maneuver. Incidentally, the
Russian navy has no ships with such a weapon yet. In 2001, China acquired at least 40
Shkval torpedoes from Russia. The PLAN will also use these weapons on the 093 nuclear submarines. Simultaneously with the eight submarines constructed in Russia, at least four submarines of the same kind are being built at China Shipbuilding Industry Group
Corporation (SIGC) shipyards in Shanghai, Wuhan and Guangzhou. As early as 1997, the
Chinese and Russians negotiated for China’s purchase of about 10 Kilo submarines in exchange for their manufacturing technology.
In 1999, China finished the construction of a “super-Kilo submarine,” the improved version of
China’s
Song diesel-electric submarine. China already has part of the Kilo construction technology; now SIGC will get the entire technology. The order for eight submarines is distributed between three
Russian shipbuilding enterprises, in order to accelerate the completion of the project. The Chinese will be able to get all of the eight submarines by the end of 2006. So, by 2006, the PLAN could get an entire fleet of comparatively advanced diesel-electric submarines: three to four Song , four oldgeneration Kilos , eight new-generation Kilos , and at least four Chinese-made Kilos of the new version.
China has already two Russian Sovremenny class destroyers, equipped with SS-N-22 Sunburn missiles designed specifically to get through a U.S. Navy destroyer screen to attack a carrier. These destroyers, with a maximum displacement of 8,480 tons, are similar in size to the U.S. Navy’s Aegisequipped missile cruisers, and are armed with an anti-submarine helicopter, 48 air defense missiles, 8 anti-ship missile launches, torpedoes, mines, long-range guns and a comprehensive electronic warfare system.
The PLAN has ordered two more Sovremenny class destroyers from Russia. They want these ships built and delivered by early 2006. These destroyers will be equipped with the very best weapon systems available in Russia. Without doubt, in parallel with the two destroyers constructed in St.
Petersburg, the shipyards in Dalian city would master the technology for constructing similar or even better ships.
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In June 2002, the Severnaya Verf (Northern Wharf) shipyard in St. Petersburg began construction of the first of the two Sovremenny 956EM Project destroyers for China. E and M in the project designation stand for “export” and “modernized.” Construction of the second destroyer started in July.
The two destroyers would be completed and delivered to the PLAN in early 2006. The project
956EM destroyers will boast cutting-edge armaments. This vessel has been designed for countering hostile ships and especially aircraft carriers. The 956EM destroyer is fitted with advanced missile and artillery assets and torpedo, radar and anti-submarine systems, as well as the Moskit Supersonic antiship cruise missiles.
Severnaya Verf, indeed, constructed for China two Sovremenny 956E destroyers in 1997 – 2000.
By 1997, both vessels were 40 percent compete. However, the Russian navy lacked the funds and terminated the orders. The PLAN received the orders and got the two destroyers. Severnaya Verf got the new order for two additional destroyers, to be constructed from scratch.
However, for these two new ships, construction would take place much more rapidly. By early
2006, the two new destroyers should start service in Qingdao or Zhanjiang naval bases. The 956EM destroyers will be much more advanced than the 956E ones: the “M” means a lot here. According to
Western experts, these destroyers can readily qualify as naval vessels of the 21 st Century. And they are incomparably more advanced than two Luhai-class destroyers, whose construction was finished in
Dalian in 1997 and 2000 respectively.
The Chinese were primarily attracted by the Moskit anti-ship strike system with its supersonic missiles, which NATO calls the “aircraft-carrier destroyer.” The two 956E destroyers, received in
1999 – 2000, has greatly increased the PLAN’s capability regarding possible conflict with U.S. Navy aircraft carrier groups. There is information that the two new 956EM destroyers will be equipped with more improved weapons, namely, Yakhont systems, whose effective range reaches 280 km (as opposed to 100 km for the Moskit missiles). Furthermore, the Yakhont missile launcher and its antiship missile are much more compact than the Moskit (Sunburn) launcher and its missile. That’s why it is possible to deploy, on a 956EM destroyer, at least 16 Yakhont systems (up to 24, according to some sources). Therefore, one 956EM could have the combat potential of two to three 956E destroyers!
In April 2002, Russia and China signed a contract to sell two S-300F (RIF) ship-borne antiaircraft complexes to China for US$200 million. The PLAN plans to install the RIF complexes, with a 120-km range, on two new-generation missile destroyers to be built in China by 2005. According to
Hong Kong media reports in mid-June, these two destroyers aren’t inferior to the Sovremenny 956EM.
They will be constructed by “436 th plant” (evidently, in Dalian) and use Chinese-made gas turbine
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engines of 26,700 kw capacity. Earlier, China had to import theses engines from Ukraine; now China is capable of producing them, based on technology supplied by the Ukrainian Zarya Corporation.
It is remarkable to note that a 956EM destroyer costs US$425 million. But China is paying
US$1.4 billion for the construction of two 956EM destroyers. One possible reason is that the PLAN wants these vessels delivered as soon as possible. On the other hand, it is quite likely that payment of such sums to Russia means that China will get every bit of manufacturing technology and use it at its own shipyards.
So, by the beginning of 2006, the PLAN could have up to eight comparatively modern missile destroyers: two Luhai, two Sovremenny 956E, two Sovremenny 956EM, and two Chinese-made
Sovremenny replicas. This is a great challenge to U.S. aircraft carrier groups. By 2006, the PLAN could have an entire fleet of comparatively advanced diesel-electric submarines and advanced destroyers. This could greatly affect the naval balance not only around Taiwan, but in the South
China Sea and East China Sea as well. Simply put, the PLA intends to accomplish a major PLAN overhaul by 2006. At that time, China will have complete technology for manufacturing advanced submarines and destroyers. The balance of power in East Asia (let alone around Taiwan) will be tilted in favor of China. China has spy satellites that continuously monitor the U.S. and Taiwan military. They could be used to guide “saturated” missile attacks against aircraft carriers well in advance before they approach China’s coast. China has recently built two fixed missile launch sites, which is named the “Long Wall Project”, in its southeastern Jiangxi and Fujian provinces. It plans to build more of such launch sites to form a formidable “wall of missile bases” capable of launching long-range missiles, such as the DF-31. The PLA can fire DF-31 at a U.S. Navy aircraft carrier group shortly after the group leaves its base in Hawaii. The “Long Wall Project” is basically a deterrence against U.S. military intervention in the possibility of a conflict between China and Taiwan.
China has not only the capability to detect and track most satellites but also anti-satellite (ASAT) capability. It has a highly developed electro-optic industry and the ability to field laser weapons.
Chinese experts have revealed that they had developed the capability to destroy a satellite’s optical sensors with lasers. It is close to fielding a parasitic ASAT (anti-satellite) mini-satellite that could attach itself to a satellite to distort information, alter data, and shut down vital operations of the opponent’s satellite. It may also be developing jammers against Global Positioning System (GPS) receivers. China’s ASAT capability will pose a serious challenge to the space-based laser weapons that the United States is now developing as part of its National Missile Defense (NMD) system to knock down China’s missiles at their boosting stage.
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In January 2000, the PLA initiated Project I-26 to develop exotic high-tech weapons. This project involves dual-use space and information technology, and exotic weapons such as miniaturized weapons. To complicate possible U.S. aircraft carrier intervention, the PLA is fielding a new Passive
Coherent Location (PCL) system, a revolutionary new anti-aircraft early-warning defense system that can detect U.S. stealth aircraft, including the F-117 bomber and even the futuristic F-22 fighter.
The PLA is also improving its own surface-to-surface missiles (SSM) and cruise missiles. Its cruise missile is now both accurate and difficult to intercept. With a range of 2,000 kilometers, it is capable of hitting a target accurately to within 5 meters, while being able to change directions three times at angles greater than 35 degrees during flight. In the exercise in May 2001, the PLA successfully launched its air-launched cruise missiles. The PLA also claims to have an arsenal of secret weapons. These are among the most advanced in the world. They include, for example, laser weapons which can disable the laser guidance systems of USAF’s F-17s. It has been working on a new generation of nuclear weaponry for the past ten years based on a new theory of nuclear physics.
According to Danny Stillman, a well-known American nuclear physicist at the Los Alamos National
Laboratory, “they [the Chinese] are right up with us on nuclear weapon design. My expertise is diagnostics of nuclear weapons testing, and they are ahead of us in that. They have instrumentation that we have never developed.”
The PLA has developed neutron bombs and miniaturized nuclear warheads. It had developed the concept of a miniaturized nuclear warhead as early as in the mid-1970s, but they did not possess the computer capability to bring it to fruition until the late 1980s. It successfully tested the device in 1992.
Now, its tactical nuclear warhead can be as small as 500 tons of TNT, making it a very effective tactical deterrence against U.S. aircraft carrier intervention.
China has also successfully tested its new 1,000 km range subsonic-speed strategic land-attack cruise missile (LACM). For the PLA, the development of long-range LACMs has been a very high priority. According to various reports, the range for new PLA LACMs extends from 1,200 km (750 miles) up to 4,000 km (2,500 miles). Like short range ballistic missiles (SRBMs), new LACMs can be expected to be armed with a variety of warheads. Initially, it is expected that new LACMs will be deployed primarily against Taiwan. About 200 PLA LACMs could be deployed by late 2006, indicating a possible build-up rate of 200 per year. By 2006, with the expected deployment of 800 short-range ballistic missiles (SRBMs), the PLA could field a force of 1,000 SRBMs and LACMs.
And if annual production patterns of 100 SRBMs and 200 LACMs persist, the number of missiles targeted at Taiwan could reach 2,000 by 2010. The most likely rationale for such a build up is to saturate and overwhelm planned U.S.-made PATRIOT PAC-2 and PAC-3 missile defenses and
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provide the PLA a sufficient missile strike to carry out multiple waves of missile attacks against military and civilian targets in Taiwan.
The PLA has developed two land-attack cruise missiles (LACM) for medium to long-range missions. They are Chang Feng and Chang Feng-1 . Similar to the U.S. Tomahawk LACM, the
Chinese versions employ technologies such as GPS/Inertial mid-course guidance and, most critically, terrain contour matching to increase its accuracy. The range of Chang Feng missiles is believed to be
600 kilometers and accurate to within 15 meters. Chang Feng-1 has a range of 1,300 kilometers and accuracy to within 5 meters. When the PLA fields these cruise missiles and more advanced Hong
Niao LACM ( Hong Niao -3 can cover 2,500 kilometers), Taiwan’s military advantage will be harder to preserve.
China has also acquired the co-production license of the Russian Zvezda Kh-31P missile. The missile is specifically designed against U.S.-made Patriot and Aegis systems. It is reportedly developing FT-2000/2500 missiles dubbed as a killer of the Airborne Warning and Control System
[AWACS] based on Russia’s S-300 PMU missiles, which are capable of homing in on radiation emitted by Taiwan’s E-2s. Such a development would pose a serious threat to Taiwan’s air space and ground radar stations. China has also acquired Russian-designed anti-AWACS missiles, dubbed KS-
172/AAM-L; these are capable of being launched from a jet fighter. Taiwan’s E-2Ts, future P-3s, and land-based and sea-based missiles would then be subject to China’s anti-radiation missile threats.
The PLA has increased its inventory of M-9 (DF-15) and M-11 (DF-11) ballistic missiles. China could amass more than 650 of such missiles targeting Taiwan by 2005, thereby neutralizing Taiwan’s air superiority within forty-five minutes. The M-11 can fire a wide variety of warheads, ranging from nuclear and chemical warheads to electronic magnetic pulse (EMP) warheads. The missile can decelerate while homing towards the target so as to explode at the most suitable altitude to effect the greatest destruction against ground targets. The missile, with improved global positioning system
(GPS) technology, can hit with a margin of error around 5 meters.
The PLA Air Force (PLAAF) has its own AWACS, and may soon acquire a few Russian Beriev
A-50E. This system is capable of coordinating up to thirty of China’s aircraft at one time and tracking
200 targets over an 800-kilometer radius, much farther than the 300 kilometers of Taiwan’s E-2T.
The A-50, coupled with the Su-27SK, Su-30MKK, and Su-27UBK advanced jet fighters, will greatly improve the PLA’s air control. The Chinese AWACS’s capability could also be integrated into its land-based and sea-based missile launching systems, thereby increasing the accuracy of its missiles against Taiwan.
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The J-11 Su-27SK Flanker is the most advanced fighter currently in service with the PLAAF.
The J-11 is roughly equal in performance and capability to the western aircraft that faces it including the F-15 Eagle, F-16 Fighting Falcon and the U.S. Navy F-18 Hornet. The PLAAF currently operates
78 single-seat Flanker fighters and four twin seat training versions. PLAAF factories signed a deal with Sukhoi to assemble 150 of these advanced fighters and build under license another 350. China has also concluded a deal to purchase up to two hundred Su-30 two seat long-range strike bomber versions of the FLANKER family from Sukhoi. There are an estimated 100 in active service. The
PLAAF Su-30 bombers are equipped to carry Chinese-made nuclear weapons. The Chinese military is also outfitting its Russian-made Su-30 fighter-bombers with C-801 anti-ship cruise missiles. The upgrade will give China’s air force a major new strike capability against ships. The C-801 is modeled after the French Exocet anti-ship missile.
The PLA is further developing information and electronic warfare capabilities, such as computer hacking (by introducing misleading information, altering data, shutting down vital operations in an opponent’s computerized control and command systems, or planting computer viruses), electronic weapons (procuring state-of-the-art intercept, direction finding, and jamming equipment), directedenergy weapons (laser guns to paralyze satellites, microwave beams, particle beams, high energy radio frequency [HERP], acoustic cannons, plasma guns, subsonic wave weapons), and non-directed energy weapons (electronic magnetic pulse [EMP] and its miniature technology). These weapons can greatly enhance the PLA’s edge over Taiwan and complicate U.S. intervention. The PLA has acquired the technology to make EMP miniature warheads, which could shut down all electronic systems on Taiwan, from communications systems to cars or petrol stations, before an invasion, without casualties and without affecting neighboring regions. The PLA’s capability for information warfare is also enhanced by its recent launching, in October and December 2000, of navigation satellites.
The PLA has rapidly advanced its joint-force operations. Its recent exercises have demonstrated significant new joint-service war-fighting skills under high-tech conditions that are steadily altering the balance of power in the Taiwan Strait. The most impressive is the PLA’s progress in the communication as well as command-and-control areas. It has made rapid advances in utilizing a national “plug-and-play” fiber-optic civilian telecom network to thoroughly secure its military communications.
In 1992, George H.W. Bush, facing a difficult election campaign while the U.S. aerospace industry had reduced its work force for lack of orders, agreed to sell Taiwan 150 F-16 fighter planes.
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At approximately the same time, France agreed to sell 60 Mirage 2000-5 fighters and six Lafayetteclass frigates. The decision-making processes that led to the French sales have been shrouded in scandal. No further sales of French weapons have occurred. Americans also assisted the Taiwanese military to develop an Indigenous Defence Fighter (IDF). The resulting planes had a number of problems, and were described by a retired American pilot as essentially a toy: they can carry fuel or ordnance, but not both. Taiwan citizens joked that IDF stood for “I Don’t Fly”.
On April 23, 2001, President Bush decided to offer Taiwan the largest arms package since the
1992 sales of 150 F-16 fighters. Bush denied Taiwan the most expensive and controversial items on
Taiwan’s shopping list: four
Arleigh Burke -class destroyers equipped with advanced Aegis radar systems and the Patriot -3 anti-missile systems. The sales list is noteworthy in two respects: first, it is the largest arms sale the United States has ever made to Taiwan (at an estimated cost of more than
US$7 billion) since 1992. It is a clear violation of the Sino-U.S. communiqué of 1982 that requested the United States to gradually reduce its arms sales to Taiwan from the 1979 level in both quantitative and qualitative terms. Secondly, it is the first time that offensive weapons are included. The inclusion of eight submarines has crossed a line subtly observed by the United States of not selling offensive weapons. This is the first time that the United States has circumvented its Taiwan Relations
Act, under which U.S. arms sales to Taiwan should be restricted to purely defensive ones.
The history of U.S. arms sales to Taiwan tells the United States is not willing to sell very advanced weapons, especially advanced long-range offensive weapons, to Taiwan. The Americans are afraid that the secrets of these weapons, if not the hardware themselves, might fall into the hands of the PLA. Admittedly, the United States sold 150 F-16 fighters to Taiwan in 1992. But many countries had already acquired F-16 fighters. Furthermore, the F-16 fighters that Taiwan received were the F-16A/B and not the more advanced C/D version. They were delivered to Taiwan without a combat manual and the E-2Ts (early warning aircraft) that the United States provided Taiwan with were not connected with F-16s and Taiwan’s Perry -class frigates.
According to Taipei Times , a pro-independence newspaper in Taiwan, the United States has installed self-destruct devices in the weapons sold to Taiwan out of fear that such weapons might fall into the hands of the PLA. The American concern is not totally unjustified. After Chen Shui-bian’s victory in the 2000 election, dozens of generals in Taiwan’s military forces offered to retire.
Although there had never been serious doubt of the loyalty of Taiwan’s military to the Constitution and the commander-in-chief, Chen is faced with an army that fundamentally opposes the proindependence position held by the Democratic Progressive Party. The fact is that an overwhelming majority of the officer corps did not vote for Chen. They may oppose communism but they may oppose Taiwan’s independence even more. Thus, in terms of weaponry, the PLA has an edge over
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Taiwan’s arm forces, and, in terms of morale, the PLA also has an edge over Taiwan’s generals and soldiers.
Four days after the April arms sales decision, President George W. Bush, in a series of interviews on his 100 th day in office, promised that the United States would do “whatever it took to help Taiwan defend itself.” He also said, at another interview, that American military intervention was “certainly an option” if China attacked Taiwan. Hours later, however, he added more confusion in a live midday interview with Cable News Network (CNN). He said that his statements meant only that “I’m willing to help Taiwan defend itself, and that nothing has really changed in policy, as far as I’m concerned.”
Later, he denied that his “whatever it took” phrase represented a dramatic change in American policy.
Whatever President Bush may have in his mind, such statements have definitely gone beyond what previous administrations had pronounced since the late 1970s. No other American president had gone quite as far as explicitly stating the use of forces since the enactment of the Taiwan Relations Act in
1979.
No matter how President Bush interpreted the Taiwan Relations Act, his statements sound like the forceful words of President John F. Kennedy. In his inaugural speech, President Kennedy said: “Let every nation know, whether it wishes us well or ill, that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, in order to assure the survival and the success of liberty.” These were his words spoken on January 20, 1961. The result was the Vietnam War!
President Bush may change his view somewhat because of the September 11 terrorists’ acts. In early 2004, when President Chen Shui-bian of Taiwan unwisely decided to suggest that a referendum be held to assess the views of the Taiwanese people on independence, President George W. Bush sent a firm message to the Taiwanese leader that America did not approve of his actions. President Bush also reassured the Chinese leadership that America was not behind Chen Shui-bian’s moves.
However, Chen and his DPP leaders may take drastic actions that will force the PLA to take action on
Taiwan. The Taiwan Relations Act contains a statement which reads: “The President and the
Congress shall determine, in accordance with constitutional process, appropriate action by the United
States in response to any such danger.” U.S. intervention, which is highly likely, will mean a war between China and America. Since the end of World War II, no two nuclear powers have been at war with each other. During the Cold War, the famous phrase is MAD (Mutual Assured Destruction). As pointed out in Chapter 1, a conventional war between America and China could lead to a nuclear war between them, which could eventually result in a nuclear winter.
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After completion of this manuscript, we came across a recently published book,
China’s Rising
Sea Power: The PLA Navy’s Submarine Challenge . We discuss this insightful book in the appendix to this chapter.
Except for fools and madmen, everyone knows that nuclear war would be an unprecedented human catastrophe. A more or less typical strategic warhead has a yield of 2 megatons, the explosive equivalent of 2 million tons of TNT. But 2 million tons of TNT is about the same as all the bombs exploded in World War II. In comparison, let us take a look at the two atom bombs dropped on Japan in World War II. The bomb that destroyed the city of Hiroshima on August 6, 1945 was the equivalent of about 12,000 tons of TNT. Nagasaki was destroyed three days later by a bomb equivalent to about 22,000 tons of TNT. These two bombs, through the direct effects of blast, the immediate effect of the searing heat of the fireballs, the effects of ionizing radiation and the effects of longer-lasting fires, killed a total of 250,000 people. The detonation of the bombs constituted what is among the most devastating acts of war in the sordid history of human misery. In a 2-megaton explosion over a fairly large city, buildings would be vaporized, people reduced to atoms, outlying structures blown down like matchsticks and raging fires ignited. And if the bomb were exploded on the ground, an enormous crater, like those that can be seen through a telescope on the surface of the
Moon, would be all that remained where midtown once had been.
High-yield airbursts will chemically burn the nitrogen in the upper air, converting it into oxides of nitrogen; these, in turn, combine with and destroy the protective ozone in the Earth’s stratosphere.
The surface of the Earth is shielded from deadly solar ultraviolet radiation by a layer of ozone so tenuous that, were it brought down to sea level, it would be only 3 millimeters thick. Partial destruction of this ozone layer can have serious consequences for the biology of the entire planet.
These discoveries were made by chance. They were largely unexpected. And now another consequence – by far the most dire – has been uncovered, again more or less by accident. This is the possibility of nuclear winter. The complex atmospheric dynamics that could cause a nuclear winter, ironically, were suggested not by nuclear tests here on earth but by a dust storm on Mars. When
Mariner 9 reached Mars in 1971, it found the planet shrouded by a global dust storm. Analysis revealed that the atmosphere was warmer than expected and the surface was significantly cooler. The explanation was, of course, relatively simple. The dust had absorbed much of the sun’s energy before it reached the surface.
Scientists applied these findings to the study of nuclear exchanges on Earth. The mechanism is straightforward enough. The smoke and dust of the blasts, supplemented by the smoke of burning
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forests and cities, forms a massive, hot, black cloud that rises high into the atmosphere. Where fires become large enough, as they may when whole cites burn, the cloud will penetrate the upper layers of the atmosphere and be spread rapidly around the world in the stratosphere. The result is an inversion of the normal distribution of energy at the surface of the earth. The dark cloud interrupts and absorbs the radiant energy of the sun high in the atmosphere. The cloud warms and the surface of the earth, deprived of both light and heat from the sun, cools rapidly. The issues are important and complex.
They will be argued by scholars intent on accuracy and detail. Many aspects of such a war can never be known until the war is fought. The World Health Organization chose a 10,000 MT exchange as the basis of their calculations. A number of scientists experimented with a range of possible wars from 100 MT and 1000 weapons directed against cities to a 25,000 MT war, possible only in the distant future. The results for this wide range of possibilities seem surprisingly consistent. As long as cities were targets and large fires were set, smoke and dust would be carried into the stratosphere to circulate rapidly, first in the northern hemisphere, later in the southern hemisphere. The effects depended little on the size of the war. Even a 100MT exchange would be sufficient to cause climatic effects if directed against cities. The clouds would be dense enough to absorb virtually all of the solar radiation high in the atmosphere with the production of a giant temperature inversion that would cool the surface of the earth by 30 – 40 C. (56 – 72 F) in the interiors of continents, somewhat less along the coasts. The darkness and cold might persist for months, depending on the type and intensity of the war, the amount of smoke and the extent to which the cloud penetrated the stratosphere. But because the temperatures would drop so catastrophically, virtually all crops and farm animals, at least in the
Northern Hemisphere, would be destroyed. Human survivors would starve.
Could the climate effects be avoided by applying some sort of putative wisdom to the waging of nuclear war? The key issue in causing the effects on climate is the production of smoke. A war that avoided cities and set no other large fires might avoid a nuclear winter, even though the total explosive power might reach into the thousands of megatons. Such a war is difficult to devise, so intimately are military targets such as naval bases, stocks of oil, chemical plants, refineries and centers of communications tied to urban areas. It is difficult to envision that in the anger and chaos of war sufficient restraint could be invoked to avoid the use of such weapons on cities, stocks of oil, industrial centers, the very targets that they seem best designed to destroy. And a small war of 100
MT, less than 1 percent of the world’s nuclear arsenal, delivered to cities, would be enough to cause a change in climate not appreciably less than the climatic change anticipated from much larger wars.
Knowing that a nuclear war would be ecologically devastating simply makes avoiding it altogether all that much more important.
According to Richard Butler’s book,
Fatal Choice: Nuclear Weapons – Survival or Sentence
(Westview Press, 2003), the United States has 7,206 strategic nuclear weapons and 1,670 non-
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strategic nuclear weapons. On the other hand, China has 290 strategic nuclear weapons and 120 nonstrategic nuclear weapons. A nuclear exchange between America and China can easily amount to 100
MT, the threshold for a nuclear winter. What is to be gained if the United States decides to intervene if there is a conflict between China and Taiwan. One, of course, can put up questions such as: would
Americans sacrifice New York, Washington D.C., Boston, Chicago, San Francisco and Los Angeles for the sake of Taipei? Earlier, Europeans had asked similar questions: would Americans sacrifice
New York, Washington D.C., Boston, Chicago, San Francisco and Los Angeles for the sake of
London and Paris?
In declaring at Hiroshima on February 25, 1981, that “from now on it is only through conscious choice and deliberate policy that humanity can survive,” Pope John Paul II proposed an ethical task for nations.
In the past it was possible to destroy a village, a town, a region, even a country. Now it is the whole planet that has come under threat. This fact should compel everyone to take a basic moral consideration. The moral and political choice that faces us now is that of putting all the resources of mind, science, and culture at the service of peace and of the building up of a new society.
In 1952, Reinhold Niebuhr wrote:
We cannot say, “Both sides read the same Bible and pray to the same God.” … But even in this situation, it is very dangerous to define the struggle as one between a God-fearing and godless civilization. The communists are dangerous not because they are godless but because they have a God (the historical dialectic) who, or which, sanctifies their aspiration and their power as identical with the ultimate purposes of life. We, on the other hand, as all “Godfearing” men of all ages, are never safe against the temptation of claiming God too simply, as the sanctifier of whatever we most fervently desire.
The theological principle of the unity of the human family affirms the interdependence of all peoples. We tend to think of interdependence in negative ways. Nuclear winter comes to mind, reminding us that the boundaries which separate the nations are not absolute.
The Cold War is over. But there are still many people in the American Government who are Cold
Warriors. The Pentagon, for instance, likes to create an enemy. In the Cold War, that was the Soviet
Union. When the Cold War was over, the Pentagon was not happy; so it sees the People’s Republic of China as its arch-enemy. Taiwan is a time bomb. China and America can get into a nuclear
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exchange because of it. Should that happen, the world would experience, in reality, what a nuclear winter is like. It might very well be the end of the world. It is, indeed, Thy Kingdom Come.
The Chinese translation of the United States of America is exactly “America the Beautiful” rendered in Chinese characters.
Unilateralism reached its grand climax when President George W. Bush made a fatal change in the foreign policy of the United States. He repudiated the strategy that won the Cold War – the combination of containment and deterrence carried out through such multilateral agencies as the UN,
NATO, and the Organization of American States. The Bush Doctrine reverses all that. The essence of his new strategy is military: to strike a potential enemy, unilaterally if necessary, before he has a chance to strike the United States. War, traditionally, a matter of last resort, becomes a matter of presidential choice. Sixty years ago, the Japanese anticipated the Bush Doctrine in their attack on the
U.S. Navy at Pearl Harbor. This was, Franklin D. Roosevelt observed, an exploit that would live in infamy – except now, evidently, when employed by the United States.
The war against Iraq was not preemptive. It was not a war initiated on the basis of firm evidence that an enemy attack is imminent. The war on Iraq was a preventive war. Where did Mr. Bush get the revolutionary idea of preventive war as the basis of U.S. foreign policy? His conviction apparently is that the unique position of the United States as the planet’s supreme military, economic, and cultural power creates an unprecedented opportunity for America to impose its values on other countries and thereby save them from themselves. In his book, War and the American Presidency ,
Arthur M. Schlesinger, Jr. wrote:
President Bush radiates a serene but scary certitude when confronted with complicated problems or disagreements. “There is no doubt in my mind we’re doing the right thing,” he told Bob Woodward. “Not one doubt.” Unlike Tony Blair (the British Prime Minister), “I haven’t suffered doubt.” Friends attribute this serenity to his religious faith. Woodward, who interviewed Mr. Bush for nearly four hours for his book Bush at War , came away with the clear impression that “the president was casting his mission and that of the country in the grand vision of God’s master plan.” “I’m here for a reason,” Mr. Bush told Karl Rove, his political wizard, “and this is going to be how we’re going to be judged.” A senior aide commented that the president “really believes he was placed here to do this as part of a divine plan. When Woodward asked him whether he consulted his father on the war, Bush replied,
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“He is the wrong father to appeal to in terms of strength. There is a higher father that I appeal to.” 1
It is doubtful that President Bush could once again rally a “coalition of the willing” in a preventive war against Iran or North Korea. The world believed President Kennedy in the grim days of the Cuban missile crisis. After the presidential case for a war on Iraq, no one can accept the word of the U.S. government on anything. The Bush Doctrine is already obsolete. In our view, the Bush
Doctrine is not only a doctrine but the grand strategy of the undeclared American Empire. Just as we can speak of the grand strategy of the Roman Empire, we can also speak of the grand strategy of the
American Empire.
Imperialism suggests empire, and the status of the United States as the world’s unchallengeable superpower headed by an imperial presidency arouses speculation over the future and fate of the
American Empire. Comparisons are often made to the Roman Empire and to the modern British and
French empires. Is the American Empire a fitting successor?
In bygone days, a poor Scottish young man could gain entry to Oxford University or Cambridge
University, passed the colonial examination, entered the Colonial Office and be posted to the British
Raj in India. Since there had been no Indian insurrection against the British rule until Gandhi’s passive movement for Indian independence, the colonial administrator could have an easy life in India and then retired to a comfortable life back in England or Scotland. However, most American young men and women are not particularly interested in being posted to far-off places in the world even when they are representatives or local overlords of American multinational corporations. Surely enough, they are offered expatriate terms with expensive housing, country club memberships and international school attendance for their children. However, they know, at heart, that Jack Welch, the former chief executive officer of General Electric and the Icon of American capitalism did not climb up the ranks through GE’s international operations. Of the three GE vice chairmen appointed by Mr.
Welch when he was considering his successor, none of them had substantial international exposure.
One vice chairman is now CEO of GE; another is the CEO of Boeing; a third is the CEO of 3M.
The best and brightest of young Americans want to strike it rich in Wall Street or Silicon Valley or to rise up in fast lanes into top executive positions in Fortune 500 companies, earning compensation packages that are most likely beyond their dreams and that certainly would win the envy of European and Japanese top executives. The American people were not much interested in empire. The imperial dream has encountered consistent indifference and recurrent resistance through
American history. The record hardly sustains the thesis of a people red hot for empire. Americans
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are simply not competent imperialists, as demonstrated in Iraq in 2005. The so-called America
Empire is in fact a feeble imitation of the Roman, British, and French empires.
American presidents had a hard time in winning votes when there was a foreign war. Franklin D.
Roosevelt lost seats in both houses of Congress eleven months after Japan’s attack at Pearl Harbor.
Harry Truman lost popularity during the Korean War despite his economic policies, such as the
Marshall Plan. Lyndon Johnson was driven out of the White House in 1968 despite notable achievements in domestic affairs. George Bush the elder lost to a little known governor of Arkansas the year right after the Gulf War. Thus, there is this paradox: despite their military might and the globalization of American business, Americans are not keen in empire-building.
Democracy in the twenty-first century must manage the pressures of race, of technology and capitalism, and it must cope with the spiritual frustrations and yearnings generated in the vast anonymity of global society. The great strength of democracy is its capacity for self-correction.
Intelligent diagnosis and guidance are essential. Perhaps no form of government needs great leaders so much as democracy. Yet even the greatest of democratic leaders lack the talent to cajole violent, retrograde, and intractable humankind into utopia. Still, with the failures of democracy in the twentieth century at the back of their minds, leaders in the twenty-first century may do a better job in making the world not only safe for democracy but also a world of peace and prosperity 2 .
According to the highly sympathetic book by Peter and Rochelle Schweitzer, The Bushes;
Portrait of a Dynasty , a family member said, “George sees this as a religious war. His view of this is that they are trying to kill the Christians. And we Christians will strike back with more force and more ferocity than they will ever know.”
George W. Bush would not be president today had not a vivid religious experience changed his life with new meaning, direction, and discipline. His first forty years had been a wasteland of drift, aimlessness, buffoonery, business failures, and excessive drinking. Redemption and transformation through commitment to Jesus made him “born again” into a self-confident man and a considerable leader. His parents are conventional Episcopalians, and for a while young George conventionally attended the Presbyterian church in Midland, Texas. But he missed something, as he said, “on the inside.” In the summer of 1985, while visiting his parents in Kennebunkport, George W. Bush took his famous walk along the rugged Maine shore with the famous evangelist Billy Graham. “Are you right with God?” Graham asked. “No,” Bush answered, “but I want to be.” “That weekend,” Bush
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later recalled, “my faith took on new meaning. It was the beginning of a new walk where I would recommit my heart to Jesus Christ.” He gave up drinking, smoking, and tobacco-chewing. Turing to politics, he was elected Governor of Texas. By this time he was a regular reader of the Bible and apparently enjoyed an intimate relationship with his personal savior 3 .
President Bush’s conversion experience was undoubtedly authentic. But his faith also provides political benefits. The rise of Protestant evangelicals as a political force has restructured American politics, and President Bush is taking full advantage of the millennial fervor. The tragedy of
September 11 deepened Bush’s relationship with his creator. The president radiates a calm but disquieting certitude on questions of life and death. He has remade himself through redemption and transformation, and he may well regard it as his God-given destiny to redeem and transform the
Middle East.
4
Vice President Dick Cheney and Defense Secretary Donald Rumsfeld are assertive nationalists.
They are visionaries who want to remake the world in the American image; the assertive nationalists are hard-boiled politicians who want to use American power to intimidate rival nations and to crush potential threats to American security and to American corporate enterprise. Rumsfeld and
Wolfowitz, who regarded Iraq as unfinished business left over from President George H. W. Bush’s administration, lost no time after the September 11 terrorists’ attacks in placing Iraq as the top priority on the presidential agenda. Rumsfeld favored war on Iraq because he had convinced himself that
Saddam Hussein actively possessed weapons of mass destruction, that Saddam Hussein was actively allied with Osama Bin Laden, and that the transfer of America’s Middle East military base from the unstable and two-faced Saudi Arabia to complaint Iraq was desirable. Rumsfeld has been Secretary of Defense of the United States twice, first as the youngest secretary of defense and then as the oldest secretary of defense. He should have learnt a few lessons from the West’s involvement in the Middle
East. He has alienated the Arab world.
Once again, Defense Secretary Rumsfeld had sounded like former Defense Secretary McNamara.
Both were self-righteous about what they were doing. Vietnam proved to be a disaster for McNamara.
Would Iraq turn out to be a difficult case for Americans? We don’t know. It is improbable that
Cheney and Rumsfeld are going to overcome deep-rooted religious and cultural obstacles and transform the land they have impetuously invaded into a Jeffersonian democracy.
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A number of American assertive nationalists want to make China an image of America. But that would be difficult. Why? In the applied mathematics and numerical analysis courses I took at the
California Institute of Technology, inverting a matrix could be a very difficult, if not sometimes a totally impossible, task particularly if the matrix has certain characteristics. If we represent a matrix by the mathematical symbol A, the inversion of matrix A amounts to the following :
-1
Making China an image of America amounts to the inversion of a matrix. Even with the fastest computer on Earth, it could be extremely difficult, if not impossible, when the matrix has certain characteristics. But if certain American individuals believe that America is Holy whereas China is not so holy and that Iraq was absolutely evil, then America could get into a conflict with China over
Taiwan. In that case, it may be another Holy War. But the outcome could be a nuclear winter and
Armageddon. It is, simply, Thy Kingdom Come! Only God the Almighty can create Man in His
Image. Trying to create China in the image of America can be unholy.
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Upon completion of the manuscript, we came across a newly published book,
China’s Rising Sea
Power: The PLA Navy’s Submarine Challenge . (New York: Routledge, 2006). The author, Peter
Howarth, is a diplomat with the Australian Department of Foreign Affairs and Trade. Most recently, he served as a senior strategic analyst with Australia’s foreign intelligence assessment agency. The book was actually written in October 2004. The author borrowed some data and ideas from David
Shambaugh’s book, Modernizing China’s Military: Progress, Prospects, and Prospects (2002). We have already considered Professor Shambaugh’s book and found it not quite up to date. However, Dr.
Howarth does have important insights into China’s naval force. Hence, we shall include his viewpoints in this appendix to Chapter Two.
In 1993, Russia has inherited around 205 tactical nuclear and diesel-electric submarines in addition to its 55 strategic ballistic missile submarines (SSBN) from the former Soviet Union. But
2003, this number has been reduced to around 35 tactical and 13 strategic submarines. With its 67 boats, the PRC has become the possessor of the world’s largest operational tactical submarine fleet.
As with Imperial Germany and the Soviet Union, China’s drive to develop a blue-water navy is identified particularly with one man, PLA General Liu Huaqing. As Commander-in-Chief of the PLA
Navy from 1982 until 1988, Liu was the chief architect of the new Chinese maritime strategy developed in response to the new post-1985 strategic and economic circumstances. Liu was a veteran of the Long March and the PLA’s Second Field Army, whose political commissar was Deng Xiaoping.
Liu identified two maritime zones which the Chinese Navy should be capable of controlling. The first zone encompasses the Yellow Sea opposite Japan and the Korean Peninsula; the western part of the East China Sea, including Taiwan; and the South China Sea. China’s vital national interests are at stake in these geographical areas: its territorial claims, its maritime natural resources and its coastal defense. Chinese strategists describe this zone as delimited by “the first island chain”, a north-south line which passes through the Aleutian Islands, the Kurile Islands, the Japanese archipelago, the
Ryukyu Islands, Taiwan, the Philippines and Indonesia. The second maritime zone is delimited by the “second island chain”. This is a north-south line which goes through the Kurile Islands and Japan, and then takes a more eastern course through the Bonin, Mariana and Caroline Islands. The control of this geographical zone, Liu determined the PLA Navy should aim to achieve by 2020, would secure for the PRC control of the whole of East Asia’s oceanic area.
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Most Chinese scholars believe that the most effective way of giving China’s nuclear deterrent greater invulnerability is to build more sea-based missiles. China has begun work on a new SSBN called Project 094. When the PLA Navy eventually deploys its second generation Type-094 SSBNs, they will be armed with 16 JL-2 ballistic missiles with a range of 8000 kilometers. But to pose a credible deterrent threat to the continental United States, these Type-094 SSBNs would still have to deploy to deep-ocean patrol areas in the Pacific to launch their missiles. The PLA Navy would need an SLBM of intercontinental range, such as the 12,000 km-range Trident II, to be able to threaten strategic targets in the continental United States from launch areas in China’s littoral areas. For the foreseeable future, China’s ability to deploy a credible nuclear deterrent against the United States will depend increasingly on the ability of its SSBNs to pass undetected across the trip wires and the ASW
(Anti-Submarine Warfare) barriers across their transit routes through the choke points between the islands enclosing the China seas. If China’s new Type-094 SSBNs incorporate quieting technologies similar to those of the new Type-093 SSNs, (nuclear submarines), which the Pentagon considers to be comparable with the Soviets second generation Victor III SSN , they could pose a significant challenge to ASW technologies and tactics honed by the United States to counter second generation Soviet nuclear submarines during the 1970s and early 1980s. With advanced technologies, the United States may still be able to prevent Chinese nuclear submarines from deploying into open ocean areas of the
Pacific during war.
On November 12, 2003, a Ming -class submarine was reported to have been spotted by a Japanese
Marine Self-Defense P-3C heading west on the surface of international waters 40 kilometers east of
Satamisaki, a port town of Kagoshima Prefecture on Kyusu Island. The submarine sailed through the
Osumi Strait between Kyushu and Tanegashima Islands. The fact that it was sailing westward on the surface was interpreted as deliberately communicated evidence of the ability of China’s submarines to evade detection by advanced Japanese and US ASW measures and to challenge Japanese and US command of Japan’s western maritime approaches. The purpose of the message is to deter US and
Japanese intervention in support of Taiwan by demonstrating the combat capabilities of the Chinese submarine fleet.
The most important US military bases in the western Pacific are in Japan. The home of the US
Navy’s Commander Seventh Fleet is at Yokosuka, 48 kilometers south-west of Tokyo. Tokyo may not want to be involved in a Taiwan conflict between the United States and China out of fear of possible Chinese retaliation against Japan. Seoul may also apply the same logic. Both Japan and
South Korea are becoming more and more dependent on China in terms of economic interests. As reported by Professor Shambaugh in his book (2002), a PLA senior colonel in the Institute of
Strategic Studies in Beijing made the following remarks (May 2000):
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If force is used to reunify with Taiwan, we must be prepared for war with the United States.
If the United States wants to intervene, you are welcome! In order to fight against the United
States, the PLA must: (1) maintain a nuclear retaliatory capability; (2) be able to destroy nuclear aircraft carriers; and (3) try to deprive the United States of the right to use foreign bases – we shall tell Japan that if they allow the United States to use bases there (in the conflict), we shall strike them!
However, in Dr. Howarth’s view, the likelihood of the United States using force directly against the Chinese mainland must be rated as a fairly remote. Washington balked at such action even before
China acquired its nuclear weapons. Michael McDevitt, formerly Director of Strategy, War Plans, and Policy for the US Pacific Command, has observed that the 50-year reluctance of the United States to use armed force directly against Chinese territory amounts to a strategic tradition: it was General
MacArthur’s wish to extend the Korean theater of operations into Chinese territory that provided reason enough for President Truman to dismiss him. McDevitt made the following comment:
I have no particular insight into any US contingency planning on this issue, but were I still the director of strategy, war plans, and policy for the Pacific Command, I would certainly consider in planning for any military intervention in support of Taiwan that land-attack options were off the table, that only engagements that would be permitted by the National
Command Authority would be on, over or under water.
Even so, as any prudent strategic planners must, Chinese strategists will also have to consider worst-case scenarios, which would include direct action by the US forces against mainland targets.
PLA strategic planners will therefore have to assume that, in a military conflict over Taiwan, USA forces may launch intensive precision-guided missile attacks against Chinese air defenses, air and naval bases and missile launch sites. Some PLA analysts believe that economic targets, such as oil refineries, transportation hubs and fuel reserves, will also be attacked.
The United States Pacific Fleet enjoys virtually absolute command of the surface of the western
Pacific Ocean and the marginal East Asian seas, and it has the capability to establish rapidly surface control over littoral waters in the region should it wish to do so. The Seventh Fleet, the largest forward-deployed fleet in the United States Navy, is equipped with some of the most advanced weapons systems in the American naval arsenal.
American aircraft carriers are protected by a system known as Aegis, named after the shield of mythological Greek god Zeus. However, a single error of a defensive system such as the Aegis could have catastrophic, strategic consequences. Basically, it could mean that a carrier battle group is
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destroyed. PLA Navy strategists were aware of the vulnerabilities of the US Navy’s aircraft carriers.
Thus, there is an apparent waning of China’s interest in obtaining an aircraft carrier capability of its own. Chinese proponents of a “revolution in military affairs” believe that, in modern warfare, aircraft carriers have become “floating coffins”.
The situation of the submarine is completely different. It can be dispersed without risk. It has no fear of isolation or of being left to its own devices. Its invisibility and the very great probability of finding a safe retreat in the depths enable it to envisage, without too much concern, a counteroffensive which is the sentence of death for surface units left alone to fend for themselves. In the eyes of the adversary, the submarine’s invisibility gives it the quality of ubiquity. Thus, in the presence of a submarine threat, the adversary has no choice but to adapt permanent defensive measures against the possibility of an encounter with submarines at any location in the potential combat zone. During
World War II, American submarines destroyed just under a third of the Japanese Navy. Also during
World War II, nine aircraft carriers – 36 percent of the total number of aircraft carriers that sank – were sunk by submarines.
What happens under the sea is quite different from what happens on the surface. The subsurface presents a physical environment which is every bit as complex as the terrestrial environment. The propagation of sound in water is complex, its velocity varying with temperature, pressure and salinity, and therefore with depth, location, season and even time of the day. There would be few undersea environments as complex as the environment in marginal seas and littoral waters of East Asia. The acoustic qualities of the Taiwan Strait in particular make these waters a nightmare for ASW operators.
Moreover, the physical characteristics of the marginal seas directly adjacent to the Chinese coast are more likely to favor the operations of smaller diesel-electric tactical submarines of the PLA Navy than those of the larger nuclear-powered tactical submarines of the US Navy.
Diesel-electric submarines, such as the Chinese Kilos and Songs , have a particular advantage over nuclear attack submarines in shallow littoral waters like those off the China coast. Since ASW detection, targeting and attack still rely predominantly on acoustic methods, diesel-electric submarines running on electric motors alone – perhaps 90 percent of the time on patrol – have the great advantage of being able to operate in virtual silence over the full band of sonic frequencies. Diesel-electric submarines are able to use the undersea topography to evade ASW sonar detection by settling on a shallow seafloor, switching off their engines and closing their seawater inlets. Nuclear submarines, on the other hand, cannot turn off all onboard machinery if they are to operate successfully. Reactor main coolant pumps are a particular source of noise in nuclear-powered submarines. Moreover, nuclear submarines cannot sit on the bottom, particularly a muddy bottom such as that of the Taiwan
Strait, without clogging vital inlets to condensers. In such an environment, a bottomed diesel-electric
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submarine is relatively safe from homing weapons which use active sonars to detect targets. Doppler seekers also fail. Furthermore, diesel-electric boats are able to take advantage of waters such as those off the coast of China constantly traversed by numerous diesel-powered vessels. The new imported
Kilo -class submarines will be capable of launching cruise missiles while submerged, and the indigenous Song -class boats are designed to carry the YJ-82, China’s first anti-ship cruise missile capable of being launched from a submerged submarine.
The PLA Navy’s most effective conventional weapon against a US aircraft carrier, however, is likely to be the Kilo -class submarine’s wake-homing torpedoes. Large, armoured warships are inherently difficult to sink or disable with hits above the waterline. Underwater weapons, however, are inherently far more lethal than their above-water counterparts, because they can flood and thus sink a ship. Torpedoes are also generally less susceptible to countermeasures than missiles. However, a current US aircraft carrier would have a good chance of surviving a hit even by the heaviest (nonnuclear) torpedoes in the Russian or Chinese arsenals. The Soviet Navy used to calculate that effective action against a US nuclear aircraft carrier would require at least 25 torpedoes and 15 cruise missiles. The PLA Navy has to orchestrate a near simultaneous attack by a number of platforms, including submarines, surface vessels, aircraft and possibly land-based missiles. This is not easy to coordinate. However, if the Kilo submarines could get close enough to an American aircraft carrier to fire their torpedoes, they could nevertheless pose a serious threat to these vessels.
Classical Chinese strategic thought gives considerable attention to the strategies and tactics relevant to conflict situations in which opponents are asymmetrically matched. A prominent theme in
Sun Tzu’s
The Art of War is the turning of the disastrous circumstances into advantageous situations.
The Art of War teaches that smaller, weaker forces can still take on larger forces and win, and that larger, stronger forces have weaknesses which can be exploited by the less powerful forces. Perhaps like a barrage of anti-ship missiles launched from land, aircraft, surface vessels and submarines simultaneously to overwhelm the US Navy’s Aegis defence system, Sun Tzu compares the simultaneous use of direct and indirect approaches and forces to “gushing torrential water which tosses stones and pushes boulders because of the force created by its momentum” and to the moment
“when the ferocious strike of an eagle breaks the body of its prey because of the exact moment and timing of its engagement.
Sun Tzu thus anticipated by almost two and a half millennia Carl von Clausewitz’s famous dictum: “the best strategy is always to be very strong, first in general, and then at the decisive point …
There is no higher and simpler law of strategy than that of keeping one’s forces concentrated.” By concentrating its forces against the enemy’s weak point, by means of precise timing the weaker belligerent can achieve relative superiority and thereby effectively multiply its forces. Sun Tzu
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summarizes this advise as follows: the disposition and deployment of an army should be to avoid strengths and attack weaknesses.
The submarine’s ability to remain concealed enables it to expand the threat of operations both spatially and temporally by conferring on it the capacity to be anywhere at anytime. This forces the adversary to divide and disperse his forces, thereby effectively multiplying the forces of the side which deploys submarines.
One of Sun Tzu’s best-known maxims is that: “All war is based on the principle of deception”.
Chinese sources openly describe using certain submarines as “bait”, and suggest that the PLA Navy could use its older and less sophisticated submarines to screen highly-value assets or to lure American submarines into revealing their own presence to luking Kilos by executing attacks against “nuisance
Mings and Romeos ”. Western observers believe this may be one reason why China continues to operate vessels which are definitely obsolete.
A conflict in the narrow seas off the Chinese coast and waters surrounding Taiwan would give
Chinese forces all the benefits of coastal navies operating in home waters. US forces would suffer the disadvantage of a blue-water navy operating in the littoral environment. PLA strategists may consider a maritime blockade of Taiwan by mean of mines and submarines as a most preferred strategy. The
PLA and the Chinese Communist Party are particularly proud of the fact that their forces captured
Beijing in January 1949 without a bloody and destructive fight. A blockade, if it succeeded in persuading the Taiwanese to accept Beijing’s offer of reunification, would be a textbook example of
Sun Tzu’s fundamental precept of “subduing the enemy without any battle”.
The very existence of a large and – at least so far as its Kilo and Song -class submarines are concerned – highly capable Chinese submarine fleet, able at a moment’s notice to place a stranglehold on the trade and communications which represent the lifeblood of the Taiwanese economy, constitutes a threat to Taiwan as do China’s short-range ballistic missiles and cruise missiles across the Taiwan
Strait in East China.
Dr. Howarth makes the following comments with great insights:
The study of Chinese strategic culture points to the existence of certain features which would incline Chinese decision-makers toward the adoption of a surprise pre-emptive strike. The study of naval strategic theory and the use of the submarine as an asymmetric instrument of naval warfare – the ideal tactical weapon of the offense – suggests that the existence of a
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powerful submarine arm in the PLA Navy’s fleet would reinforce the features of Chinese strategic culture with a logic of appropriateness favoring the adoption of such a strategy.
The study of the strategic behavior of the PRC since its foundation appears to show that Beijing has not been as reluctant to use force to achieve its strategic objectives as conventional interpretations of Chinese culture might suggest. The importance of asymmetric warfare in Chinese military thought is arguably one of the features which distinguishes it from Western military tradition. China’s defense strategies and policies have focused primarily on preparing the PLA for possible confrontation with vastly superior adversaries.
The strategic logic of asymmetric warfare which places a premium on pre-emption and surprise to achieve the psychological impact on the adversary is reinforced by the disposition toward the preemptive use of force which is inherent in China’s strategic culture and behavior. This is because, unlike conventional warfare which is aimed at material objectives (the conquest of territory or the destruction of the enemy’s forces), the objectives of asymmetric warfare are often immaterial.
Western societies, with their often superficial reading of the conflicts, are particularly vulnerable to asymmetric approaches to warfare.
The very existence of the PLA Navy’s large and increasingly effective undersea warfare capability could foster perceptions among the PRC’s military and political leadership that this capability could offer China a first move advantage over the United States’ military forces in a future
Taiwan Strait crisis. The PLA Navy’s large and increasingly effective submarine arm could, therefore, serve to amplify the propensity for pre-emptive action inherent in Chinese strategic culture.
In asymmetric warfare, political and military leaders may seek limited aims/fait accompli strategies. With a limited aims/fait accompli strategy, the weaker state, rather than seeking a total victory or the unconditional surrender of the opposing forces, aims only to secure sufficient advantage over the opponent to strengthen its hand in a subsequent bargaining process. Weaker powers typically count on superior strategy and tactics to compensate for inferior military strength.
China’s military inferiority would not necessarily deter Beijing from using force against a superior adversary in the future if Chinese decision-makers judged that such action stood a good chance of achieving the political effects they were seeking. In any conflict or potential conflict with the United States, China, understanding that it is the generally weaker party, would have to look for asymmetric strategies that would provide leverage against United States.
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If in the course of a conflict in the Taiwan Strait, PLA Navy tactical submarines were to succeed, admittedly against the odds, in achieving their aim of destroying a US Navy aircraft carrier – with heavy casualties among the 6,000 personnel abroad – it would not only be a serious military and strategic setback for the United States and its pre-eminent position in Asia, but would be a psychological and political blow to Americans of the same order as the September 11, 2001 attack on the World Trade Center in New York and the Pentagon in Washington, D.C.
Dr. Howarth concludes with the following remark:
But the last thing that either China or the United States would want is to go to war with one another over Taiwan. There is no reason to doubt the sincerity of China’s leaders when they maintain that the future of their nation depends critically on the avoidance of a war which could reverse much of the economic and social progress made by their nation over the course of the last quarter of the century. But there is nowhere else in the world today where there is such a great potential for a war between great powers as in the seas surrounding Taiwan – a potential highlighted by the intrusion of a PLA Navy Han -class submarine into Japanese territorial waters in November 2004.
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Despite its military might and technological leadership, America is a debtor empire. As of late
2004, America’s national debt stood at US$7.3 trillion. In 2000, the national debt was $5.7 trillion.
There is a record $2 trillion of consumer debt. That includes bank loans, car financing, and creditcard debt. About 25 percent of low-income Americans spend at least 40 percent or more of their earnings just to pay interest on their existing debt. Personal bankruptcies are on the rise. In 2003, 1.6 million households filed papers. Real-estate-related borrowing adds another $7 trillion. The mortgage-refinance boom that swept America in recent years, as interest rates fell to 46-year lows, tempted many homeowners to take cash payments when they refinanced, siphoning off some of their built-up equity. They spent the cash in various ways, thus creating a demand for many consumer goods. This projects an image that the American economy is recovering. Mortgage providers are talking about the virtues of adjustable interest rates – rates that seem low but could become crippling when interest costs shoot up again.
In the course of its first 183 years, the United States accumulated a total debt of just $310 billion.
When President John F. Kennedy was assassinated on November 22, 1963, Lyndon Johnson became president and started throwing money at the war against communism in Vietnam and the war against poverty at home. Johnson’s Great Society program achieved many of its goals and did much good, but at a heavy and unforeseen cost: it cemented into the federal budget what came to be known as entitlement programs, thus sending the budget spinning out of control. In effect, an entitlement program decrees that anyone who fits a given profile has a right to receive government aid. Because entitlement benefits are automatic, they require no annual review or appropriation. Before Johnson, there was only one entitlement program and that was Social Security. Johnson introduced other entitlement programs such as Medicare, Medicaid, Aid to Families with Dependent Children and college scholarship aid. The immediate result was a devastating inflation that Johnson’s successors battled for more than a decade. But the long-term consequence was even more damaging. By encouraging deficit spending even when the nation’s survival was not at stake, Johnson shaped the mentality of successive administrations that deficit spending was all right.
Following Johnson, every American administration incurred budget deficits with the exception of
Bill Clinton, who had achieved a budget surplus of $236 billion in 2000. Richard Nixon, Gerald Ford,
Jimmy Carter, Ronald Reagan, George H.W. Bush and George W. Bush all generated budget deficits.
At the end of his first term, the George W. Bush administration incurred a budget deficit of $521 billion.
1
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In his 2003 State of the Union speech, President Bush promised, “we will not deny, we will not ignore, we will not pass along our problems to other Congresses, to other presidents, and other generations.” Yet he continues to propose ambitious new programs, including an expedition to Mars, a base on the Moon and national missile defense systems usually without price tags, as if money would be generated somehow. If the trend continues, America’s national debt could rise to $14 trillion by 2014. The decline and fall of America’s undeclared empire may be due not to terrorists at the gates or to the rogue regimes that sponsor them, but to a fiscal crisis of the welfare state at home.
It is important to consider how interest rates play a role in the financing of America’s national debt. In the credit market, as in other markets, supply and demand rule, as interpreted by the Federal
Reserve System and reflected in the regular auctions at which lenders bid for Treasury securities. The auctions are simply immense. In 2002 alone, the Treasury sold $3.7 trillion worth of bonds.
2
The Federal Reserve System actually sets only one interest rate, the overnight fee it charges banks on the short-term borrowings they make to cover their reserve requirements. By adjusting the supply of money, the Fed could nudge interest rates up or down. The Fed’s interest-rate operations are based on its perceptions of the overall state of the American economy. Its goal is to keep the economy growing at a healthy rate with stable prices and high levels of employment.
By and large, the Fed’s power over interest rates dwindles as loan periods extend. When the
Treasury offers its 10-year bonds, the only real factor is the willingness of lenders to buy them. If there is not enough lenders to buy at 4 percent, the Treasury has to offer a higher rate, say 4.1 percent and then perhaps at even higher rates at 4.2 or 4.5 percent and so on up to 15.84 percent, the highest rate on record in September 1981. Maturing bonds have to be rolled over, and the new deficit has to be financed. Otherwise, some government programs have to be cut.
In 2004, America’s budget deficit was about $520 billion. To finance this high level of debt,
America is paying a high price – huge interest payments to all the domestic and foreign lenders who have bought the Treasury bonds issued. In 2003, interest payments amounted to $318 billion. It was the third biggest expense after Social Security and military spending. Even at historically low interest rate of 4.6 percent, debt payments siphoned off 24 cents of every dollar collected from income taxes in 2003.
Interest rates are bound to rise. One reason is inflation. Lenders, already unhappy with the current low interest rates, may demand higher rates to compensate for possible losses due to inflation.
The Treasury may not be able to sell all its bonds in the open markets if buyers determine that the
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risks of buying them are too great. In that case, the Fed would have to step in to buy the unsaleable bonds, basically printing money in doing so. The result is more inflation. Higher interest rates would also damage the real estate market. When interest rates began to plunge in 2001 and continued in
2002 and 2003, millions of homeowners raced to refinance their mortgages; banks saw $2.2 trillion in refinancing in 2003 alone. The lower payments resulting from such refinancing left many families bundles of cash which they used to purchase consumer goods of all kinds, thus buoying the economy since then.
America went on a house-buying spree. The banking industry helped inflate the housing bubble by offering all kinds of financing schemes. Fixed-rate mortgages gave way to adjustable-rate ones.
Homeowners may find themselves in deep trouble if interest rates were to rise. They may have to abandon their properties rather than to continue to make mortgage payments. So much for those who are counting on the sale of their homes to supplement their retirement income. Indeed, they may have to revise their plans.
An American friend gave us the following account, with a sense of sarcasm: “Between 2001 and
2005, the property bubble raised house prices in California by $1.7 trillion. This is equivalent to 35 percent of personal income. Now, the whole economy not only enjoys a rising real estate market, it depends on it. Coast to coast, people buy big houses they can’t afford. They expect to sell them to someone else for more than they paid for them. What they do not expect is to pay for them themselves. How can they? What would they pay for them with?
“There were thousands of million-dollar houses on the market. But there were few people with a million dollars. If you wanted to actually own a million-dollar house, you would have to earn enough so that you could save a million. Say you earned $200,000 a year, you might be stretching to buy a $1 million house, but people stretch much further. If you borrowed the money at 6 percent, you would spend $60,000 a year on interest alone. With other living expenses and taxes, you would have little left over to pay down the principal. Even if you saved like the Chinese do, you would be lucky to be able to pay down $20,000 in principal each year. At that rate, it would take you 50 years to pay off the house. If you saved at the current national savings rate – about 1 percent – you would have to make payments for the next 500 years. By mid-2005, it was reported that one in five new home buyers spent half of their disposable income on housing.
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“In America, the average house went up 44 percent in real terms between 1995 and 2005. A survey by Shiller and Case found average annual increases of 12 to 16 percent – three to four times those increases in GDP and not much different from what investors had come to expect from stocks in the late 1990s. Since these gains were almost as good as money “in the bank,” in the eyes of house buyers, many spent the money before it had been made. Equity withdrawal (borrowing against the increased price of the house) rose to 6 percent of personal disposable income in the United States in
2004.
“People buy property now as they bought tech stocks five years ago – without any regard for earnings. It is all a greater fool game – betting that someone will come along who is an even bigger numskull than you are. The game continues such a long time that people come to see it as eternal.
And the more confidence people have in it, the more reasons they invent that it should go on. Most experts cite “demographic factors” as guaranteeing higher residential property prices. According to the theory, there are so many new immigrants and baby boomer children that the homebuilders can’t build enough houses to keep up with the demand. How the new buyers will be able to pay higher prices – when incomes are falling – is not clear either. And there is always the outside chance that these new thousands may rent. Rental yields are falling; relatively, rents are cheap.
“In traditional economic theory, people save. Their savings are borrowed by entrepreneurs and business people to build new enterprises, new factories, and new consumer items. This new output is then sold at a profit, which creates new jobs – and higher incomes – that give people more purchasing power, more savings, and so forth. But in modern America’s fabulous twenty-first century economy, things happen so much differently that we wonder: Is the theory mistaken … or are Americans?
Hardly a dime is saved today. We have not seen a new factory put up in the past 20 years, though we don’t deny there must have been a few. We have seen dozens of shopping centers built, though. Per hour, jobs pay little more – in real terms – than they did 30 years ago. Yet, Americans seem to have more purchasing power than ever.
“You may say, yes, but the house prices are soaring. And, yes, you are right. As near as we can tell, the fastest, surest way to make money in the United States today is to buy an expensive house in a bubble market with a zero-down mortgage. You have no capital at risk and you stand to make a fortune. But don’t confuse this with investing. It is pure speculation, a series of one-night stands that could be very enjoyable. The trouble is that most people don’t know the difference. They begin to think there is something magic about real estate that makes it always go up. They began to think they can’t lose. Then, when the bubble pops, they become the biggest losers of all.”
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In his book, Empire of Debt: The Rise of an Epic Financial Crisis , Bill Bonner and Addison
Wiggin commented as follows:
The U.S. economy faced a major recession in 2001 and had a minor one. Alan Greenspan cut lending rates. George W. Bush boosted spending. The resultant shock of renewed, ersatz demand not only postponed the recession, it pushed consumers, investors, and businesspeople to make even more egregious errors. Investors bought stock with low earnings yields.
Consumers went further into debt. Government liabilities rose. The trade deficit grew larger.
On the other side of the globe, foreign businessmen worked overtime to meet the phony new demand; China has enjoyed a capital spending boom as excessive as any the world has ever seen.
Our own Fed chairman, guardian of the nation’s money, custodian of its economy, night watchman of its wealth: How could he do such a thing? He turned a financial bubble into an economic bubble. Not only were the prices of financial assets ballooned to excess, so were the prices of houses and debts of the average household. And the economy itself was transformed. By 2005, the housing bubble was no longer an investment phenomenon, but an economic one affecting almost everybody. In some areas, half of all new jobs were related to housing. People built houses; people financed houses; people remodeled houses; people sold houses to each other; people put in so many granite countertops that whole mountains had been flattened to quarry the stuff.
3
As a matter of fact, in the summer of 2003, three of America’s most respected economic watchdogs – the business-oriented Committee for Economic Development, the nonpartisan Center on
Budget and Policy Priorities, and the bipartisan Concord Coalition – issued a joint statement calling recent policy “the most fiscally irresponsible in American history.” They bluntly forecast that the national debt would rise by $5 trillion over the next 10 years, not including the money borrowed from trust funds, such as the Social Security trust funds.
Americans like security. That is understandable because, in America, family values are being eroded. National security is important but is, nowhere, as important as Social Security. Americans are preoccupied with the hazards of old age and ill health. It is this preoccupation rather than the preoccupation with the hazards of terrorism and the “axis of evil” that will prove to be the real cause of America’s fiscal overstretch. America’s latent fiscal crisis is the result not of excessive overseas
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military burdens but of a chronic mismatch between earlier Social Security legislation, some of it dating back to the New Deal seventy years ago, and the changing demographics of American society.
In just a few years, the first of around seventy-seven million baby boomers will start collecting
Social Security benefits. Soon they will start collecting Medicare benefits as well. By the time they all are retired, the United States will have doubled the size of its elderly population but increased by barely 15 percent the number of taxpaying workers able to pay for their benefits. Economists refer to the government’s commitment to pay pension and medical benefits to retired people as part of the government’s “implicit” liabilities. But these liabilities are no less real than the obligation to pay back the principal plus the interest on government bonds. Indeed, it may be easier to default on explicit debt than to stop paying Social Security and Medicare benefits. Social Security is sometimes referred to as the third rail by American politicians because politicians who touch it by suggesting any cut in benefits tend to receive a violent political shock from the American Association of Retired Persons
(AARP).
In the summer of 2003, two economists undertook a study on the size of implicit liabilities faced by the American government. They were Jagadeesh Gokhale, a senior economist at the Federal
Reserve Bank of Cleveland, and Kent Semetters, the former deputy assistant secretary of economic policy at the U.S. Treasury. Based on rather optimistic assumptions, they found that the U.S. government could not meet its obligations to pay its Social Security and Medicare benefits. In technical terms, they were calculating the discounted present values of future revenues and future expenditures. The shortfall amounts to $45 trillion. It is about four times America’s present annual output. The two economists proposed four ways how this shortfall could be met. The U.S. government could raise income taxes (individual and corporate) by 69 percent, or it could raise payroll taxes by 95 percent, or it could cut Social Security and Medicare benefits by 56 percent, or it could cut federal discretionary spending altogether to zero.
4
This study was commissioned by Paul O’Neill when he was treasury secretary. The study has no political ax to grind. Far from being a worst-case scenario, the study is based on what are arguably optimistic official assumptions about growth in future Medicare costs and longevity. Under somewhat different assumptions, the total fiscal imbalance could be even larger than $45 trillion.
President George W. Bush tried to push a policy of privatizing Social Security. The kernel of the
Social Security Act can be found in a message Roosevelt sent to Congress on June 8, 1934, in which he set forth a broad plan for social insurance that would provide people with “some safeguard against misfortunes which cannot be wholly eliminated in this man-made world of ours.” The program, FDR said, would provide “security against the hazards and vicissitudes of life” – specifically, unemployment and old age.
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The Social Security Act passed easily in Congress and was signed promptly by FDR on August
14, 1935. As the product of a committee and the congressional wringer, it was a patchwork quilt with plenty for everyone to denigrate. The New Deal historian William Leuchtenburg, writing in 1963, labeled it “an astonishingly inept and conservative piece of legislation.” Still, as he acknowledged, the act was a landmark in American law, reversing “historic assumptions about the nature of social responsibility.” 5 For the first time, the American government recognized that the common people whose labor contributed so much to the national wealth – a contribution almost never acknowledged – deserved a dignified retirement free from want.
President George W. Bush is a champion for the privatization of social security. In a speech delivered on December 16, 2004, President Bush said: “I particularly like the idea of a Social Security system that recognizes the importance and value of ownership. People who own something have a stake in the future of their country and they have a vital interest in the policies of their government.”
The Bush doctrine of ownership, as applied to Social Security, rests on two slogans: “It is my money,” and “Who can manage it better than myself?”
In his book, The Plot Against Social Security: How the Bush Administration is Endangering Our
Financial Future (2005), Michael Hiltzik, a Pulitzer Prize-winning columnist for the Los Angeles
Times , wrote:
What the privatization of Social Security would do is to shift more financial risk onto ordinary citizens. This would continue a recent trend that has made daily life more unpredictable for millions of workers at all levels of the wage scale. Downsizings and outsourcings, automation and globalization have all made the concept of secure lifetime employment a thing of the past. Gone is the confidence that one’s yearly earnings will follow a safe upward trajectory throughout one’s career, vanished along with the promise of affordable health care and a secure corporate pension.
6
President Bush’s response to the increased risk borne by Americans in the workplace is to subject them to even more risk. In implementing the “ownership society” of which he speaks so glowingly, he intends to erode the social programs that for decades have helped people meet the cost of medical care, job training, disability, and retirement – at a very moment when employers are cutting back on the same benefits.
7
He concludes as follows:
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The president’s desire to replace the communal responsibility that Social Security implies with the “ownership society,” which glorifies personal responsibility and disparages big government, may sound reasonable – until one remembers that Americans once lived in such a free-market paradise. It was the 1920s, and it ended with an economic catastrophe that gave birth to the very program Bush is plotting to dismantle 8 .
The latest nationwide Gallup Poll showed that, despite the president’s remarkable powers of persuasion, the general opinion of privatization hadn’t budged: people were against it. The baby boomers are now so old that they have a bigger stake in preserving their future benefits than in lowering their current payroll taxes. Indeed, many have already joined the AARP, which sends
Americans application forms on their fiftieth birthdays. So long as attitudes towards old age remain unchanged and so long as the retired and soon-to-be-retired remain so well organized, radical reform of the U.S. welfare state – and hence a balancing of federal finances – seems a distant prospect.
If investors and traders in government bonds anticipate a growing imbalance in a government’s fiscal policy, they are likely to sell that government’s bonds. This is because, in an attempt to fill in the widening gap between current revenues and expenditures, a government may sell more bonds or simply print more money. Other things being equal, either response leads to a drop in bond prices and an increase in interest rates. If financial markets believe that a country is broke and is about to inflate, they act in ways that make such outcomes more likely. Investors demand higher interest rates. This raises the cost of financing a government’s debt and hence worsen its fiscal position even more. On the other hand, higher interest rates may also depress business activity. Firms stop borrowing and laying off employees. This leads to recession, which, in turn, leads to lower tax receipts and forces the government into a deeper fiscal hole. In desperation, the government starts printing money and the additional money leads to further inflation. The higher inflation rates assumed by the market turn into a self-fulfilling prophecy. This process has been repeatedly seen in the course of economic history of the world.
Figures like these calculated by Gokhale and Semetters might therefore have been expected to precipitate a sharp drop in bond prices. However, at the time their study appeared, financial markets barely reacted. Yields on ten-year treasuries have in fact been heading downward for twenty years.
They reached a peak of 15 percent in 1981 and were above 8 percent as recently as 1994. However, by mid-June 2003 – two weeks after the $45 trillion fiscal imbalance figure appeared on the front page of the Financial Times – they stood at 3.1 percent, the lowest they had been since 1958. Six
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months later they were just 1 percent higher. It is outside the scope of this book to understand the full nature of such reaction. For a decade, there has been much capital flowing into the United States. It is assumed that the American economy is the engine of global growth and foreign investors simply want a “piece of the action.” Yet foreign investors seem willing to settle for markedly lower returns when they invest in the United States than the returns American get when they invest overseas. Far from acquiring equity in America’s dynamic corporations, many foreign investors turn out to be mainly interested in buying U.S. Treasury bonds. Why is this? The explanation lies in the fact that a substantial and rising share of the foreign holdings of American bonds are in the hands of East Asian central banks, which have been buying up dollar assets in order to keep their own currencies from appreciating against the greenback.
In July 2005, the foreign exchange reserves of five East Asian economies stood at $2.14 trillion with Japan at $843 billion, China at $711 billion, Taiwan at $253.6 billion, South Korea at $205.7 billion, and Hong Kong at $123.6 billion. In February 2006, China’s foreign exchange reserves reached $853.7 billion, overtaking that of Japan, which stood at $850.06 billion. It is expected that
China’s FX reserves will reach $1 trillion by the end of 2006. A substantial part of the foreign exchange reserves is in U.S. Treasury securities. If foreign investors become worried enough about to begin dumping back onto the market some of the bonds they are currently holding, they could start a run on the Treasury. That would be catastrophic – both for the United States and the world. Interest rates would rise dramatically, the value of the dollar would plunge, and the global economy would be strangled.
In 2004, the United States had a trade deficit amounting to $600 billion. China alone accounted for a trade surplus of $100 billion with the United States although, according to U.S. official sources, the surplus that China had with the U.S. was somewhat more than $160 billion. Interestingly enough,
Wal-Mart accounted for $15 billion of import from China into the United States in 2004. In 2006,
China’s trade surplus with the United States is expected to rise above $200 billion.
China is essentially channeling its surplus savings into the America current account and fiscal deficits. But what are the strategic implications of the fact for its economic stability – to be precise, for its ability to finance federal borrowing at around 4 percent per annum – the United States is reliant on the central bank of the People’s Republic of China?
The Chinese buy dollar-denominated bonds not to help George W. Bush out, but to maintain the exchange rate of their own currency against the dollar and hence the competitiveness of their own products in the eyes of American consumers. The real reason for this – indeed the key to the whole
Sino-American interdependence – is that Chinese households save significantly more than do their
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American counterparts. Specifically, the Chinese net national savings as a percentage of gross national income during 1982 to 2001 climbed up to 30 percent and slightly declined recently whereas the U.S. net national savings was less than 5 percent of gross national income. But to those
Americans whose companies come under pressure from cheaper Chinese competition, it is tempting to take another view: that China is unfairly undercutting American firms. This explains the mounting pressure in Washington in recent years for either a revaluation of the Chinese currency relative to the dollar or tariffs on Chinese imports. In August 2005, China appreciated its currency (Renminbi) by
2.1 percent against the greenback.
Dollar devaluations have been the device Americans have periodically used to reduce the real value of their external liabilities, most spectacularly in the mid-1980s. No other economy in the world reaps such benefits from devaluation as the United States. The cost in terms of more expensive imports is offset not just by the textbook stimulus to export but, more importantly, by the real reduction in the value of America’s external liabilities. Foreigners now hold about 12 percent of the
U.S. stock market, 23 percent of American corporate bonds and nearly 40 percent of U.S. Treasury bonds and notes. Back in 1992, only 18 percent of U.S. government’s publicly held debt was in foreign hands.
Low long-term interest rates are the key to the postponement of America’s fiscal reckoning. So long as the debt can be financed abroad at rates of little more than 4 percent, there will be no incentive to grasp the political nettles that surround Medicare and Social Security. The price of these low rates, however, is that the United States cannot expect to devalue the dollar; it must live with a static or even rising real exchange rate because its trading partners in Asia are buying dollar-denominated securities precisely to maintain nominal exchange rates as they are. Put like that, the world sounds as if it has arrived at a more or less happy state of equilibrium. However, in world history, no equilibrium stays long. In the decade before 1914, it seemed to many observers as if the economic interdependence between Great Britain and Germany was making a war between the great empires unlikely, if not impossible. Still war came. In the months after the Wall Street stock market bubble burst in October
1929, it seemed as if the United States would experience nothing more than a conventional recession.
The Smoot-Hawley tariff bill, enacted in June 1930, triggered a global depression.
There is a growing interdependence between China and the United States. Far from being strategic rivals, these two countries have the air of economic partners. The only question is which of the two is the more dependent, which, to be precise, stands to lose more in the event of a crisis in their amicable relationship, now more than thirty years old. Can the equilibrium break down?
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In an article “Our Currency, Your Problem” in the
New York Times on March 13, 2005, Niall
Ferguson, a senior fellow at the Hoover Institution and a professor of international history at Harvard
University, wrote:
Although neither side wants to admit it, today’s Sino-American economic relationship was an imperial character. Empires, remember, traditionally collect “tributes” from subject peoples.
That is how their costs – in terms of blood and treasure – can best be justified to the populace back in the imperial capital. Today’s “tribute” is effectively paid to the American empire by
China and other East Asian economies in the form of underpriced exports and low-interest, high-risk loans.
How long can the Chinese go on financing America’s twin deficits? The answer may be a lot longer than the dollar pessimists expect. After all, this form of tribute is much less humiliating than those exacted by the last Anglophone empire, which occupied China’s best ports and took over the country’s customs system (partly in order to flood the country with
Indian opium). There was no obvious upside to that arrangement for the Chinese; the growth rate of per capita GDP was probably negative in that era, compared with 8 or 9 percent a year since 1990.
However, there are debates inside China whether it is wise and prudent to accumulate such vast foreign exchange reserves. One line of reasoning runs as follows:
A high cost accompanies the holding of foreign exchange reserves. As a developing country,
China is charged high interest rates as a risk premium when it procures funds from overseas. But if it invests its foreign exchange reserves in the U.S. Treasury bonds, it can only gain low returns. This negative spread in interest rates means that income is transferred from China, a poor country, to the
United States, a rich nation.
Foreign exchange reserves, just like domestic infrastructure and production facilities, are part of national assets, and their main source of funding is domestic savings. Given a country’s total assets, the best portfolio should be decided by balancing return and risk, and it is not necessarily true that it is better to have more foreign exchange reserves. In fact, the savings of the Chinese public have not been utilized efficiently, as can be seen in the fact that while low-return foreign exchange reserves are increasing, China’s national project to develop the western part of the country faces a funding shortfall. Funds to push forward with reforms can also be financed by taxes and government bond issues, and there is no need whatsoever to rely solely on foreign exchange reserves. In absolute terms,
Japan has more foreign exchange reserves than China ($843 billion versus $711 billion). However, in
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terms of a percentage of GDP, Japan’s FX reserve is lower. Interest rates in Japan are much lower than those in the United States, and so U.S. Treasuries are not necessarily a bad investment for Japan.
This contrasts with China, whose capital stock is still small so that the marginal productivity of investment is high. Furthermore, the Japanese economy is suffering from a lack of domestic demand, and authorities need to shore up the economy by expanding external demand and must stem the Yen’s rise by intervening in currency markets. In contrast, both China’s economy and exports are doing so well that it looks like it has become the “sole winner” in the global economy.
The goal China should pursue is the betterment of the lives of its people, and this can only be achieved through institutional reforms and by investing in domestic human capital and physical capital such as production facilities and infrastructure. The Chinese government should stop lending the precious savings of its people to the U.S. government at low interest rates and instead use it more efficiently to develop its economy. The above argument in increasingly being aired among Chinese economic policy-makers. As a matter of fact, none of us can know what will trigger a shift from last year’s equilibrium to something quite different.
Given that American domestic political gridlock will surely lead to a stream of deficits in the coming decades, a great deal depends on whether or not foreign investors will be willing to absorb increasing quantities of U.S. treasuries.
When trying to make financial matters more vivid, writers often invoke imagery from the natural world. Bubbles burst. Bears chase bulls. So vast is America’s looming fiscal crisis that it is tempting to talk about the fiscal equivalent of the perfect storm – or the perfect earthquake, if you prefer. However, nature offers more than mere literary color. For the dynamics of fiscal overstretch really do have much in common with the dynamics of natural disasters. We can know only that, like a really big earthquake, a big fiscal crisis will happen. What we cannot know is when it will strike, or the size of the shock. Adopting the language used by scientists who study the unpredictable pattern of natural disasters, we are condemned to wait and see when the American fiscal system will enter “selfsustaining criticality” – in other words, when it will go critical, passing with dramatic speed and violence from one equilibrium to another. When one of the earth’s tectonic plates pushes once too often against another along a fault line, there will be a sudden earthquake.
Imagine a herd of cattle quietly grazing while a man and his badly disciplined dog take a walk through a field. At first, one or two cows on the periphery spot him; then a couple more. They start to feel a little nervous. But it is only when the dog barks that the whole herd stampedes. A stampede is the self-sustaining criticality of mammals panicking. What might panic the mammals who buy and sell long-term U.S. bonds for a living. One day something happens that triggers the shift from
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equilibrium into self-sustaining criticality. Everything therefore depends on what traders and investors expect the government to do about the $45 trillion black hole and what might happen to change the expectations they currently hold. Here, then, is one possible scenario. Bondholders will start to sell off as soon as a critical mass of them recognize that the government’s implicit and explicit liabilities are too much for it to handle with conventional fiscal policy and conclude that the only way the government will be able to pay its bills is by printing money, leading to higher inflation. What commonly triggers such shifts in expectations is an item of bad fiscal news.
In his book, Colossus: The Price of America’s Empire (2004), Niall Ferguson wrote:
Perhaps, then, Paul Kennedy was not so wrong to draw parallels between modern America and pre-revolutionary France. Bourbon France, like America today, had pretensions to imperial grandeur but was ultimately wrecked by a curious kind of overstretch. It was not their overseas adventures that did it for the Bourbons. Indeed, Louis XVI’s last foreign war, in support of the rebellious American colonists, was a huge strategic success. The French overstretch was internal, and at its very heart was a black hole of implicit liabilities. In the same way, the decline and fall of America’s undeclared empire may be due not to terrorists at the gates or to the rogue regimes that sponsor them, but to a fiscal crisis of the welfare state at home.
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If China confronts the United States over the issue of Taiwan, China might consider selling off some of its vast holdings of U.S. bonds. Other East Asian economies would have to follow if they don’t want to see sudden diminishing of the value of their bond holdings. This stampede would lead to increases in interest rates and recession or even depression in the United States. Of course, the
Chinese themselves would suffer. But Chinese leaders and Chinese people usually put national interests above purely economic interests. China has been following a prudent economic development strategy. First, it builds a kind of capitalism that is disciplined by the need to produce growth through export sales. The earnings from such exports build up a growing middle class and create an expanding domestic market. Then China is trying to develop its interior and the West.
Indeed, Chinese leaders are more concerned with an overheated economy than with deflation or recession. China is no longer so dependent on the American market for export. China is exporting to, and importing from, other countries as well. Presently, the European Union is the largest trading partner with China, followed by Japan. China imports quite heavily from the European Union and
Japan, particularly in production machinery. So the image of millions of Chinese people migrating from the countryside to seek jobs in the manufacturing sector in urban centers and towns is correct but not entirely true. Many manufacturers in China are more interested in capturing the domestic market than in exporting to the United States. So, the idea of social unrest in China due to unemployment if
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China cannot export enough to the United States is a roughly correct idea but not necessarily entirely borne out in reality.
In his book, America the Broke: How the Reckless Spending of the White House and Congress is
Bankrupting Our Country and Destroying Our Children’s Future (2004), Gerald Swanson passionately writes:
America’s budget and trade deficits are an explosive combination. As they continue to pile up, the dollars multiplying in foreign hands are becoming a glut on the market (the reason behind the dollar’s fall since 2000). Able to get higher or safer returns in other currencies, foreign investors sell their dollars at a discount, further accelerating the decline. Middle
Eastern investors, angry over America’s invasion of Iraq, have already pulled billions of dollars out of U.S. investments and dumped them onto the market. In February of 2004, The
Wall Street Journal reported that Asian central banks, too, were looking at alternatives to dollar-denominated investments. China and Japan hold hundreds of billions of dollar assets.
The Japanese government has been a huge buyer, propping up the U.S. currency to prevent its own Yen from climbing too high and crippling Japanese exports. If one Asian central bank decided to lessen its dollar holdings, others might well rush to follow. It wouldn’t take much to provoke a full-fledged run on the dollar.
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Elsewhere in the book, the author, Gerald Swanson, cautions his fellow countrymen as follows:
Before the Roman Civilization collapsed, riches rolled in from every corner of its far-flung empire. The fall of Rome had its beginnings in the extravagant behavior of three successive emperors – Caligula, Claudius, and Nero (the fiddler). Each wasted his lavish wealth on showy villas, feasts and orgies, fancy temples, no-show jobs for cronies, and bribes to buy the loyalty of the army and the Praetorian Guard. When they ran out of cash, all reacted in the same disastrous manner. They raised taxes, confiscated the funds of wealthy citizens, and diluted the money supply by melting down old coins to make new ones that contained less gold and silver and more base metal. Predictably enough, the result was severe inflation. By the time the empire collapsed, the disastrously high taxes had destroyed Rome’s commerce.
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Of course, Imperial America is different from Imperial Rome. However, America is sitting on a potential earthquake. If a confrontation between America and China occurs over the issue of Taiwan,
Imperial America may see an economic earthquake. The question is: can we reduce the possibilities of such an economic earthquake. That would require a more constructive way to look at the problem of Taiwan.
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In August 1998, Bill Krasker, John Meriwether, and two men who had just won the Nobel Prize in economics, Myron Scholes and Robert Merton, were deeply concerned about swap spreads. Their computer models had told them that the spreads might move about a point or so on an active day. But on that Friday, the spreads were bouncing all over the place.
This was bad news for the Long Term Capital Management (LTCM) hedge fund managers. They had as much as $1 trillion in exposure to various positions. Most of their positions were bets that prices in the future would regress to historic means. Prices that seemed out of place with past patterns, reasoned the geniuses at LTCM, would sooner or later come back to more familiar levels.
The LTCM team was making history. They had a competitive edge. They were the smartest people on the planet and everyone seemed to believe that. The money they were making – as much as
40 percent per year since the fund began – just proved it. It was hailed as a new “computer age,” by
Business Week , and the professors were its masters. Scholes and Merton were driving fancy new cars.
Merton had even gone all the way to dyeing his hair red, leaving his wife as many American men had done when they got rich. It is the Faustian dilemma again. He also moved to an expensive abode in
Boston. At its peak, LTCM’s balance sheet was in excess of $100 billion. But the firm was leveraged to the very limit with over $1.25 trillion in derivative contracts.
The professors thought that the world was more reasonable than it actually is and assumed that
“regression to the mean” applied only to markets. Bond prices might regress to the mean, but so would the professors’ reputations and their investors’ fortunes.
The professors presumed that spreads between, say long bonds and short ones, or between Italian bonds and German bonds, were like throws of the dice. Will the spreads widen or narrow? You could look at the historical record, they believed, and compute the odds. If current prices seemed out of line with the odds, they took it as an absurdity and bet that prices would be less absurd in the future.
In fact, the market is not perfect in a mathematical sense or in a purely logical sense. It is only perfect in a moral sense; it gives people more or less what they deserve.
At the extreme, prices no longer follow a logical pattern. Investors become irrationally exuberant when prices reach their peaks at one end of the curve, and they become desperately fearful at the other
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end. But at the dark ends of the bell curve, fear and greed haunt the markets, making prices run in unprecedented ways. Investors buy stocks at ludicrous prices at the top and sell them at equally ludicrous prices at the bottom. In the mid-1990s, professors were winning Nobel Prizes in economics for showing how markets were perfect and how risk-reward ratios could be quantified as though an investment were a throw of dice or an actuarial table. Apparently, there is no limit to the power of quantitative analysis in economics and finance.
Long Term Capital Management was extremely confident about its computer models. It was eager to squeeze every possible bit of profit that it could. It soon found itself in possession of the riskiest bets in the marketplace. LTCM held derivative contracts and other investments that neither paid dividends nor had any intrinsic value. Thanks to its stellar reputation, it was able to purchase its positions on more or less “no money down” terms. Indeed, at a point in time, for every $100 in exposure, the fund held only $1 in equity. A wrong direction as little as a 1 percent in market prices would wipe it out. However, the professors had lost track of real life. They had forgotten an important lesson they should have learnt in kindergarten: namely, human beings are emotional beings.
They may appear rational and even intellectual, but deep down in their hearts, they are emotional.
Real-life trading cannot be predicted with great accuracy by any computer models no matter how sophisticated the mathematical analysis is. The professors might have been enchanted by the neatness and power of statistical mechanics. They might have thought that what physicists could accomplish in statistical mechanics, they could accomplish in high finance. The company had been named Long
Term Capital Management, but just four years after it opened for business, its owners were confronted with situations that they said would not arise in more than a billion years. Such situations are not confined to high finance. Making the comparison more interesting, let us take a look at Intel’s crisis.
After introducing the Pentium microprocessor in March 1993, in spite of the increased attention to product quality and engineers’ assertions about a bug-free Pentium processor, Intel discovered that the chip had an obscure flaw that caused extremely rare computation errors when performing certain mathematical calculations. In the tradition of its excellent, time-tested OEM marketing approach Intel had evaluated the flaw and determined that the average user would encounter the problem only once every 27,000 years or so. As a result, it was extremely unlikely that most users would ever encounter the error and this so-called floating point flaw was not considered particularly significant or urgent
(the flaw was in the processor’s floating point part used only for very complex calculations). After all, microprocessors were extremely complex chips with millions of transistors and they commonly had bugs, especially when they were initially released. This bug could be corrected in later versions of the chip as part of the normal succession of changes that were made to reduce the chip size or cut manufacturing costs.
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However, in October 1994, a mathematics professor discovered the bug, and a week later hundreds of users had posted messages to Internet newsgroups discussing the problem. On December
12, IBM announced that it had stopped shipments of all Pentium processor-based computers. On
December 19, Intel’s board met to discuss the issue and decided to replace any Pentium processor affected by the flaw regardless of the user. Intel took a $475 million charge against earnings for the quarter to cover the expense. Intel regained its reputation and held up its image as the most responsive and responsible company in the United States.
In comparison, LTCM lost $4.5 billion because of the rare events discussed above. This reminds us of how uncertain the world can be.
The banks lost a great deal of money. However, they would have lost much more had they not come to the aid of LTCM and had the central bank not come to the aid of everyone by providing more credit. LTCM was soon pushed aside by aggressive movers, the new group of geniuses such as Enron.
Enron earned more in derivatives trading in a single year than LTCM did in its entire existence.
Systemic banking crises typically accompany the implosion of economic bubbles. The Japanese government and the governments of the Asian countries that went through financial crisis in 1997 and
1998 had to go deeply into debt in order to salvage their banks when their economic bubbles burst.
The economic excesses in the United States during the second half of the 1990s were unprecedented.
Extraordinary financial leverage was built up as unimaginably large amounts of derivatives and other credit-related instruments were put into place for the first time. The possibility cannot be ruled out that the unwinding of that leverage can bring down a significant portion of, if not the entire, banking sector in the Unite States. In such a scenario, “bad case” can become a “worst” case very quickly and apparently out of control altogether.
Similarly, should the government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie
Mac, come unglued under the enormous debt they built up during the 1990s, the government might also decide to come to the rescue of their creditors even though it does not formally guarantee the
GSE debt. At the end of 2001, the debt of GSEs amounted to US$2.25 trillion.
Presumably, the financial clout of the U.S. government is such that it could raise sufficient credit to resolve any conventional financial-sector crisis and, simultaneously, stimulate the economy through large-scale spending programs. Only one, very worst-case scenario could truly break the bank: a systemic meltdown of the US$150 trillion derivatives market. The derivative market has grown from roughly $10 trillion in 1990 to $150 trillion today, a size approximately five times larger than the
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annual economic output of the entire world. It is an industry in itself, and one shrouded in mystery. It could prove to be the global economy’s Achilles’ heel. Any systemic meltdown of the derivatives market could be too costly for even the U.S. government to fix.
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William Bonner writes in his book, Financial Reckoning Day: Surviving the Soft Depression of the 21 st
Century (2003):
American consumer capitalism is domed, we think. If not, it ought to be. The trends that could not last forever seem to be coming to an end. Consumers cannot continue to go deeper into debt. Consumption cannot continue to take up more and more of the GDP. Capital investment and profits cannot go down much further. Foreigners will not continue to finance
Americans’ excessive consumption until the Second Coming (of Christ) – at least not at the current dollar price. And fiat paper money will not continue to outperform the real thing – gold – forever.
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History repeats itself. We should learn from history. Most recently, there is the Internet Bubble.
Just before the bursting of the bubble, two books appeared on the market: The Internet Bubble , by
Anthony Perkins and Irrational Exuberance by Professor Schiller of Yale University. Don’t push things too far or too fast. Otherwise, we will soon witness the next economic earthquake in America and, probably, in the world as well. The East Asian central banks have a say on how the American economy can develop in the immediate and intermediate future. Assertive American nationalists can boast of their military might; they should learn from Jesus’ teaching: He who exalts himself will be humbled, and he who humbles himself will be exalted.
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When one thinks of Chinese reunification, one invariably thinks of German reunification.
It was not by chance that the Germans became the inheritors (for lack of other heirs) of the
Roman Empire as christianized by Constantine, and hence Holy. The joke about the Holy Roman
Empire’s being neither holy nor Roman nor an empire is merely a joke: it was all three and more – it was also “of the German Nation” as a whole until Luther split the nation and the world into Catholic and Protestant.
It was not by mere chance that the words “of the German Nation” came to be added to the title.
Germany was the country best fitted to be the home base of the empire. In the very center of the
European land mass, it formed, then as now, the geographical, economic, and political heart of Europe.
Germany was naturally, and still is, at the center of all east-west, and north-south conflicts, between
Habsburg and Bourbon, between Spain and the Netherlands, between Catholics and Protestants, between capitalists and communists. The country of the Germans has been invaded, divided, subdivided, bought, sold, partitioned, and occupied by foreign governments since the dawn of
European history. It was because of this situation that the transfer of the Roman Empire to the
Germans imposed form, gave direction, and imparted thrust to the German’s natural inclination to believe that: it harnessed a griffin to the sacred imperial dream. Within the dream, it generated the most mystical of all political concepts: the Reich.
Etymologically, the word “Reich” is cognate with the English “rich.” But there is nothing crassly material about the Reich: it is mantled in a vague solemn dignity that is otherworldly. To call the
Reich holy is almost repetitious. Reich is a semantic and conceptual bridge to “Himmelreich,” the
Heavenly Kingdom. With the lateral transfer of the Holy Roman Empire to Germany, the Germans became the people chosen by God to implement the Christianization of the world, beginning with
Europe. “Germany” became synonymous with the Reich, with the Kingdom of God on Earth (a development that made the confrontation between Germans and Jews all but inevitable: one chosen people versus another chosen people).
In his book, Germans: The Biography of An Obsession , George Bailey wrote:
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The sacred mission of the Reich varies from age to age, but only superficially: the greater the variety of its changes the stronger the evidence that its basis remained the same. The concept remained that Germany must necessarily be a Reich of mediation, a great clearing housing of the spiritual and intellectual impulses from other countries, receptive to foreign influences but not ruled by them, rather all the more capable of maintaining a dominant spiritual hegemony among them. When the Holy Roman Empire of the German Nation was pronounced extinct by Napoleon at the Peace of Luneville, the idea underlying the concept emerged untarnished.
The sometime power of the Reich to annex to itself foreign nations in the name of
Christianity was now to be exercised in the name of an ideal form of higher education which, like Christianity, was not to bear the stamp of any one people but to create and cultivate the values uniting all mankind.
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The majesty of Germany does not rest on the crowned heads of its princes; it is of a spiritual nature and, in the German scale of values, is set high above the political. It prevails even when the empire crumbles. When the fruit is ripe, it will be shown that it is German, that other peoples were only so many blossoms that wither and fall away. The German is not destined to prevail in battle; he is destined rather to achieve the highest good by striving to master the forces of nature and realize the ideal. For the German has availed himself of things foreign only in order to contribute to the education and refinement of mankind. Every people has its day in history; but the day of the German is the harvest of all time. So the dream of the Holy Roman Empire has remained. It has bemused every generation of Germans since Charlemagne.
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After World War II, Germany was partitioned into West Germany (Federal Republic of Germany and East Germany (German Democratic Republic). It was generally considered that German reunification would take a long time. The Basic Law of West Germany did make a provision for eventual reunification.
On November 9, 1989, the Berlin Wall fell down. The revelry at the site of this most potent symbol of both the post-World War II order and the Cold War produced a form of cognitive dissonance in many accustomed to a divided Germany and a bipolar world. By 1989, most
Americans and Europeans took for granted the existence of two German states. A generation has grown up and lived its life with the Berlin Wall as a physical and psychological reminder of a state system constructed out of the ruins of World War II and the defeat of Nazism.
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In the summer of 1989, Hungary dismantled the portion of the old East-West frontier with Austria.
A new movement of people seemed possible. After early September, Hungary allowed GDR citizens to cross to Austria, where they could travel to the Federal Republic of Germany. Thousands flowed across the frontier, and then – as the GDR leadership banned travel to Hungary – into the West
German embassy compounds in Prague and Warsaw, and delivered a visible and embarrassing vote of no confidence in the GDR as a state. In Berlin, President Gorbachev delivered a public rebuke to the
GDR leadership, and the opposition accurately guessed that the Soviet army would not participate in the use of force against protestors.
On October 8, the East German Social Democratic Party was formed, the first such party since
1946. On November 4, a demonstration in East Berlin drew one million people, the largest gathering in the history of the GDR. On November 9, the Berlin Wall, which had divided the city since 1961, was opened. From then on, things moved very fast. On November 28, West German Chancellor
Helmut Kohl delivered his Ten-Point Program for the reunification of Germany. In his speech to the
West German Bundestag , Kohl laid out a plan for a German confederation that would lead to eventual unification. On the same day, East German artists and intellectuals, including Krenz, signed a petition entitled “For Our Country,” which declared: “we still have a chance … to develop a socialist alternative to the Federal Republic.”
There was anxiety in Europe as well as America about a possible reunification of Germany. After all, claimed opponents abroad and in Germany, it had been the united German nation that nurtured
Nazism and unleashed it upon the world. The Berlin Wall and the division of Germany seemed to have quelled the German (and Prussian) military tradition. The Bismarckian unification of 1870 appeared to many observers to have been the spark igniting German militarism; how could the world guarantee that 1990 would not be Round Two?
Frequently, the historically based reactions to German unity cited the Holocaust and called the division of Germany a just, permanent punishment for the crime of genocide. Opponents, both inside and out of Germany, saw Auschwitz as the ultimate obstacle to German reunification. Gűnter Grass,
West German’s most powerful exponent of this position, claimed that reunification would imply an abandonment of the past and saw the one German nation best embodied in two separate states.
One response to this historical discomfort called for the pursuit of German unity within the framework of European unity: if the birth of the new German state came hand in hand with a unified
Europe, perhaps the excesses of the “blood and iron” unification of 1871 could be avoided. The call to tie German unity with European integration came from numerous corners: the Green Party in West
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Germany, and members of the European Community itself. President Françoise Mitterrand, in
December 1989, asked that West Germany should, in the first instance, work on strengthening the
European Community, before rebuilding East Germany. If Germany could be “Europeanized” in the process of being unified, it would weaken the nationalist elements of reunification and offer a solid foundation for European integration. This position held particular resonance for those members of the
European Community, such as France and Italy, worried as much about Germany’s present as an economic superpower, as about its past as a military one. In the spring and summer of 1990, the most obviously difficult issues in the unification process concerned security issues, and the prerogatives of the former wartime allies. There had been no peace treaty at the end of the Second World War, no equivalence of the 1919 Treaty of Versailles. American, British, French, and Soviet troops remained on German territory, and later the two Germanys were integrated into rival military alliances: NATO and the Warsaw Pact. The treaty of September 12, 1990 (The Two Plus Four Settlement) between the two German states, the FRG and the GDR (the Two), and the wartime allies (the Four), both formally ended the Second World War, and gave the necessary consent of the Allies to the merging of the two German states in accordance with the expressed wishes and intentions of the parliaments of those states. The name given to the negotiations preparing this treaty implied that the prime mover in the process of unification was the German people: the talks were called “Two Plus Four” rather than
“Four Plus Two.” In politics, 2+4 is different from 4+2. In mathematics, 2+4 would seem to be no different from 4+2. Thus, people are people: they have emotions; they are not machines. Hence, while the German people and their leaders had to push German reunification, they also needed the consent and blessings from the four countries which were allies during World War II, namely USA,
Russia, Britain and France, to bring about reunification.
On October 3, 1990, the two Germanys were united after forty-five years. The event was in
Berlin, with an address by President Richard von Weizäcker. To bring about greater European economic and political integration, the Maastricht Treaty was signed on February 7, 1992 which called forth a common European currency (the Euro). The European Central Bank (ECB) was set up in 1998, under the Treaty on European Union. On the mandate and the structure of the ECB, the
Germans had achieved most of their aims. In fact, the ECB would have an even clearer mandate than the Bundesbank. Its principal task was to maintain “price stability.” As for its structure, the ECB would be a virtual clone of the Bundesbank. The ECB’s main decision-making council would consist of an executive board plus the heads of the central banks of the participating member states. Germany and other members of European Union which joined the European Central Bank were very pragmatic and worked with compromises. For example, it was agreed that the Bank would be located at
Frankfurt, Germany, where a few of Germany’s biggest banks, such as Deutsche Bank and Dresdner
Bank, are headquartered. The bank’s first president would be Willem F. Duisenberg, who was the
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central banker of the Netherlands, while the first vice president of the ECB would be Christian Noyer, a Frenchman.
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As the Germans saw it, German unification embedded in the context of greater European political and economic integration would contribute to peace and prosperity in Europe. In February 1996,
Chancellor Kohl produced his famous line: “The policy of European integration is, in reality, a question of war and peace in the twenty-first century.” He was speaking in visionary terms, conjuring up the massive anguish that Germany had suffered from century-long wars with France and other
European nations, and arguing that integration was needed to avoid the resurgence of national hostilities.
Since the introduction of the Euro, the Euro has appreciated by as much as 30 percent against the
U.S. dollar by early 2005. European business has become stronger. In review, the managers of
European corporations cannot afford to wait for new political blueprints to be drawn. Their early– warning system – the bottom line – has been sounding for years. It has taken German companies a little longer to respond, because the economy of reunification forced them to turn the alarm off temporarily. When it did sound again, it made all the more noise. Overnight, the European business dinosaurs found themselves at a gigantic, global bazaar of trade, industry, and services, without protection and facing a superior competitor – the United States. Managers had to very quickly learn what all this means for corporate policies. Consequently, expansion became the rule of the day, expansion at almost any price. European companies in general and German companies in particular learn from American counterparts. When it comes to making money, America, which was influenced by the British system, has always been superior to Europe. No other society is as blatantly determined by economics and money as the Untied States. A popular way to explain this phenomenon is as the result of Calvinism, which in its American permutation views economic success as a divine reward.
But it isn’t necessary to reach quite that far; a few simple facts will do. American pioneers might just as well have landed in the African jungle: economically speaking, there was absolutely nothing there.
To build a new civilization, they had to work hard, and they continued to do so. Unrestrained by the statutes of guilds and tax obligations to local princes, they amassed more income than they need for their survival.
In 1776, both the American Declaration of Independence and Adam Smith’s Wealth of Nations were published. It was a coincidence, but nevertheless has symbolic meaning. From that time on,
Adam Smith was more influential than the author of Das Kapital . With the exception of their Civil
War between 1861 and 1865, Americans have rarely had to deal with challenges on their own land other than those of economic origin. Unlike in Europe, in America, not even the church objected to money. Europeans, in contrast, carry a lot of baggage. “Bondage to interest” was the phrase
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Protestants hurled against those dealing with money; “exploitation” was the word Marxists used.
Money is somewhat like love: If it’s not associated with a guilty conscience, it’s no fun. The
Europeans’ baggage included 2,000 years of feudalism, anarchism, theocracy, Communism, Fascism, and wars. Profit margins were small because there was always some damage to be fixed. The Age of
Enlightenment brought about a change, but initially only as a counterweight, not as the only determinative force. Only the economic miracle awakened German sensitivity to the value of what they once despised.
The gap between American and German economic thinking has closed since the demise of the
Soviet Union. German companies are going West and going global. German purchases in the United
States are still far from the volume of American purchases throughout the Federal Republic of
Germany. What propels Daimler, Siemens, Allianz, Deutsche Bank, and others is primarily the desire to make up for opportunities missed in the past. And the communication technology society – which was born in America as well – has so accelerated economic development that it has, ironically, enabled America itself to be challenged.
May 7, 1998 will go down as a milestone in the history of business. On that day, two men,
Daimler-Benz chairman Jűrgeen E. Schrempp and Chrysler Chairman Robert J. Eaton, signed a merger agreement, to form the fifth-largest car company (by volume) in the world, DailmerChrysler
Inc. It was the greatest economic event in that year. People were forgetting financial crises elsewhere in the world, particularly in Russia and what happened to the once fabulous Long-Term Capital
Management in the United States. DailmerChrysler found no shortage of business compatriots in
America. After all, Frankfurt’s Deutsch Bank had already taken over Bankers Trust in New York.
Media conglomerate Bertelsmann, based in Gűtersloh, Germany, had taken over Random House in
New York, the largest book producer in the United States. Frankfurt’s chemicals giant Hoechst (now
Aventis) had joined with its American competitor Marion Merril Dow and the French corporation
Roussel Uclar to become Hoechst Marion Roussel. This was soon followed by Hoechst’s merger with the French chemical company, Rhône-Poulenc, which created strong competition for America’s leading pharmaceutical companies.
Among insurance companies, Munich’s Allianz assumed the number one spot in the world and it, too, gained a foothold in the United States when it acquired the American insurance company
Fireman’s Fund in 1990. Then there’s Munich electronics firm Siemens, which publicly boasts of planning to allocate 6 billion Euros for acquisitions. Siemens chairman Heinrich von Pierer plans to
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invest the money mainly in the United States, if possible in the business of information and communications technologies. German pharmaceuticals company Merck KGaA, a family business owned by the Langmann Clan (until World War I, owner of the American pharmaceutical giant of the same name), has earmarked almost $2 billion for purchases in the United States.
4
On the surface, it would appear that Deutschland AG was making moves that bore similarities with Japan’s earlier thrust into America. However, on a closer look, we shall find that the Federal
Republic of Germany did not, and still does not, have the overall planning mechanisms to be found in
Japan. In Japan, the Ministry of Finance and the Ministry of International Trade and Industry (MITI, and now METI) were coordinated closely to bring forth teams of corporate giants that could challenge
Western companies in their homelands. This is known as industrial policy or industrial targeting depending on the terminology used by the people in charge. Germany’s industrial organization was quite different from that of Japan. Before the onslaught of big German companies to America,
Germany had many strong and entrepreneurial middle-sized companies that were collectively known as Mittelstand . This group of companies were very competitive on the world stage. At one point in time, President Clinton had instructed several American scholars and government officials to study the every competitive group of companies known as Mittelstand .
Some of Germany’s biggest industrial concerns have bankers sitting on their boards. An example is Dailmer Benz which has, among its prominent shareholders, the prestigious and powerful Deutsche
Bank. German bankers may be very interested in the global strategies of the German companies in which they have significant shareholding. However, they do not dictate what these strategies should be. Hence, it is inconceivable that there is any planning authority or mechanism to coordinate the onslaught of Deutschland AG on Corporate America. What make German managers tick is neither mercantilism nor imperialism. Rather, it is a defensive move, considering that the best defensive move may very well be an offensive move. Perhaps, the Olympic spirit is playing some part here as well. In that case, the whole thing can be treated as a sports event, to be enjoyed by shareholders and stakeholders alike.
The European conglomerate pilgrimage into the New World was not just triggered by the laws of pure logic, but also by Americans’ high consumption levels. Even when the economy stagnates,
Americans are still more willing to keep on buying than Europeans are. Perhaps, there are more hardsales people in America. Anyway, the American consumer is the engine of growth for the rest of the world for the time being. Twelve or fifteen years later, the American consumer may be replaced by the Chinese consumer as the engine of growth. This will be discussed in Chapter 8: Realizing the
China Dream .
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Americans excel in technological innovation. Their financial system is very supportive of such innovations. The Silicon Valley in California is the breading ground for many high-tech firms. On the other hand, Europe, especially Germany, dominated combustion technology, the chemical industry and conventional electricity. Let us take a look at statistics. Of the largest 140 global companies, 61 are European, while only 50 are American, and 29 are Japanese. 3/6 chemical manufacturers are
European, 14/20 top banks, 8/10 top insurance companies, the top 2 food and consumer goods companies and three of the five top engineering companies. Therefore, Europe should not be underrated at all.
The overall picture that emerges is that America has become the leading power in microelectronics and biochemistry. Thus the development foci of the European and the American postwar generations have split very distinctly. To Americans, the hardware industry is rather boring.
That is why Americans are explaining to themselves that declining power in traditional manufacturing should be of no great concern because the American economy is moving into a post-industrial society, which may be characterized as an information society or simply as a service economy.
There is an article Drive-in Nation: Judgment Day for the U.S. Auto Industry?
in the March 2006 issue of Harvard Business School Alumni Bulletin. It says that Toyota is moving ahead of General
Motors to become the world’s largest automaker in a year or two. The article states that: “Such a turn of events seems inconceivable. For decades, General Motors, Ford, and Chrysler were American icons, Detroit’s fabled Big 3. Responsible for a significant percentage of all American jobs, they lifted countless blue-collar families into the middle class. As much as any single institution, the automobile industry shaped how America lived, worked, and played, helping the country grow into the colossus of the 20 th century. But now, the U.S. automotive industry, once the pillar of the nation’s economy, may become just another, ordinary player in a greatly reduced U.S. manufacturing sector.”
Although the Big 3 (or maybe the Big 2, after Chrysler’s merger with Daimler) continue to dominate the U.S. market, they are beset by falling sales, staggering financial obligations, and the relentless pressure of globalization and foreign competition. GM, for example, while it still has more than 300,000 employees worldwide, once employed 600,000 Americans alone and estimates it will employ only 86,000 in the U.S. operations by 2008. And in another telling numbers game, highly profitable Toyota has announced it will produce 9.06 million cars worldwide in 2006, while moneylosing GM will cut production (after manufacturing an estimated 9.08 million vehicles in 2005).
Increasingly, the glory days have been a thing of the past.
Harvard Business School professor Richard Tedlow sees a broad fallout should the U.S. auto industry slide into permanent second-class status. “There is a dilemma when you see the decline of an
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industry that has been so central to the country. If it can happen to GM, it can happen to anybody.”
But the U.S. auto industry, according to the article, has a historic opportunity to recast itself to meet the enormous impending demand for the new type of vehicles that a petroleum-deficient world will require. The dream machine that built America can once again help shape its future. After all, the lure of the open road has always inspired American imagination and innovation to fire on all cylinders – even when the journey’s route, and ultimate destination, have been uncertain.
Europeans, in particular Germany, for a long time threw away their chances in the software business because they wallowed in cultural pessimism for three decades and lost their interest in innovation. They stayed with mechanics, but now made it more sophisticated. Japan poses a formidable challenge to both Corporate America and Deutschland AG. Sometime soon, probably this year, Toyota will bypass GM to become the largest automaker, a position which GM has held for more than seventy years. Outside of Japan, technologies developed in the United States and Europe were quickly adapted, refined, improved, and made cheaper, but they were not internalized to the degree that they were in Europe and the United States. However, East Asia and even Southeast Asia are climbing the technological ladder. In due course, they can match the West in technology, production, marketing and R&D. However, at present, European companies are still very strong.
Almost forty years ago, a Frenchman wrote a book: The American Challenge (
Le Défi Americana
). It became an instant bestseller. American business in Europe had an output that was just behind the output of the Untied States and that of the Soviet Union. However, in time, European business has recovered and constituted a challenge to Corporate America.
China is learning from the West and Japan. She is interested in a whole range of industries and technologies. On the one hand, she is learning from the Silicon Valley in the United States and from
Japanese giant electronics firms. China is also learning from Europe’s traditional industries, such as chemical and petrochemical industries, and conventional electricity. The world is witnessing the rise of regional economic development with regions specializing in certain industries and technologies.
The common denominator is technological innovation and strategic management of technology and innovation.
5
A united China may also present a challenge to global business, but it is part of the game. In time, we may see more and more Chinese multinational corporations going overseas in the wake of
Japanese and Korean multinational corporations. “Made in China” may become a respectable label.
The Chinese are known for their ingenuity. They may be able to introduce technological innovation and scientific breakthroughs on a wide scale.
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So far, German reunification has brought about greater peace and prosperity to Europe. Would
Chinese reunification bring greater peace and prosperity to Asia? An American, Steven W. Mosher,
President of the Population Research Institute, wrote in his book,
Hegemon: China’s Plan to
Dominate Asia and the World :
The role of the Hegemon is deeply embedded in China’s national dreamwork, intrinsic to its national identity, and profoundly implicated in its sense of national destiny. An unwillingness to concede dominance to any foreign power is deeply rooted in China’s imperial past as the dominant power of Asia and in the ongoing certainty of the Chinese that they are culturally superior to other peoples.
The Chinese word for hegemony is Ba . The Ba is a political order invented by ancient
Chinese strategists 2,800 years ago which is based exclusively on naked power. Under the Ba , as it evolved over the next six centuries, total control of a state’s population and resources was to be concentrated in the hands of the state’s Hegemon, or Bawang (literally “Hegemonking”), who would, in turn, employ it to establish his hegemony, or
Baquan (literally
“Hegemon-power”), over all the states in the known world. To put it in modern parlance,
Chinese strategists of old may be said to have invented totalitarianism more than two millennia before Lenin introduced it to the West, in order to achieve a kind of superpower status.
6
He added:
And so the best defense against the Hegemon is not to be found just in the erection of missile defense systems, the expansion of the Seventh Fleet, or even the strengthening of Asian alliances. All these are important and cannot be neglected. But the best defense is, quite simply, the continued existence of a stable, democratic, and prosperous Taiwan. By its powerful example of ordered liberty, it contradicts the Communist Party’s claim to be the sole alternative to chaos in China. With its first-world living standards, it exposes the continued poverty of Market Leninism. Taiwan, in short, is not just a parallel universe coexisting uneasily with an evil twin, but rather a road map to what could one day exist in all of China.
This is why it is under threat. This is why it must be protected.
7
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Hence, there are strong arguments against Chinese reunification. In their views, China is a hegemon and will seek to dominate its region furthermore if it is re-unified with Taiwan. If, indeed, the Chinese have a strong tradition of hegemony, why would they take so much trouble to build the
Great Wall? Why was Korea not part of the Middle Kingdom? What was Japan not part of the
Middle Kingdom? Why was Vietnam not part of the Middle Kingdom? When the Chinese ruled the waves during the Ming Dynasty with Zheng He’s voyages down to the Cape of Good Hope in Africa, why wouldn’t they make colonies of the territories they visited? They had the capabilities to do so.
What was lacking was the will or the desire. The Chinese were not interested in building empires overseas and establishing a global hegemony. So much for Mr. Mosher’s understanding of Chinese history and Chinese civilization. But Mr. Mosher was applauded by congressmen on Capitol Hill.
Paradoxically, many American politicians understand domestic issues but they have little knowledge of the outside world. However, they presume an air of importance when they come across Asian, particularly East Asian, affairs. Ignorance is a dangerous thing in today’s world.
Chinese reunification, on a basis acceptable to both the people in Mainland China and Taiwan, would not produce a great hegemon. Instead, Chinese reunification would contribute to the peace and prosperity of Asia. Already, Southeast Asian countries are looking to China as the locomotive for driving their economies forward. Previously, they were counting on Japan as the locomotive. There are now talks about further Asian integration. An example is ASEAN plus Three. ASEAN stands for
Association of Southeast Asian Nations and the Three means China, Japan, and South Korea. Asian integration will come about although at a slower pace than European integration. Seen in the context of Asian integration, Chinese reunification would be a great contribution to the region’s peace and prosperity.
In their book,
The Great Wall and the Empty Fortress: China’s Search for Security (1997)
,
Andrew Nathan and Robert Ross wrote:
Does Chinese power threaten the rest of the world? The issue is misstated when it is posed as a question about China alone. The China threat is a matter not of absolute Chinese capabilities but of Chinese capabilities relative to those of others, not of Chinese interests in isolation but of how these can be served in tandem with the interests of others. The question is not whether China has the capability to damage other countries’ interests if it feels it needs to, but whether its interests can be accommodated so that it does not need to do so to ensure its security.
The outcome will depend on the power structure that the United States, Japan, Russia, and
China shape in Asia. If these four countries accommodate each other’s interests and help
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strengthen regional and global institutions that set rules for some aspects of interstate relations,
China will find that its security lies in cooperation with the other powers. If the powers are unable to establish a consensual regional order, the result will be at best an armed and fragile peace.
8
Just as many Europeans and Americans were concerned with German reunification when the
German people were moving speedily to achieve German reunification in 1990, there are people in
Asia and the United States who are concerned rightfully, and not so rightfully, with the prospects of
Chinese reunification. A united China would definitely be stronger, but a united China could also mean greater prospects for peace in Asia. If China’s wish for reunification is frustrated and if China is to be contained in one way or another, Chinese relationships with the United States and even with
Japan will deteriorate. Chinese reunification is inevitable. It cannot be halted.
The German people had a great wish for reunification. Maybe German reunification took place in a way and at a pace that surprised many people. However, from the start of the fall of the Berlin Wall, people in Europe knew that nothing could stop German reunification. The real problem is how to lock Germany into a framework of European political and economic integration that would ensure peace within Europe. Likewise, if a solution could be worked out between Mainland China and
Taiwan, Chinese reunification would greatly ameliorate the Sino-American relationship. Such improvement will pave the way to a Pacific Century.
Every great civilization considers itself a civilizing force. It was so with the Hellenistic
Civilization, the Roman Civilization, the European Civilization in general, the American Civilization and so does the Chinese Civilization through ages. What is important is that each civilization recognizes its own limitations and realizes its great possibilities. With Chinese reunification, the
Chinese Civilization will become a great civilization again and will make significant contributions to the world in ways that may be inconceivable now.
The German problem has been solved and German unification has been achieved within the framework of European economic and political integration. There is no reason why Chinese reunification cannot be achieved with the blessings of Asian neighbors and the United States.
Ideological differences should not be a mental block. Americans should not condition themselves into thinking that the PRC is an evil empire to be replaced by a democratic federation in the immediate future. Sooner or later, China will become a democratic federation albeit with Chinese characteristics.
It is just a short span of time in Chinese history. During the next thirty years, there will be great changes in the world. In America, minorities may gain greater influence, if not, dominance over politics and even economics. America may become such a heterogeneous body that serious conflicts
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may surface from time to time. American values may still persist but may find different interpretations. After publishing the book, The Clash of Civilizations , Professor Samuel Huntington wrote another book,
Who Are We? The Challenges to America’s National Identity
. America was founded by British settlers who brought with them a distinct culture including the English language,
Protestant values, individualism, religious commitment, and respect for law. The waves of immigrants that later came to the United States gradually accepted these values and assimilated into
America’s Anglo-Protestant culture. More recently, however, national identity has been eroded by the problem of assimilating massive numbers of primarily Hispanic immigrants, bilingualism, multiculturalism, the devaluation of citizenship, and the “denationalization” of American elites.
September 11 brought a revival of American patriotism and a renewal of American identity. But already there are signs that this revival is fading, even though in the past-September 11 world,
Americans face unprecedented challenges to their security. Who Are We ? shows the need for
Americans to reassert the core values that make Americans “Americans”. What is at stake is nothing less than American’s national identity.
Likewise, China is facing the problem of national identity as some Taiwanese people are clamoring for independence. We can very well ask these pro-independence Taiwanese the question:
Who are we?
Basically, we should seek answers to our national identity. In answering the question,
“Who are we?” will pro-independence Taiwanese learn something from America’s foremost political writer?
It is true that West Germany (Federal Republic of Germany) was democratic and capitalist and
East Germany (German Democratic Republic) was not so democratic and communist. East Germans might aspire to a higher standard of living and a union with West Germans to revive the most mystical of all political concepts: The Reich . Taiwanese will probably enjoyed a higher standard of living as the risks of conflicts with China are reduced and as a consequence of investment flowing from China into Taiwan which will come about because of Chinese reunification. Furthermore, Chinese on both sizes of Taiwan Straits will be able to revive the most mystical of all political concepts: The Middle
Kingdom .
German reunification provides many lessons for Chinese reunification. In time, China will become a democratic federation. This will be discussed in Chapter 9: Chinese Reunification and
China's Third Way.
Asia is not a mirror image of Europe. The German problem was solved partly because of the presence of American armed forces in continental Europe and partly because of German’s admission of guilt for its atrocities during World War II and its readiness to help its former victims to reconstruct with heavy reparations. Japan did not openly admit guilt for its atrocities during World War II.
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Through its Export-Import Bank (now Japanese Bank for International Cooperation) and as the major capital supplier to the Asian Development Bank, Japan had made substantial soft loans to its neighbors and other Asian countries that had been ravaged by its Imperial Army. Nevertheless, there is a difference between Germany and Japan. The Germans have a profound sense of guilt; thus they tried to make up with good will and financial assistance. The Japanese do not have a profound sense of guilt. What they do have is a strong sense of shame. The Japanese military leaders and soldiers felt that they had let their country down. A profound sense of guilt is quite different from a strong sense of shame. In Chinese, we speak of “seeking vengeance and whitewashing shame.” Americans should distinguish between a profound sense of guilt and a strong sense of shame. Inability to make such a distinction would easily lead Americans to believe that the Chinese can be a great enemy whereas the Japanese can be a strong ally. With a strong sense of shame but not a profound sense of the guilt, the Japanese are simply waiting for a turn of events with patience and with all kinds of theatrical performance to demonstrate that it is a relatively weak member in the global community.
Thus, the Japanese problem must be solved as well as the German problem. Chinese reunification will produce a stronger China that could check the ambitions of a Japan that has a strong sense of shame but not a profound sense of guilt. The Chinese do have a strong sense of shame and a profound sense of guilt. This is why Chinese reunification should be promoted and encouraged even by hawks in Congress. This is why the American people should have more faith in the Chinese people as staunch friends and loyal allies in promoting peace and fostering prosperity.
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“At the beginning of this new century, nowhere is the danger for Americans as great as in the
Taiwan Strait where the potential for a war with China, a nuclear armed great power, could erupt out of miscalculation, misunderstanding, or accident,” wrote Nancy Bernkopf Tucker in the book she edited, Dangerous Strait: The U.S.-Taiwan-China Crisis
. In her words, “Skeptics might argue that other threats are more volatile or more certain – conflict in the Middle East, terrorism at home and abroad, clashes with angry and chaotic rogue or failed states. But although the United States risks losing lives and reputation in these encounters, none but a collision with China would be as massive and devastating … Optimists believe that, with time, ground for reconciliation between China and
Taiwan can be found and the two sides will be able to arrive at a mutually acceptable solution despite an impasse that has produced repeated military skirmishes and political upheaval for more than fifty years. Pessimists argue that the road to war has been laid, and nothing that anyone does, short of realizing the immediate unification demanded by Beijing, will deter combat. Indeed some feel that progress toward such a calamity has speeded up, making Washington’s struggle to keep the rivals at peace, and the United States out of war, much more difficult.” 1
In the late nineteenth and early twentieth centuries, China was the destination of choice for
American Protestant missionaries. “Saving” China was the missionary equivalent of the commercial goal of providing oil to light the lamps of China. Among the missionaries were the parents of Henry
B. Luce, the founder and editor of the Time magazine. Among the Chinese converts were
Generalissimo Chiang Kai-shek of the Kuomintang (KMT) and his wife, Madame Soong Mei Ling. It was these two who impressed Henry Luce. Henry Luce had been described as the most powerful opinion-maker in America. Generalissimo and Madame Chiang Kai-shek were named “Man and
Wife of the Year” by Time in 1937. Said the Missionary Review of the World, “China has now the most enlightened, patriotic, and able rulers in her history.”
After the Japanese surrender in China’s War Against the Japanese (part of World War II), the civil war between Chiang’s Nationalists and Mao’s Communists broke out again. Despite billions of dollars of U.S. aid and tons of U.S. supplied equipment and weapons, it was no contest. Chiang fled with China’s gold bullion to the island of Taiwan where he and Madame Soong remained Luce’s darlings.
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Once on Taiwan, Chiang ordered the execution of several thousand opponents and established a
Nationalist dictatorship that imposed martial law for nearly forty years. He maintained that his government remained the legitimate government of all of China and that he would return to re-capture the mainland. Most countries, however, recognized the People’s Republic of China and established diplomatic relationships with it except the United States. After twenty years, Richard Nixon brought the United States back to reality in 1972.
What lay behind this exercise in fantasy was the China lobby in conjunction with the Korean War.
Immediately after Chiang’s flight to Taiwan in 1949, Secretary of State Dean Acheson declared that
Taiwan was outside the U.S. defense perimeter. Had it remained so, the communists would undoubtedly have ended the civil war by taking the island fairly quickly.
In June 1950, the Korean War broke out. President Harry Truman interrupted and froze the
Chinese civil war when he placed the U.S. Seventh Fleet in the Taiwan Strait. Truman and his advisors feared the Korean conflict would provide a diversion during which the Communist Chinese would try to conquer the offshore islands that remained in Nationalist Chinese hands and then attack
Taiwan to dislodge and defeat Chiang Kai-shek’s surviving troops. But Truman gave the Seventh
Fleet a larger mission. The Nationalists, who were not trusted in Washington, were also to be prevented from using the fighting in Korea as a pretext to launch what Americans came to believe as a hopeless assault on the mainland. Once stranded onshore, the United States would be compelled to rescue them.
Truman had, in fact, already accepted the idea that the Nationalists’ regime would not, and probably should not, endure. Its history of corruption and ineptitude on the mainland had alienated
Truman and Acheson. In fact, just before the outbreak of the Korean War, they made it clear that
Washington intended to allow Chiang Kai-shek to fall. The Korean War changed all that. The monolithic nature of global communism was felt to be too threatening.
Time , religious organizations, and political leaders like Senator Walter George, John Foster
Dulles, and Dean Rusk convinced the American public that Chiang’s regime on Taiwan was a champion of freedom and democracy. Truman passed on the Taiwan problem to the administration of
Dwight D. Eisenhower. Eisenhower and Dulles recognized that, for domestic political reasons and to preserve peace in Asia, they could not simply walk away from the Taiwan Strait. Eventually, as artillery shells flew across the waters between the mainland and the offshore islands that lie quite close to the mainland, Eisenhower signed a mutual defense treaty with Taiwan. The treaty asserted unity in the face of aggression, but Article V specified that in the event of “an armed attack” each
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signatory would “meet the common danger in accordance with its constitutional processes.” This particular choice of words left the United States with considerable flexibility in choosing whether, when, and how to respond to a clash between PRC and ROC forces.
To Eisenhower, it seemed to be an excellent tool of triple deterrence. It protected the United
States against demands from, and miscalculation by, Taiwan and China. China would not seek to capture Taiwan or the offshore islands because it could not know, in advance, what the United States would do, and Taiwan would not take provocative actions since it could not be certain of U.S. support.
In 1962, the Great Leap Forward directed by Mao Zedong failed. There was widespread famine in China. Some Western observers calculated that as many as 30 million Chinese died from starvation.
This may be an overestimate since this calculation was based on interviews with Chinese refugees flooding Hong Kong from south China. However, the calculation did confirm the extent of the failure of the mass movement in forming large communes in rural China. During these difficult times,
Generalissimo Chiang Kai-shek contemplated an attack on the maintain. President John Kennedy used very ambiguous language to both Beijing and Taipei to keep the United States out of war.
Finally, in 1972, Richard Nixon and his capable advisor, Henry Kissinger, put an end to the myth that
Taipei was still ruling the whole China with its capital in Taipei. However, to Taipei, this was not pure fantasy. There were precedents in Chinese history. Driven by nomadic invaders from the north, the Sung Dynasty retreated to the south of the Yangtze River and established its capital at Hangzhou, creating the beautiful West Lake. The Chinese emperors of the South Sung Dynasty were firm in their beliefs that they would, one day, recover the territories lost to the northern tribes and that they were not pretentious at all in thinking of themselves rulers of the whole China with the capital at
Hangzhou.
Due to domestic politics, Richard Nixon and Henry Kissinger could not give immediate recognition to the People’s Republic of China. However, once the normalization process started, official recognition was just a matter of time. Nixon and Kissinger accepted the idea of one China but they voiced their wish that Beijing would pursue peaceful reunification. During the Vietnam War, the
United States had, under great secrecy, installed nuclear weapons in Taiwan in case of involvement of the PRC in Vietnam. Nixon stopped the Seventh Fleet from patrolling the Taiwan Strait, gave up the
Mutual Defense Treaty with Taiwan and withdrew the American troops stationed in Taiwan.
Furthermore, American nuclear weapons were removed from Taiwan. China, however, did not give up the option of achieving reunification by force. Nixon and Kissinger ruled out pursuit of two
Chinas or one China, one Taiwan, or support for Taiwanese independence. Thus, Beijing anticipated that progress toward reunification would be reasonably rapid now that Taiwan had lost the support of the United States. The Carter administration finally gave official recognition to the PRC. It was
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ambivalent toward Taiwan, particularly in defense commitments. However, quite a number of politicians in Congress refused to permit a rather vague security guarantee. Soon after Carter’s recognition of the PRC, Congress passed the Taiwan Relations Act. The Act says: any effort to determine the future of Taiwan by other than peaceful means, including boycotts and embargoes would be of grave concern to the United States, that defensive weapons in appropriate quantities would be made available to Taipei, and that Washington would maintain the capacity of the United
States to resist any resort to force or other forms of coercion that would jeopardize the security, or the social or economic system, of the people in Taiwan. Even so, the final version of the law preserved ambiguity regarding the role the United States might play in the defense of Taiwan. It dictated no specific U.S. actions and gave Congress no power to initiate a military response. On the crucial question of arms sales, the president would decide what to sell to Taiwan and all that Congress could do would be to block his decision.
Beijing was not happy about the Taiwan Relations Act. Chinese leaders and the Chinese people believe that as long as Washington continued to sell advanced weapons to Taiwan, Taiwan would be unwilling to enter serious talks with the PRC on reunification. Thus in 1981 and 1982, China tried hard to persuade the United States to change its policy regarding arms sales to Taiwan. Prolonged negotiation eventually led to an August 17 Communiqué in which the United States pledged not to improve the quality or increase the quantity of Taiwan’s weapons as it gradually reduced sales.
When Ronald Regan became president, he was sympathetic to Taiwan because, in his mind,
Taiwan remained as the Free China and as the last bastion against Chinese communism. He muddled the provisions of the arms sales communiqué even before the two sides formally signed it. He also made six assurances to Taiwan. James Lilley, director of AIT (American Institute in Taiwan) in
Taipei made the following points on July 14, 1982.
2
1.
The United States had not set a date for ending arms sales.
2.
The U.S. would not engage in prior consultation with the PRC regarding weapons sales to
Taipei.
3.
The U.S. would not mediate between Taipei and Beijing.
4.
The U.S. would not pressure Taiwan into negotiations with the PRC.
5.
The U.S. would not revise the Taiwan Relations Act.
6.
The American position regarding the sovereignty of Taiwan would not be changed.
Beijing was, of course, much agitated by President Reagan’s Six Assurances to Taiwan. It deemed that these assurances had breached earlier agreements made between the Chinese and
American governments. It was a retrogression in the Sino-American relationship.
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President George H. W. Bush had a better understanding of China and was keen to improve the
Sino-American relationship. However, due to domestic politics, he approved the sales of 150 F-16 jet fighters to Taiwan, thereby violating both the spirit and wording of previous agreements reached between the Chinese and American governments.
In 1995 and 1996, China fired missiles at the waters nearby Taiwan. The crisis began with an invitation to Taiwan’s president Lee Teng-hui to receive an honorary doctoral degree from his alma mater, Cornel University. Taiwan had spent in excess of $2 million to lobby for the granting of a visa to President Lee to the United States. Previously, no such visas had been granted to such senior government officials in Taiwan. Ultimately, Congress and President Clinton realized that it would not make political sense if a democratically elected president in Taiwan was not granted a visa. Earlier, the Chinese government was assured by senior members of the American government that no such visa would be granted. Thus, the Chinese leadership was very angry when the visa was finally granted because it deemed it as an endorsement of Taiwan separatism. A senior Chinese official told a foreign correspondent that he had assured top Chinese leaders that the visa would not be forthcoming. With the sudden turn of events, he had to resign from his post and went back to his birthplace in rural China because he was out of favor with the top leaders.
In the 1995 and 1996, the PLA fired missiles at the waters nearby Taiwan to forewarn Taiwan of possible conflicts. As a symbolism of protest, President Clinton ordered the aircraft carrier Nimitz to sail through the Taiwan Strait in December 1995. This proved very alarming to the Chinese leaders in
Beijing. At first, they thought that America was unconcerned with foreign affairs, particularly those in Asia. After all, most Americans are descendants of Europeans. They would pay more attention to
Europe and the Middle East. The PLA military leaders let their views be known to the Chinese civilian leaders that the deployment of the Nimitz carrier group represented a revival of gunboat policy of the West, reminiscent of gunboat policies of Great Britain and Japan during China’s century of humiliation.
In 1996, the PLA conducted a second round of missile testing just a few months before the first direct presidential election in Taiwan. The testing was seen by many as a warning to the people in
Taiwan that China would not tolerate a regime that was wholeheartedly opposed to unification. In reaction, President Clinton sent two aircraft carrier groups, the Nimitz and the Independence to the waters nearby Taiwan. Beijing was further aggrieved by this deployment of military power. Some
PLA leaders were agitated by this second demonstration of gunboat policy, and, naturally enough, they were determined that China would not bow before another demonstration of American gunboat policy in the future.
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While China was conducting her second round of missile testing, Japan was, coincidentally, negotiating new defense guidelines with the United States. Disturbed by China’s display of military power, Prime Minister Hashimoto Ryutaro allowed the joint security declaration which emerged from his April summit meeting with President Clinton to be far stronger than it was originally intended.
This confirmed the views held by some Chinese military and civilian leaders that the United States were forming strong alliances in Asia in an attempt to block China’s rise in wealth and power.
President Clinton and his administration were aware of the hostility expressed by Beijing’s leaders and the Chinese public. He wrote to Jiang Zemin, president of the PRC, that the United States respected China’s One China Policy and was against the independence of Taiwan. Furthermore, the
United States would not support Taiwan’s admission to the United Nations. Clinton also omitted the crucial injunction that any settlement in the Strait must be reached peacefully. These were the famous
Three Nos. These Three Nos were redrafted several times in view of the politics in the United States.
Finally, these Three Nos were affirmed orally in conjunction with Jiang Zemin’s state visit to the
United States in 1997, repeated by Secretary of State Madeleine Albright in China in May 1998 and again that spring by Deputy Assistant Secretary of State Susan Shirk to Congress. Clinton restated the
Three Nos on Chinese soil in July 1998. The tilt toward China then became evident to many in
Taiwan, China, and the United States.
To them, Washington had replaced “peaceful resolution” of the cross-Strait issue with “peaceful reunification” as its objective. However, in early 2000, President Clinton declared that Taiwan’s future must be determined with the content of the people in Taiwan. Thus, President Clinton reaffirmed U.S. commitment to peace. Once again, Beijing was annoyed by this unpredictable behavior in Washington.
Early in his first-term administration, President George W. Bush changed the wording of his previous administration that China was no longer a strategic partner but a strategic competitor.
Within a few months of his presidency, Bush approved an extremely large arms sales package to
Taiwan. Within this package were advanced weapons that had been denied Taiwan by previous administrations because they were deemed offensive in nature and hence could be too provocative.
Most notably, he appeared on national television to dispel any uncertainty about Washington’s reaction to a use of force in the Taiwan Strait. In an interview with an ABC host on Good Morning
America , President Bush said “we would be willing to do whatever it took to help Taiwan defend herself.” President Bush was beginning to sound like President John Kennedy when the latter proclaimed that Americans would fight for liberty anywhere in the world. President Kennedy’s inaugural speech was a prelude to the Vietnam War. Would President Bush’s view on ABC be a
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prelude to something devastating in East Asia? We don’t know. Hopefully, Americans would still learn a few lessons from the Vietnam War.
In its 2002 Nuclear Posture Review, the U.S. Department of Defense envisioned a confrontation with the PRC over the status of Taiwan and called for contingency plans to deploy nuclear weapons if necessary. In an earlier chapter, we have been talking of the possibility of a conventional warfare between America and China which could escalate to a nuclear war between these two countries, probably by default. Now, the U.S. Department of Defense was calling for action plans that might involve the use of nuclear weapons. If there is a will, there is a way. In many situations, planning will lead to action. We have seen an earlier case in Chapter One, in which the preparation for war led to the outbreak of World War I even though countries in the two opposite alliances did not quite believe that a full blown-out war would happen.
Soon after Bush’s comment on ABC, the Bush administration welcomed a visit by Taiwan’s
Defense Minister to a conference in Florida. Wolfowitz and Jim Kelly, assistant secretary of state for
East Asia, met him there and confirmed Bush’s adherence to Reagan’s Six Assurances to Taiwan and the Taiwan Relations Act, and also confirmed Bush’s promise to do whatever it takes to help defend
Taiwan.
Events took a drastic turn as a result of terrorists’ attacks in New York and Washington, D.C. on
September 11, 2001. For a time, Washington was preoccupied with how to deal with terrorists at home and around the world. The Chinese government indicated that it was willing to help. This created much good will in Washington and among the American public.
On the other hand, President Chen Shui-bian of Taiwan was preoccupied with his own political agenda. He took policy initiatives from time to time that even the Bush administration would consider too provocative. On August 3, 2002, President Chen declared that there was one country on each side of the strait and later proposed to hold a defensive referendum to bypass the due legislative process and the consensus-building mechanism to alter the ROC (Republic of China) constitution.
Chen declared that Taiwan was not a province of one country or a state of another country. He told his supporters and the general public that he would not let Taiwan to be bullied by either Beijing or
Washington.
In 2004, Chen won the presidential election by a very thin margin. Many people in Taiwan believed that if not for the attempted assassination on him on the eve of the election day, Chen would have lost in the presidential election. This is because Chen’s administration had done poorly in economic and social affairs. Most Taiwanese people were more concerned with economic growth and
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social justice than continued demand for independence. Having survived near death experience both physically and politically, Chen was all the more determined to see his second administration in messianic terms.
In the run-up to the 2004 presidential election, Chen began to take a more assertive stance toward independence. Chen seemed to be motivated by a number of factors, including political opportunism and nationalist idealism. According to some analysts, he was trying to stir up emotions among
China’s military and civilian leaders. He was hoping that an angry China would launch another round of missile testing to the waters nearly Taiwan. This would rally support from voters who were displeased with the poor economic and social performance of his first-term administration. Chen’s logic probably ran like this: Lee Teng-hui had won the first direct presidential election in Taiwan thanks to the missile testing of the PLA just before the election; likewise, Chen would solicit voters from voters who were determined to cast votes against the wishes of the Beijing regime. Beijing, however, remained cool.
Facing the last four years of his long political career, Chen may have come to believe that he must secure for himself a place in history by pushing Taiwan into a permanent separate entity from China.
Furthermore, he and his supporters may also come to believe that Taiwan consciousness and cultural identity had sufficiently come into being so that it was probably the right time to bring in changes in the status of Taiwan. Chen was clever enough to push for an island-wide referendum to promote the principle that the island’s people could vote on important issues, thus bypassing the debates and consensus-building process in a democratic society. Needless to say, once such mechanisms have been put in place, referendums on an island-wide basis can be used to open the door to a vote on independence in the future. After a great deal of hot debates which involved all the major political parties in Taiwan, Chen was able to include a referendum with the March 2004 presidential election.
Voters were asked to decide whether to increase Taiwan’s anti-missile defense capabilities if the PRC refused to remove the hundreds of short-range and intermediate-range missiles targeted at Taiwan and whether to enter talks with the PRC based on an ill-defined peace and stability framework.
Subsequently, Chen won the presidential election thanks to sympathy votes but he lost the referendum because he could not summon the support of over half of the registered voters.
Although Chen did not gain a clear-cut mandate from the voters, he was determined to push ahead measures that would sorely test Beijing’s patience, including a new constitution, to be voted upon in a referendum in 2006 and to go into effect in 2008, perhaps just a few months before the holding of the
Olympics Games in Beijing starting in August 2008. Beijing had been trying hard to host the
Olympics Games in 2008 and would certainly be constrained in what they could do in response to actions taken in Taiwan. Chen claimed that changes in the constitution would have no impact on the
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status quo but would be aimed at improving the democratic processes, mechanisms, and institutions in
Taiwan. Of course, PRC officials have always been distrustful of Chen. They believe that constitutional reforms would lead to changes in the status quo. An example might be changing the name of the Republic of China to the Republic of Taiwan. To the mainland government, what Chen was proposing constituted a clear timetable for independence.
At the very least, Chen would be creating a framework for the Taiwanese people to make this choice. Chen, in the eyes of the PRC leaders, was determined to leave a legacy in history as the father of an independent Taiwan no matter when and how independence actually comes into effect.
Even without changing the name to the Republic of China, an independent Taiwan can come into being. The basic question is, of course, whether this independent Taiwan will be recognized by countries around the world. The tactics taken by Beijing is to gain support from all the countries in the world that recognize the PRC that they are all for a One China Policy.
Thus, an independent Taiwan may gain no recognition and will be denied admission to the United
Nations. Chen Shui-bian is doing what is politically impossible. We can sympathize with his views and aspirations. He came from a background and a time when the KMT was exercising harsh rule in
Taiwan. Native-born Taiwanese were denied opportunities in politics, government, big business, and universities. However, great changes have occurred in Taiwan since Chen graduated as a law student from National Taiwan University. Perhaps, he and his supporters should reconsider their missions and further develop their visions for a free, democratic and prosperous Taiwan. Their efforts should be directed to developing long-lasting peace and prosperity in East Asia. This is where he and his supporters can leave a legacy and their names in Chinese history and perhaps in world history as well.
At the end of the twentieth century, America’s bonds with Chiang Kai-shek’s successors in
Taiwan are deeper than ever because the island has become a thriving democracy, a major trading partner with the United States, and a landscape of modern and progressive culture. Although many
Americans know little about this island lying one hundred miles from China’s coastline with a population of 23 million, Taiwan’s leaders have carefully built up relationships with important friends in the United States. For example, Taiwan has retained a public relations firm, Cassidy & Associates for $125,000 per month. This PR firm was further granted $2.5 million by the friends of Lee Tenghui, then president of the Republic of China. The purpose of this grant was primarily to obtain a visa for Lee Teng-hui to go to Cornell University, his alma master, to receive an honorary doctoral degree.
Another interesting story is that, by the time he ran for president in 1992, Bill Clinton had never
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visited mainland China, but he had made four trips to Taiwan as the head of the Arkansas trade delegations. Each trip featured banquets, golf outings, entertainment, and briefings by Taiwan leaders on Asian security from Taiwan’s perspective.
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For mainland China, however, bringing Taiwan back into the fold of the motherland is perhaps the most deeply felt commitment of the Communist Party leadership in Beijing and of the office corps of the 2 million-strong People’s Liberation Army, who regard themselves as the guardians of the
Chinese Revolution and the defenders of Chinese sovereignty. Indeed, recovering Taiwan is as strong an imperative in the Chinese national consciousness as Manifest Destiny was in the American consciousness a century ago, when nationalism and commercialism combined in a burgeoning vision of an America stretching from ocean to ocean. Almost every school child in China has heard of, if not has read, the novel, Romance of the Three Kingdoms , which was an outstanding narrative in Chinese literature about the breakdown of the Han Dynasty into three separate kingdoms and then the reunification of China, which eventually led to the Tang Dynasty, a period of great achievements in
Chinese art and literature and a period of sustained economic growth and social developments. Thus, a unified China is built into the collective psyche of the Chinese people.
When America was on the rise in the nineteenth century, the Chinese were suffering the humiliation of a collapsing empire and the breakdown of central governance; of military lassitude so pervasive that the country was forced to surrender control over its maritime ports to Britain, France, and Germany; and of scientific inertia so paralyzing that China sat out the industrial revolution.
Indeed, it was China’s weakness that enabled Japan to sunder Taiwan from the mainland in 1895, foreshadowing a century in which the Japanese Imperial Army would complete the bloodiest conquest of China (1927 – 1945) since the Mongol invasion of the thirteenth century. The Rape of Nanking was a book based on research and written by a Chinese American named Iris Chang. It claimed the brutal elimination of 300,000 Chinese civilians in the city of Nanking, which was, at that time, the capital of the Republic of China.
In his book, A Great Wall: Six Presidents and China . Patrick Tyler made the following remark:
The Chinese Manifest Destiny has come to signify reasserting China’s sovereignty over Tibet
(which was a part of the Qing Dynasty), Hong Kong, Macao and Taiwan. It is not difficult for Americans to understand these sentiments, as they mirror their own notions of national sovereignty and territorial ambition. The average Chinese, of course, wants no part of war with Taiwan, or of Chinese killing Chinese. But the notion of such a war is nonetheless deeply imbedded in the political culture of the 58 million members of the Chinese
Communist Party and the PLA. Recovering Taiwan has become a litmus test of national
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loyalty, part of the “big nation chauvinism” endemic, Premier Zhou believed, to the Chinese ruling class. In any case, those with power want Taiwan back.
4
During his lifetime, Mao had entered secret talks with the KMT to achieve reunification.
However, such talks broke off as a result of the Cultural Revolution. At the time of his death in 1976,
Mao could never have imagined the Taiwan of today, with its strong pro-independence minority, participatory democracy, and native-born Taiwanese presidents elected by universal suffrage; he could not have foreseen that the U.S. Congress would become a battleground for pro-Taiwan lobbyists, human rights advocates, trade barons, and anti-nuclear proliferation supporters, all seeking to influence the course of American policy on China in the aftermath of the Cold War.
Still, Mao might have relished the confrontation – and its dialectics. He believed that the key to winning wars was to make your enemy believe that you have no fear of war. China, he would say, with its vast population and its capacity to “eat bitterness,” could absorb punishment better than any adversary. He once told a visitor that the warmonger image he had acquired suited his purpose, laced as it was with Mao’s sober calculation – even conservatism – in military strategy. Mao understood the art of war, and, over the years, his warmonger image instilled great caution in the Soviet Union and other adversaries who contemplated attacking China.
Today, Mao’s notion of fearlessness remains deeply imbedded in the Chinese military establishment. In 1979, China fought a brief border war with Vietnam. Chinese troops, fighting with antiquated weapons and uncoordinated ground tactics, and without air support, suffered tens of thousands of casualties before reaching their objective. When they did, the battered Chinese divisions turned around and marched home, having administered their lesson – that Beijing would not tolerate
Vietnam’s invasion of Cambodia or the formation of a Soviet-Vietnamese alliance on its southern flank. To China’s leaders, the price paid in battle dead was necessary in the larger context of the nation’s interests. China’s determination to defend its national interests, as exemplified by that 1979 conflict with Vietnam, ought to sober those who argue that China cannot afford war.
The Chinese civil war has become a permanent feature of the American political process.
Americans should never forget that mainland Chinese leaders are in constant communication with
Taiwan’s leaders through private channels from which Americans are excluded. Public statements made by Beijing or Taipei often are attempts to gain leverage within these private negotiations.
Americans should be aware of the ideological battleground that these adversaries have shifted to
American soil. Taiwan’s leaders recognize that whether they eventually strike a deal with mainland
China or declare their independence, the island’s fate will ultimately be decided by the United States, which has always been the guarantor of its security. Both mainland China and Taiwan recognize the
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crucial role that America can play. For this reason, both sides endeavor to influence the American political process.
Beijing, in the past, has concentrated its efforts on each successive president, seeking continuity of the commitment to the principle of One China. Taiwan, on the other hand, has concentrated its lobbying efforts on Congress, realizing that the cultivation of even a relatively small but ideologically committed group of supporters, particularly in the Senate, could guarantee that the island’s security and political interests remain at the forefront of American policy concerns in Asia. Those interests include expanding Taiwan’s international image as a sovereign state, thereby strengthening its political position in negotiations with the mainland and preventing the kind of isolation that would make Taipei more vulnerable to Beijing’s demands. To further its case, Taiwan has built a network of political support in most of the fifty American states by opening trade offices and promoting business ties with the political elite across America, especially in key states such as California, Texas, Illinois, and New York.
Like in the Arab-Israeli dispute, like in the conflict in Northern Ireland, both sides seek to manipulate American public opinion and turn congressional action to their advantage. A part of the
American self-conception is that power confers responsibility. In his second inaugural address,
President Clinton said, “America stands alone as the world’s indispensable nation” – a recurring formulation of the Clinton administration. Although many Americans are publicly more humble, this theme, “indispensable nation,” captures a deeply held belief. Americans are inclined to believe that their nation’s unique capacity to act at a great distance from its borders creates a moral imperative to do so. In a world where tragedy is broadcasted live from remote regions to every American living room, the sense of blood, global interests and moral imperatives gives rise to debates over when, under what circumstances, and how the United States should bring its power to bear on distant problems and unfolding tragedies. Recent public opinion polling by Potomac Associates reveals that
Americans in general, and more informed elites in particular, rate maintaining peace and stability in
Asian Pacific as their primary goal, followed in a near dead heat by the twin priorities of seeking economic benefits from trade and investment and working to improve human rights in Asia.
Americans tend to believe that U.S. motivations and foreign policy toward China and other countries have been more magnanimous, different in kind, than the motivations that animated other
Western powers in the Age of Imperialism. The Chinese do not have such a benign understanding of
U.S. behavior.
China’s experience in the nineteenth and twentieth centuries has been entirely different than that of the United States: for much of that period it has been the playground for foreign intervention and
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encroachment. China has experienced tremendous upheavals and tragedies over the past 160 years.
Yet through it all several overarching beliefs have held China’s people together: the sense of a long and glorious past, unjust treatment at the hands of foreigners from 1840 to 1949 (and beyond), a desire to regain international respect and equality, an imperative for territorial reunification, and a wish to reaffirm the collective greatness as a people and nation. Succinctly, therefore, as China enters the twenty-first century, it carries the self-image of a “victim” nation, albeit a nation with aspirations finally on a path toward greatness restored.
Political cycles have enormous impact on the U.S.-China relationship. In the United States, it is the calendar of off-year and general elections; in China it is the irregular rhythm of succession, and the more regular schedule of party congresses. In both societies, leaders must hoard their political capital for these events that invariably affect the two nations’ interests. As with the business cycle, it cannot be assumed that there will be a frequent, positive convergence of the political calendars of the two nations. In his book, Same Bed, Different Dreams : Managing U.S.-China Relations 1898 – 2000 ,
Professor David Lampton of The Johns Hopkins School of Advanced International Studies, has this to say:
My own experience in speaking to diverse audiences around the United States throughout the
1990s suggests that there is a deep and abiding common sense among the American people.
They inherently understand that China is large, significant, and cannot be easily pushed around.
Focus group research by the Kettering Foundation and Doble Research Associates clearly shows that Americans are more nuanced than Washington discussion, seeing China as both a
“problem” and an “opportunity” rather than either a “friend” or an “enemy.” Yet they also have anxieties about the world in general and the role that the PRC may play in the future global orders. As the American public sorts through these conflicting impulses, they are looking for leadership.
The productive handling of U.S.-China relations is possible – it is essential – and the
American people intuitively know this. Leaders who can both explain why this popular intuition is correct and intelligently seek to move the bilateral relationship in more productive directions will serve not only American national interests but their own political interests as well. In this endeavor, American leaders will need to be joined by equally farsighted individuals in Beijing for, as one Chinese vice minister said, “It takes two to tango!” 5
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During the 1970s and for much of the 1980s, Taiwan was ruled under martial law. The KMT was pretending that it was still ruling the entire China with its capital in Taipei. Because of this, leaders in
Beijing and Taipei shared the view that there was a single, united China. Chinese unification was a problem to be resolved with time and improvement in the relationship between the two governments in Beijing and Taipei. However, as economic development proceeded at a fairly fast rate in Taiwan, people in Taiwan were beginning to think more about their dignity and achievements. Their idea of an independent Taiwan began to take shape and the Democratic Progressive Party (DPP) was formed with proclamation for independence included in its party constitution. However, to have an understanding of the movement for independence for Taiwan, we have to go back on hundred years ago.
After a series of defeats, the Qing Dynasty ceded Taiwan to Japan in 1895 under the Treaty of
Shimonoseki. For the next fifty years, China was to face great turmoils in her territory with wars with foreign countries, such as the Boxer Rebellion at the end of the Qing Dynasty, and a prolonged civil war between the Chinese Communist Party and the Nationalist Party (Kuomintang, or KMT). Under
Japanese colonial rule, Taiwan gradually built up a modest industrial base and many of its elites went to Japan for further education. However, most of them resented Japanese colonial rule and were thinking of self-determination. As the People’s Liberation Army defeated the KMT armed forces toward the end of 1940s, Generalissimo Chiang Kai-shek departed for Taiwan with a great mass of refugees from China. Fifty years of Japanese rule laid down the base for much of the conflict between the Taiwanese (who emigrated to Taiwan before the flooding of mainlanders to the island with the defeated KMT armed forces) and the Nationalists. As a result of Japanese colonial rule, the islanders missed the key elements that shaped the national consciousness of the Chinese, including the collapse of the Qing Dynasty, Sun Yat-sen’s revolutionary efforts, warlord depredations, the literary revolution of the May 4 th Movement, the glory of the Northern expedition to unify China, the epic suffering of the Long March, and the myth of national unity during the War of Resistance against Japan, which formed a part of the Second World War. Most Taiwanese were happy to see an end to the Japanese colonial rule as a result of Japan’s total defeat at the end of World War II. However, they were also uneasy with KMT’s harsh rule in Taiwan.
When Taiwan was returned to KMT’s armed forces by Japan, mainlanders who were alarmed by the islanders’ demand for some measure of self-determination, arrived with armed forces and massacred thousands, including many of the Japanese-era elite. This is the February 28 Incident in
1947, which has a significant impact on the islanders.
In 1949 and 1950, approximately two million mainlanders flooded the island with their collective mainland experiences. Generalissimo Chiang Kai-shek imposed a highly centralized political
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structure and was quite determined to recover the Chinese mainland from the Chinese communists at some future time. In the eyes of Chiang Kai-shek and his American allies, the island had become the last bastion of the real, free China, against the Chinese communists.
A belief in what was the best for the island’s people and frustration with a lack of personal success under the KMT rule drove many Taiwanese into activists to champion for independence for
Taiwan. The first Taiwan independence organization, the Formosan League for Re-emancipation, was formed by Thomas Liao in 1947. Liao was born into a Presbyterian family in southern Taiwan and was educated in the United States. Self-determination was the principle of this movement.
Members of this organization appealed to Americans and the American government on the issue of self-determination. However, they were often ignored because American government and the
American media supported the KMT. For the next five decades, American officials monitored the
Taidu (Independence for Taiwan) movement and met its leaders from time to time to hear their grievances, but firmly refused to make any commitment of support.
In 1950, Liao established the Taiwan Democratic Independence Party in Kyoto, Japan. In 1955,
Liao and his supporters formed a Provisional Government for the Republic of Taiwan and continued to seek support from the United States. Liao claimed that while he was seeking self-determination and an overthrow of the KMT regime in Taiwan, he was anti-Communist. In light of President
Truman’s decision to have the Seventh Fleet patrolling the Taiwan Strait and President Eisenhower’s mutual security treaty with the ROC, activists realized that the United States was fully in support of the KMT regime in Taiwan.
In 1965, Liao returned to Taiwan. His efforts gradually faded into obscurity. However, history preserves a place for him as the first Taiwan-born Chinese who was determined to resist KMT’s rule on Taiwan. There were other activists who favored a socialist agenda for Taiwan. The KMT was and still is the wealthiest political party in the world, controlling many state and private enterprises in
Taiwan. However, land reform and other Nationalist policies brought about pretty fast economic development, particularly during the earlier years of KMT’s retreat to Taiwan. Taiwan had received generous financial assistance from the United States. Furthermore, the refugees from the mainland had come along with capital, industrial know-how and entrepreneurial skills. They were able to build up an industrial base in Taiwan that was oriented toward export, particularly to the United States. As a result, there was an economic boom in Taiwan, resulting in a relatively equitable distribution of wealth among the Taiwan people. Most Taiwanese had little interest in class struggle or violent acts directed to the overthrow of the KMT regime in Taiwan. During the 1950s, the movement for independence (TIM) shifted from Japan to the United States as more and more Taiwanese students went to America for further studies. In 1958, the United Formosans for Independence (UFI) was
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formed under Chen Yide. This organization established student associations at major research universities in the United States. There were, understandably, conflicts between members of this organization and the students who supported the KMT rule in Taiwan. The latter were funded by the
KMT government to mount a counter-offensive against the actions taken by UFI members to gain support from the American public.
In 1964, Peng Ming-min became one of the most famous leaders of the TIM. He was the youngest professor at the National Taiwan University, the most prestigious university in Taiwan. In
1964, he and two associates drafted the “Declaration of the Taiwanese Self-Salvation Movement”, a damning indictment of Nationalist oppression and a demand for national self-determination. They were immediately arrested before the statement could be widely distributed. However, because of his prestige as a professor at National Taiwan University, he was given a mild penalty. In 1965, he was released from prison under a special presidential pardon. In 1970, he left Taiwan and remained at the forefront of Taidu by championing the Taiwanese people’ hopes for self-determination.
There was, however, much disunity among Taidu advocates. Activists could only agree on two broad goals: to overthrow Nationalist rule and to prevent the Chinese Communists from taking possession of Taiwan. The questions of means, however, remained an unsettled issue. Finally, in
1970, representatives from the United States, Japan, Taiwan, Canada, and Europe established the
World United Formosans for Independence (WUFI). Peng Ming-min briefly led the WUFI in 1972 but he could not bring the organization into a coherent body.
Chiang Kai-shek’s death in 1975 symbolized the decline of the mainland-born nationalists and the waning of the ideology of the Three Principles of the People. People in Taiwan were expecting a change in political and social climate. Furthermore, Taiwan’s own economic miracle created a social base for political change as a growing middle class demanded more attention to their aspirations and expectations. From then on, democratization, quality of life, corruption, and Taiwan’s international status became the principal political issues. In 1979, Meilidao (Beautiful Island), a magazine published by dissidents, appeared. It advocated democracy and championed self-determination.
On December 10, 1979, future Democratic Progressive Party leaders who ran Meilidao magazine sought publicity for their cause by organizing a demonstration on Human Rights Day in a city in southwest Taiwan. Future vice president Annette Lu claimed that mainlanders were outsiders. The demonstration became a riot and the police arrested many of the demonstrators and the court gave them lengthy prison sentences. For the next two decades, resistance against the Nationalists would be dominated by those involved in the events of December 1979. For a brief time, the Incident united
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the far-flung branches of the pro-independence community. However, the activists were not united because of personality conflicts.
After President Carter gave recognition to the PRC, some influential Americans were considering the possibility of permanent separation of Taiwan from China. In 1982, the Formosan Association for
Public Affairs (FAPA) was established in the United States as an offshoot of WUFI. This group focused on lobbying American politicians to support democracy and self-determination for Taiwan.
However, many Americans from business, academics, and think-tanks were determined to improve
PRC-US relations by supporting the “One China” policy.
Despite constant intimidation from the KMT, a number of Taiwanese people decided to form the
DPP (Democratic Progressive Party). The opposition party was tolerated because Chiang Ching-kuo, son of Generalissimo Chiang, had recognized the need to legitimize the regime by bringing more
Taiwanese into the KMT and government ranks. Through a process known as Taiwanization,
President Chiang was bringing native-born Nationalists, such as Lee Teng-hui, into high ranking positions. With the end of martial law in 1987, wide-ranging reforms were introduced, including relaxation of controls over the press, speech, assembly, and political groups.
After Chiang Ching-kuo’s death in 1988, the Taiwan branch of WUFI began to operate in public.
In 1992, the WUFI held its annual meeting in Taipei. WUFI toned down its anti-mainlander rhetoric and stated that: “Anyone who identifies with Taiwan, loves Taiwan, and wishes to be part of Taiwan’s destiny, regardless of when they immigrated or were born on Taiwan, all will be equal citizens of
Taiwan after independence.” By the 1990s, most of the TIM had abandoned their position of portraying all mainlanders as illegitimate intruders into Taiwan’s polity. In 1992, Peng Ming-min returned to Taiwan and ran for president under the DPP banner in 1996. However, he was to be disappointed because most of the voters were not sure how a strong advocate for Taiwanese independence would be received by Beijing.
The TIM did not and does not control the DPP. Those who felt that the party lacked dedication to independence could not construct a viable alternative. In the meantime, Lee Teng-hui, a native-born
Taiwanese, moved up the Nationalist hierarchy to become Vice President in 1984, and then to
President in 1988 after Chiang Ching-kuo’s death. With consummate political skills, he consolidated his power base and controlled the vast financial resources of the KMT. He was elected president in
1996 in Taiwan’s first direct presidential election. In both rhetoric and action, Lee drifted further and further away from the mainlander vision of the Chinese nation but usually with carefully calculated ambiguity. In July 1999, Lee openly repudiated the one China principle in an interview with a
German correspondent, stating that the cross-strait relationship was state-to-state in nature.
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In 2000, Chen Shui-bian ran for president with a renowned separatist, Harvard educated Annette
Lu, as his vice president. Chen assured voters that stability and prosperity were his first priorities. He won the election. His inaugural pledge of the Five No’s (not to declare independence, not to change the national title, not to put state-to-state relations in the Constitution, not to promote a referendum on independence, and not to abolish the Guidelines for National Unification and the National Unification
Council) dismayed TIM activists, but still could not satisfy Beijing. WUFI now adopted the strategy of making incremental steps toward independence so as to make unification all the more difficult.
WUFI encouraged the creation of a Taiwan passport and an application for membership in the United
Nations. WUFI urged Chen to take a hard line against the PRC and to resist any moves toward reunification.
Backers of independence create their own narrative to illustrate the island’s differences from the mainland. Curricula and textbooks increasingly follow a “Taiwan-centered” version of the island’s history, rather than the Nationalists’ old narrative of the island as one province of China.
These gradual changes may not signify fundamental shifts toward formal and permanent independence from China. However, they are creating a cultural consciousness distinct from that in
China and these will create a new generation of Taiwanese who would not see themselves as Chinese.
It would make reunification all the more difficult. Taiwan’s military is clearly loyal to the democratic system. However, there is distrust between the officer corps and top civilian leaders because many of the military leaders do not advocate independence for Taiwan. They may not like communism and they would certainly do their utmost to protect Taiwan from an unprovoked attack by the PLA.
Nevertheless, they harbor anti-independence sentiments because they don’t want to see bloodshed between the Chinese in mainland China and the Chinese in Taiwan.
On February 27, 2006, Chen Shui-bian announced after a National Security Council meeting that the island’s National Unification Council would cease functioning. Chen stressed the termination of the council had nothing to do with changing Taiwan’s status quo. “Taiwan has no intention of changing the status quo and firmly opposes any use of non-peaceful means that will lead to the change of the status quo,” he said. Chen said that with the mainland increasing the number of missiles targeting at Taiwan to about 800 and the adoption of the Anti-Secession Law in March 2005, his government had to prevent an adverse situation for Taiwan from worsening further.
After failing to get Chen to abandon his plan to scrap the council, the US had reportedly negotiated with the Chen government to use the wording “cease functioning” rather than the word
“abolition.” In justifying his decision, Chen said that the 23 million people in Taiwan had the right to
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decide the future of the island and that the government should not deprive them of their right by keeping the council running.
As a matter of fact, the council and its guidelines, adopted by the former Kuomintang government in 1991 to leave open the possibility of eventual reunion with the mainland, have remained dormant since Chen became president in 2000. KMT chairman Ma Ying-jeou criticized Chen Shui-bian’s decision, saying that Chen had only succeeded in fueling cross-strait relations. Ma told reporters that instead of focusing on improving the economy, Chen had the wrong priority in setting his political agenda. Opposition lawmakers said that they would employ counter-measures against Chen’s decision by organizing a mass rally and initiating a motion to unseat Chen and drafting a cross-strait peace promotion bill.
In his inaugural speeches in 2000 and 2004, Chen Shui-bian had pledged the famous “five Nos”, including not to scrap the unification council and its guidelines. Chen’s decision to have the council
“cease functioning” is a clear violation of his “five Nos.”. It is, therefore, highly uncertain what Chen may do in the future before his second term of administration is up. This decision of Chen may be seen as another incremental step toward independence and is keenly watched by Beijing as a determination of Chen to become the father of an independent Taiwan.
No American president would want to be constrained by decisions made by previous administrations. Indeed, in time of potential war, the president, his cabinet and his advisors will want to be able to determine policy independently and to do so in the national interest.
Sometimes, war comes closer than at other times. At these moments, emotions are high and appear to prevail over sober thought. When the confrontations have receded, as they have so far, all participants congratulate themselves for having weathered the storm. However, as repeatedly pointed out in this book, there are many uncertainties. The situation is simply highly unstable and explosive.
So far Beijing had remained cool to Chen’s decision to have the National Unification Council “cease functioning.” But Beijing may not remain calm when Chen undertakes further steps. Should such events unfold in the future, the PRC may be forced by internal politics and Chinese rising nationalism to take drastic action. It would appear that the United States has no good alternatives to participation in an unnerving confrontation fraught with uncertainty and danger.
China must understand that the Taiwan people not only want to run their own affairs, they also want dignity and high respect from all corners of the world for their accomplishments in developing democratic institutions, building a highly successful economy and upholding human rights. However,
Taiwanese people should also recognize what is possible and what is not possible. Taidu is a great
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movement to overthrow KMT’s harsh rule in Taiwan and to open doors to native-born Taiwanese who aspire to high positions in government, business, and universities. Many of the objectives of
Taidu have been accomplished. The DPP is no longer an opposition party; it is the ruling party. It should focus on developing Taiwan’s democracy and economy further. To maintain a hard line against Beijing is not necessarily wise.
In Hong Kong, we have a similar problem. Before the return of Hong Kong to the PRC in 1997, many Chinese people in Hong Kong harbored doubts as to whether the PRC would allow Hong Kong people a great degree of autonomy in running their own affairs. Thus, many opposition leaders would oppose whatever Beijing said. However, once they have built themselves into such images, it is very difficult for them to change their images in front of the public. Thus, after 1997, these people maintain their opposition against Beijing and against the local administration first headed by Tung
Chee-hwa and now by Donald Tsang Yam-kuen. As pointed out later, without sustained economic growth, there will be strong tensions and disharmony in a society even when there are democratic institutions. To fight against the impossible is courageous and demands respect. However, would it be better to focus on economic growth and a more even distribution of wealth among the people than to put up opposition against whatever the local administration says? Opposition for the sake of opposition is simply not political wisdom. Polls taken in Hong Kong confirmed the widespread belief that Hong Kong people treasure economic growth and personal freedom above democracy. Beijing has done whatever it can to promote the economic growth in Hong Kong. A society torn by conflicts is simply not a society where people can live happily, much less to realize their potentials as human beings.
Likewise, in Taiwan, some political leaders and their followers have dedicated themselves to overthrow KMT’s harsh rule and to develop democracy and advance economic growth. By most measures, they have succeeded. If they can negotiate long-lasting peace with the People’s Republic, they can ensure the Taiwanese people in having peace of mind and enjoying the fruits of prosperity as a result of economic, cultural, scientific and technological exchanges between the mainland and the island. Thus, unification talks should proceed again with the understanding that people on both sides of the Straits do not want to see bloodshed. So far, unification talks have been interrupted again and again largely because of the ambiguous stand of the American government. If the American government takes an unprecedented step to facilitate the process of Chinese reunification, it will be writing a new chapter in world history. Nowadays, one often hears the expression that a certain person or an organization wants to make a difference. However, what really counts is making history.
The American people and the American government have the ability to make history in East Asia.
This is what Americans should strive for.
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In his book, Winning Modern Wars: Iraq, Terrorism, and the American Empire , General Wesley
K. Clark, former Supreme Allied Commander, Europe wrote:
We don’t need the New American Empire. Indeed the very idea of classic empire is obsolete.
An independent world will no longer accept the discriminatory dominance by one nation over others. Instead, a more collaborative, collegiate American strategy will prevail, a strategy based on the great American virtues of tolerance, freedom, and fairness that made this country a beacon of hope in the world.
American’s primacy in the world – our great power, our vast range of opportunities, the virtual empire we have helped created – have given us a responsibility for leadership and to lead by example. Our actions matter. And we cannot lead by example unless we are sustained by good leadership. Nothing is more important.
6
Nothing is more important than to give full consideration and appreciation why the Taidu movement took place in the first place and remains a strong voice in Taiwan today. However, the
Taidu movement should also recognize what is politically possible and what is politically impossible.
Americans can play a leadership role in making sure that, within the framework of a united China, the
Taiwanese people enjoy the fruits of their accomplishments and the dignity and respect that should be accorded to them. Nothing is more important. Americans can write a new chapter in world history.
Taiwan has much symbolic value. Chinese unification is deeply embedded in the collective psyche of the Chinese people. It is putting an end to the Century of Humiliation, during which China had suffered tremendously at the hands of foreigners. It is also about ending the Civil War between the Chinese Communists and Nationalists. On the other hand, precisely because Taiwan’s return to
China has greater symbolic value than real value, China will most likely grant autonomy to Taiwan so that the Chinese people in Taiwan will be masters of their own house. However, Taiwan will have to admit that it is an integral part of China, no matter how it is defined.
China now has a siege mentality , a mentality of being surrounded militarily. It does not want to be surrounded by the United States, Japan, Taiwan, Vietnam, and India. During the Cold War,
Taiwan was an unsinkable “aircraft carrier” to the Americans. When the Cold War was over,
Americans carried on their Cold War mentality toward the Chinese. If Taiwan is returned to China, the PRC would feel more relaxed and would most likely tolerate many things, such as greater freedom
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of speech, of the press and of religion. When Taiwan stays away from China, China will feel hostile to those countries which it believes are holding Taiwan back from China. Also, the rise of nationalism in China would demand an early return of Taiwan. Beijing may have to succumb to such popular demand.
In his masterful work, Same Bed, Different Dreams: Managing U.S.-China Relations 1989 – 2000 ,
David Lampton makes the following comments:
For if the PRC cannot sustain fairly rapid economic growth and tolerable political cohesion, the world will face a highly nationalistic, resentful nation seeking to rationalize its failure by blaming it on the acts of others, notably the United States, and probably Japan as well. The world will be saddled with a country too weak to maintain domestic order and too chaotic to act responsibly abroad. On the other hand, if China continues to make progress, which I believe to be the more likely scenario, it will demand an ever greater role in the making of global rules, while vigorously pursuing its own national agenda, one that includes significantly increasing its economic prosperity, comprehensive national power, and some form of reunification with Taiwan.
7
He added the following points for our consideration:
Making room for new powers in the international system has not been easy, as the nineteenth century and twentieth century experiences with the rise of Germany and Japan amply demonstrate – although China is very different from these two nations, as is the world system into which it seeks to integrate. As the United States and other existing world powers contemplate the problems of accommodating new vigorous players, they should note that a modernized China fully participating in the global system also could constitute a powerful force to help resolve problems.
8
China needs technology, capital, markets and a sufficiently peaceful international environment that permits less diversion of resources to defense for at least the next decade, and probably considerably longer. America needs to sell its technology, import relatively inexpensive goods, productively employ its capital, foster peace and stability in Asia, and effectively address a plethora of global issues, ranging from the spread of HIV to the proliferation of weapons of mass destruction, to the need for peacemaking operations. As the 1997 – 1998 Asian financial crisis demonstrated, the
United States also increasingly needs China to be a responsible macroeconomic manager and engine of regional economic growth. Realism and prudence should guide expectations; idealism should shape aspirations.
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Ross Terrill, a popular writer on China and the Chinese people has this to say in his recently published book, The New Chinese Empire: And What It Means for the United States :
Beijing’s international behavior will hinge on what happens, or doesn’t happen, to the Chinese state. “Whether China will be a constructive partner or an emerging threat,” writes the reformer-scholar Liu Junning, “will depend, to a very great extent, on the fate of liberalism in
China: a liberal China will be a constructive partner; a nationalistic and authoritarian China will be an emerging threat.
9
If Taiwan is returned to the PRC, the Chinese will feel more relaxed and would probably allow a greater degree of liberalism within China. Hence, the PRC will become a constructive partner. He made the following observations:
As the CCP divided Chinese history into two parts, so two Chinese futures bid to inherit the twenty-first century. One sees a heavy-handed China with a siege mentality and a presumed mandate of history. A China that grows strong while remaining an imperial state. It threatens
Taiwan, locks up democrats, makes a vassal of Myanmar (Burma), crusades against religion in
Tibet, blocks Internet sites, and refuses to negotiate a settlement of disputed islands in the
South China Sea. This repressive empire cannot be stable, comfortable with its own new socioeconomic vigor, or a friend to the United States or China’s neighbors.
A second China would be a loosened-up China of (now) mostly younger people who are unmoved by the pretensions of the Communist regime, who focus on family, cultural, and economic life, rather than on the state. This China, I believe, will ultimately come into existence, ending the dream of a Chinese empire. China as a democratic federation could be a leading force in the world and our fruitful partner in Asia for decades. Recall that Chinese tradition offers visions other than autocracy, including the humanist strain of Confucianism, and autocracy’s opposite, the Daoist idea of ruling by inaction. “A small state with few people” was one of Daoism’s maxims. A leader “known to the people simply as existing was another.” The Daode Jing’s answer to the verbiage of the CCP would have been clear: “Those who have wisdom talk little,” runs the classic of Daoism, “and those who talk much seldom have wisdom.” 10
“My own experience in life,” wrote senior Sinologist Richard Walker, “leads me to believe in the staying power of China, not necessarily as a nation-state or guo (nation) but as a way of life which will extend many of its contributions to tian xia (the worldwide realm)”. China is a civilization; it is
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not just a nation-state. With Chinese reunification, the Chinese civilization will re-emerge with splendor and generosity, synthesizing the best elements of Eastern and Western thoughts and traditions.
On April 1, 2001, an American EP-3 surveillance plane and a Chinese F-8 jet fighter collided over the South China Sea. The EP-3 made it safely to China’s Hainan Island whereas the F-8 plunged into the sea. The Chinese pilot Wang Wei was killed and his body could not be found. A few days later,
China’s Ministry of Foreign Affairs called a news conference. The spokesman said, “The United
States should take full responsibility, make an apology to the Chinese government and people, and give us an explanation of its actions.” Having extracted an “apology” from Washington, Beijing, released the twenty-four servicemen being held on Hainan Island. A New Republic editorial asserted that “a non-Maoist tyranny in China is still a tyranny … They are, in short, in transition from communism to fascism.” 11
Following the 1999 American bombing of the Chinese embassy in Belgrade and the 2001 spy plane collision over the South China Sea, the propagators of anti-American views are now speaking to a much broader Chinese audience. To many in the West, the Chinese Communist Party has constructed Chinese nationalism as a tool to legitimize its rule. To them, since the Chinese
Communist Party is no longer communist, it must be even more Chinese. There is broad consensus in the West on the fundamental nature of Chinese nationalism today: it is “party propaganda,” generated by the Communist elite for its own purposes. This mainstream view of Chinese nationalism is not wrong, but it is incomplete. Like all peoples, Chinese have deep-seated emotional attachments to their national identity.
The Chinese people are now demanding a say in nationalist politics: the fate of the nation is no longer the Party’s exclusive dominion. Western policymakers should recognize that because the
Party’s legitimacy now depends upon accommodating popular nationalist demands, the Foreign
Ministry must take popular opinion into account as it formulates foreign policy. In his book,
China’s
New Nationalism: Pride, Politics and Diplomacy , Professor Peter Hays Gries made the following remarks:
The CCP is losing its control over nationalist discourse. Under Mao, the Party claimed that because it led the revolutionary masses, the Party and the nation were fused into an inseparable whole. Only communists, in other words, could be genuine Chinese nationalists.
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Under Deng and especially under Jiang and now Hu, however, the CCP’s nationalist claims are increasingly falling on deaf ears. Popular nationalists now regularly speak of the
“motherland” ( zuguo
) and the “Chinese race” (
Zhonghua minzu ) without reference to the
Party.
12
National identity is both dependent upon interactions with other nations, and constituted in part by the stories we tell about our national pasts. Because of the stature of the United States and Japan,
Sino-American and Sino-Japanese relations are central to the evolution of Chinese nationalism today.
Chinese nationalists today are particularly concerned with telling and retelling narratives about the “Century of Humiliation” that began with China’s defeat in the First Opium War with the British in the mid-nineteenth century. For three decades under Mao, memories of China’s suffering at the hands of Western and Japanese imperialism were largely suppressed by a heroic “victor narrative” of
China’s past. Today, however, Chinese are confronting the pain of what they suffered during the
“Century of Humiliation,” and constructing a “victimization” narrative about it that challenges the earlier heroic narrative. These debates about the Chinese past have direct impact on Chinese nationalists today. For instance, Chinese anger following the 1999 Belgrade bombing and 2001 spy plane incident cannot be understood apart from the new victimization narrative of Chinese suffering at the hands of Western and Japanese imperialism.
The ways nationalism emerges out of interaction correspond to the ways we as individuals interact with others. To the extent that we identify with a group, our personal self-esteem is tied to its fate. We want our groups to be seen as good. National identities are no different. Nationalists are frequently motivated to save national face or preserve national self-esteem.
The passionate responses to the above-mentioned events account for the increasingly vital role popular nationalists are playing in regime legitimation in China today. Chinese nationalism is not an exclusively elite, top-down phenomenon. The Communist Party has lost its hegemony over Chinese nationalist discourse. Popular nationalists now command a large following and exert tremendous pressure on those who decide the PRC’s foreign policy. In fact, the legitimacy of the current regime depends upon its ability to stay on top of popular nationalist demands.
Americans have long used the image of a despotic China to enhance its own image as the liberalizing force in the world. American ideologues continue to depict China as the last bastion of despotism, in order to better flatter themselves as the champions of freedom and democracy. They believe that it was America's sacred duty to discipline this evil and despotic China. Indeed, following the 2001 plane collision in South China Sea, in which a Chinese jet fighter was knocked down into the
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sea by an American reconnaissance plane, many American commentators and policymakers revived the Cold War-style rhetoric.
For example, Arthur Waldron of the American Enterprise Institute in Washington, D.C., the famous conservative American think-tank, claimed that the crisis had been a “blessing in disguise”: by shattering dangerous American illusions about China, the incident revealed the “assertive nationalism,” and most fundamentally, “the continued ugliness of the Chinese regime.”
In May 1999 and April 2001, both American and Chinese felt that they had been unnecessarily wronged. Americans saw those events as excesses of Chinese nationalism, whereas Chinese also viewed the same events as manifestations of American nationalism displayed deliberately to demonstrate American military power to a rising China. Professor Peter Gries says: “Until Chinese and Americans learn to affirm, rather than threaten each other’s national identities, their mutual benefit from a stable East Asia will not ensure peace in the twenty-first century.”
As mentioned before, China has a siege mentality . When Taiwanese is kept away from the
People’s Republic, the Chinese on the mainland will most probably continue to see contemporary
Chinese history from the “victimization” narrative. Chinese will continue to see themselves surrounded by hostile forces which are trying to block of the rise of China after a century of humiliation. The Chinese believe that they see through the doubletalk of the Americans. On the one hand, Americans or, at least, the American government want to hold down the rise of China. On the other hand, Americans are trying to gain benefits and make profits from the rise of China.
It would be simpler if Americans and Chinese seek a better understanding of their respective historical perspectives. As Professor Peter Gries says, both Americans and Chinese should affirm, rather than threaten, each other’s national identities. In a world where nationalism is still a strong driving force in bringing about social cohesion, Chinese nationalism should not be directed against the
United States, nor should American nationalism be directed against China. These two great peoples can benefit greatly through economic, social, cultural, scientific and technological exchanges. Why just keep on accusing each other whenever things go wrong or appear to go wrong.
In his book,
A Place in the Sun: Marxism and Fascism in China’s Long Revolution
, Professor A.
James Gregor of the University of California at Berkeley made the following remarks:
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The political leadership of China continues to smart under what it perceives as the real and fancied past and present humiliations endured at the hands of the advanced nations. The leadership remains convinced that only a politically unified, heavily armed nation can resist the depredations of the established “demoplutocracies” and their allies ...
Given China’s unhappy history, all of this could only have been anticipated. Its long revolution had nothing to do with the advent of a “classless society” or the resolution of the problem of poverty. China’s revolution was the consequence of its search for equity and place in the modern world. China has been only one of the reactive, developmental nationalism that have been, and continue to be, observed in a variety of configurations in almost every environment in which communities suffer what they consider a subordinate station in the international community.
13
Although these responses are characteristically forthcoming in less developed economic and industrial environments, there have been instances in which relatively advanced nations have succumbed to the siren call of securing that place in the sun denied them by circumstance. At the beginning of the twentieth century, Wilhelmine Germany was on the way to becoming a major world power. War and reparations imposed on a defeated nation reduced a proud Germany to abject inferiority. The hundreds of thousands of young men who had poured their lives into the armed struggle of the First World War returned home to a humiliated and desolate Germany. Like denizens of less-developed nations, the Germans of the interwar years found themselves denied station and status in a world dominated by the advanced industrial democracies. The subsequent drive to achieve
Germany’s “proper” place in the international community caused Germany, and the nations around it, unspeakable devastation.
According to Professor Gregor, the conceptual preoccupations of Marxism made it all but totally impossible to understand what happened in China before and after Mao’s accession to power in 1949.
Marxism has even less to say about what happened after Mao’s death in 1976.
14
Professor Gregor concludes his book with the following remarks.
The People’s Republic of China is a reactive and revanchist nationalist system, moved by profound sentiments of historic injustice. Like the systems of interwar Europe, post-Maoist
China searches for its proper place in the Sun. Unlike the reactive nationalism of the period before the Second World War, Communist China has a population of over a billion people and a resource base of vast potential. It is crafting for itself a military possessed of nuclear
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capabilities, sea-denial potential, manpower resources, and range that could easily mean that the twenty-first century will be a time of unmitigated troubles.
15
Cross-cultural psychologists juxtapose Western analytical and Eastern holistic reasoning.
Western reasoning tends to focus on objects and categories and is driven by formal logic; in the East, by contrast, reasoning embraces contradictions among objects in a yin-yang field of constant change.
Understandingly, Professor Gregor has classified the People’s Republic of China as fascism.
However, there is no need to draw lessons from World War II, when America had to fight against a Nazi Germany and a Fascist Italy.
In this regard, we can refer to Sun Tzu’s The Art of War . The translation was done by Samuel
Griffith and published by the Oxford University Press.
Sun Tzu said:
1.
Generally in war the best policy is to take a state intact; to ruin it is inferior to this.
2.
To capture the enemy’s army is better than to destroy it; to take intact a battalion, a company or a five-man squad is better than to destroy them.
3.
For to win one hundred victories in one hundred battles is not the acme of skill. To subdue the enemy without fighting is the acme of skill .
4.
Thus, what is of supreme importance in war is to attack the enemy’s strategy;
5.
Next best is to disrupt his alliances;
6.
The next best is to attack his army.
7.
The worst policy is to attack cities. Attack cities only when there is no alternative.
8.
To prepare the shielded wagons and make ready the necessary arms and equipment requires at least three months; to pile up earthen ramps against the walls an additional three months will be needed.
9.
If the general is unable to control his impatience and orders his troops to swarm up the wall like ants, one-third of them will be killed without taking the city. Such is the calamity of these attacks.
10.
Thus, those skilled in war subdue the enemy’s army without battle. They capture his cities without assaulting them and overthrow his state without protracted operations.
11.
Your aim must be to take All-under-Heaven intact. Thus your troops are not worn out and your gains will be complete. This is the art of offensive strategy.
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Many thoughtful Americans are thinking of a possible conflict between America and China over the Taiwan Strait. The preservation of the status quo is a good policy, and various U.S. administrations have been opposed to unilateral violation of the status quo either by Beijing or by
Taipei. But the greatest problem with the status quo is that it leads to a very uncertain future, and anything, imaginable and not yet imaginable, can happen. The confrontation between Beijing and
Taipei can lead to a war between America and China. It may even lead to a nuclear war as has been discussed in Chapter One and Chapter Two. The status quo is full of ambiguity and uncertainty. It actually means: no war, no peace, no independence, and no reunification . What does it mean? It is simply illogical. Maybe only the crew from Star Trek can understand it.
Since the unification of China is deeply embedded in the collective psyche of the Chinese people,
Americans can win the hearts and minds of the Chinese people and their leaders by advocating and facilitating the process of Chinese reunification. The United States has no territorial ambitions in
Asia and, for over fifty years, has tried to act as a guarantor of peace in the Pacific. There is no particular advantage to the United States whether Taiwan is finally united with mainland China. If the
Chinese reunification is done peacefully and with the support of the people on Taiwan, who are mostly concerned about their autonomy in running their own affairs in Taiwan, then earlier Chinese reunification is far superior to just keeping the status quo. At this moment, the Taiwan problem is a deadlock. It is also a Gordian Knot for the American Empire. By cutting the Gordian Knot,
Americans can win the hearts and minds of the Chinese people and their leaders. In reciprocity, the
Chinese will try to win the hearts and minds of the American people and their leaders. Reciprocity is at the heart of Chinese culture and civilization.
If Americans can win the hearts and minds of the Chinese people, they don’t need to build a national missile defense system that can easily cost in excess of $100 billion and yet may prove to be ineffective against missiles fired from mainland China or from nuclear submarines executing their orders in the Pacific. The Cold War is over, but the Cold War mentality is still with us. Somehow or the other, Americans and Chinese dream different dreams. That is natural given the historical experiences these two peoples have undergone through during the past two hundred years. It is difficult for an average American to understand how a Chinese can be a Confucian scholar, a Daoist and a Buddhist at the same time. Likewise, it is difficult for the average American businessman to find his way through an economy where Confucianism, Socialism and Adam Smith are mixed altogether in China. In over-simplified terms, the West generally inclines to see black and white whereas the East generally tends to see different shades of gray. The best approach in the West is not necessarily the best approach in the East. It is only the best when it serves the interests of all the parties concerned.
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Spending over $100 billion in building a technologically unproven missile defense system can be a waste of resources, time and talent if there are better ways to construct a better and more productive relationship between America and China. Facilitating the process of Chinese reunification when there are already public and secret talks on reunification can win the hearts and minds of the Chinese people and the Chinese leaders. But insisting on post-Maoist China as Fascist, Americans will continue drawing their own war games in anticipation of conflicts breaking out over the Strait or elsewhere.
Sun Tzu’s wisdom is as sound as it was pronounced more than two thousands years ago. To subdue the enemy without fighting is the acme of skill. Taiwan is the Gordian Knot for the American Empire, whether it is an undeclared empire or an actual successor to the British Empire. Before 1997, many local Chinese in Hong Kong wanted to be honored with MBE, OBE or, better still, KBE, which stand for Members of the British Empire, Orders of the British Empire and Knights of the British Empire respectively. Where are they now? They now pray for decorations from the Government of the Hong
Kong Special Administrative Region. To assertive American nationalists, we would say: Don’t count on the fighters for Taiwanese independence too much. They would be the first to turn around when circumstances change. Chinese history provides them with too many lessons in how to switch sides when circumstances change. If Americans cannot untie the Gordian Knot, just cut it as Alexander the
Great had done. To subdue the enemy without fighting is the acme of skill. Even the author of On
War , Carl von Clausewitz, would admit the superiority of this thinking. Winning without fighting.
As an afterthought, we note the 10-day visit to the United States in March 2006 by Ma Ying-jeou, chairman of Taiwan’s opposition party, KMT. He was met by senior officials from the American
Government. Chairman Ma repeatedly emphasized that he would maintain the status quo if elected to the presidency of the Republic of China in 2008. He would also resume negotiations with the PRC, if elected, based on the 1992 consensus of “One China, different interpretations.” However, as in mathematics, those are necessary but not sufficient conditions.
Talks can drag on with no end in sight. There is a limit to Chinese patience in dealing with a recalcitrant Taiwan. The greatest problem is that we are living in a highly uncertain world. In the scientific language, an entire system can collapse because of a perturbation to a specific part of the system. What is truly alarming is that we cannot predict how and when such a perturbation will arise, and what can constitute this perturbation. What are needed, therefore, are the existence of both necessary and sufficient conditions. Here is why the United States can play an instrumental role.
This we shall discuss in greater details in Chapter 7: Blessed Are the Peacemakers.
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In the next thirty years or so, the Chinese will have completed three transitions: from a planned to a market economy, from a rural to an urban base, from a tightly controlled communist to an open civic society.
At present, 30 to 35 percent of the 1.3 billion Chinese live in small towns and cities. By 2050, they will be 80 percent, well-informed and able through electronic means to mobilize for mass action.
China’s political structures must allow its citizens more participation and control over their lives or there would be pressures that could destabilize society, especially during an economic downturn. A second factor will be the widening differences in incomes, growth rates, and quality of life between the wealthy coastal and riverside provinces and the disadvantaged inland provinces. However extensive the roads, railways, airfields, and other infrastructure the central government may build to bring industries, trade, investment, and tourism inland, they will still lag behind. This could increase peasant discontent, causing serious tensions and massive migrations. Furthermore, as more Han
Chinese populate the border provinces of Tibet, Xinjiang, and Qinghai, there could be problems between them and the minority races.
The third and most profound factor will be different values and aspirations of the next generation.
The people and government want to build a modern, strong, and united China, whatever that takes.
Better education and wider global exposure will result in a people who are knowledgeable about the world, with frequent and multiple links with their counterparts in other societies. They will want
Chinese society to be equal to other advanced countries in standard of living, quality of life, and individual freedom. The desire is a powerful force that the leaders are harnessing to drive the nation forward. In particular, how Japan, Korea, and Taiwan, with cultures and traditions similar to the
Chinese, are governed will have a great influence on the thinking of the Chinese intelligentsia.
Several problems can cause serious disruptions: a breakdown of the banking system, huge unemployment following reforms of state-owned enterprises without adequate social security nets, an aging population that will place a heavy burden on the one-child family generation having to support their elderly parents, and serious environmental pollution.
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However, the most pernicious problem is corruption. It has become embedded in their administrative culture and will be difficult to eradicate even after economic reforms. Many
Communist Party members and government officials in the provinces, cities, and counties are not above corruption. Worse, many officials who are expected to uphold and enforce the law – public security officers, procurators, and judges – are also corrupt. The root cause of the problem was the destruction of normal moral standards during the Cultural Revolution.
The leaders want to establish a legal system with proper institutions. Because they know the institutions necessary for the rule of law in a civil society cannot exist in a moral vacuum, they are reemphasizing Confucianist teachings among the population. They have also launched the “threestresses” campaign in an attempt to clean up the party’s rank and file: to talk about learning, to talk about politics, and to talk about honor and dignity. But so long as officials are paid unrealistically low wages, such exhortations will have little effect, regardless of the severity of the punishment meted out, not even death and long prison terms. Nevertheless, pragmatic, resolute, and capable leaders have steered China through these perils since 1978. China is becoming a modern nation. The hallmarks of modernity are a market economy, limited government, rule of law, human rights and democracy. China is making steady progress in the realms of limited government and rule of law.
While these progresses do not necessarily lead to democracy, much less liberal democracy as it exists in the United States, these progresses have fundamental implications for the expansion of liberty and democracy in China. In the following pages, we shall briefly examine the progress China has made in limiting government and developing rule of law and how Taiwan, being the first Chinese democracy, can accelerate the progress toward democracy in China.
Ever since the post-Mao reforms started in the late 1970s, the Chinese reform discourse has included persistent criticism of excessive government interference in enterprise management and demands for government streamlining and downsizing. In spring 1998, the incoming Zhu Rongji administration began a major program of government rationalization. By mid-2002, this program had trimmed staff size in all party, government, and government-sponsored mass organizations by 1.15 million.
The heaviest axe of the government restructuring fell on the industrial ministries that had been the bulwarks of the central planning system. A number of ministries were streamlined and downgraded to become state administrations under the supervision of the State Economic and Trade Commission
(SETC) in 1998. As most industrial ministries lost their separate institutional identities, the
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bureaucratic lineup of the Chinese government became much like those found in other East Asian economies. The State Planning Commission, renamed the State Development Planning Commission
(SDPC), retained its functions in heavily regulated areas such as power and grain but shifted its main duty to that of forecasting medium- and long-range growth targets. Much of the day-to-day macroeconomic steering, including industrial policy implementation and regulation of investments in technical renovation projects, was housed in the powerful State Economic and Trade Commission.
The SETC and SDPC were joined by the Ministry of Finance and the People’s Bank of China as the central institutions of economic governance.
In spring 2003, the State Council, with Wen Jiabo succeeding Zhu Rongji as premier, announced a new round of administrative reforms, which were duly approved by the National People’s Congress in March 2003. Again the bulk of the changes are about economic institutions. The 2003 plan is more about rationalizing and fine tuning than about downsizing. The most prominent part of the 2003 plan is the dismemberment of the once powerful State Economic and Trade Commission, which for a decade was arguably China’s most prominent institution for economic governance within the State
Council. The SETC’s bureaus on state enterprises went into a newly created State-owned Assets
Supervision and Administration Commission (SASAC).
The SASAC is empowered by the State Council to act much like owners or controlling shareholders of state corporations. The SASAC is enjoined to give management autonomy to operate and manage on a daily basis. While the Chinese government has indicated that it would retain stakes in certain sectors of strategic importance, the SASAC is expected to force SOEs to improve economic performance and to scale down the size of the state sector by reducing ownership in nonstrategic sectors.
While most of SETC became the SASAC, the SETC’s important policy and regulatory functions on industry (industrial planning and policy, economic operations and control, supervision of investment in technical renovation, macroeconomic policy guidance on enterprises of all ownership types, promotion of small and medium-sized enterprises, and planning for import and export of raw materials) were given back to the State Development Planning Commission, rechristened the State
Development and Reform Commission (SDRC). Meanwhile, the remnant of the former State
Economic System Reform Commission, which had in 1998 been downgraded to a modest office under the State Council, was merged into the SDRC, making “reform” an integral part of macroeconomic policy making and implementation.
The disappearance of the SETC and the takeover of the Reform Office leave the SDRC as the key institution for macroeconomic planning and implementation, much like Japan’s MITI (now METI),
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and should promote the coherence of development policy making and implementation. The removal of the word “planning” from its name affirms the trend toward using market-oriented mechanisms to manage the economy rather than reliance on approvals, permits, and microeconomic interventions.
The 2003 reform merged the Ministry of Foreign Trade and certain bureaus of the SETC and the
SDPC (domestic commerce regulation, plan implementation for the import and export of certain key commodities and products) into a new Ministry of Commerce to offer a more unified approach to trade regulation and to facilitate China’s compliance with the terms of China’s WTO membership.
Thus, the 1998 – 2003 government reforms have reshaped the structure of government, symbolized by the abolition of industrial ministries that once served as the core of the planned economy and the rise of the regulatory agencies. Yet, in review, it should be noted that the transition to market-based prices does not make a modern market economy. Market making is far from simply the liberation of the economic sphere from government control. In Eastern Europe and Russia, politicians buoyed by the joys of the fall of communism quickly inflicted painful “shock therapies” on their economies and societies in order to produce market economies, albeit not always with therapeutic effects. With the benefit of insight from the pains of the former Soviet Union, Chinese leaders have been doggedly determined not to fall into the same traps, particularly because China’s owned aborted price reforms in 1988 contributed to the political crisis of 1989. In an ironic historic twist, the Chinese Communist Party, shortly after surviving the crisis of 1989 and the fall of communism in the Soviet Union and Eastern Europe, committed to the construction of a market economy under its own leadership, the better to survive politically. Faced with myriad challenges,
Chinese leaders undertook specific reforms largely in response to pressing problems, especially real and perceived crises that got their immediate attention.
The Asian financial crisis underscored the importance of financial security and prompted the
Chinese government to revamp the central banking system and the regulatory apparatuses for the securities and insurance industries. With the banking system having become the Achilles’ heel of the economy, banking reforms were sorely needed and have made significant headway.
In short, without the CCP’s political machine, most of the contentious institutional reforms would most likely have been more difficult to accomplish, if not downright impossible. While the central government upgraded the various regulatory agencies, it also abolished most of the industrial ministries that were at the heart of the command economy. Thus it appears that a middle road for organizing China has been found that would provide the means for implementing the will of the central government while leaving room for local initiatives. The resultant organizational form is a crossbreed between strict hierarchy and excessive decentralization. Though China has not adopted federalism, local governments continue to have room to maneuver. As the state has retreated from
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micromanaging enterprises, the realm for private and individual businesses have continued to expand.
Altogether the myriad institutional reforms that have been undertaken since the 1990s, by offering stability and greater protection for property rights, have helped provide an improving institutional environment for investment and growth.
As more and more institutional reforms have been adopted, the concept of limited government has found growing acceptance in China. While the post-Tiananmen leaders in China have occasionally, as in 1997, flirted with a more liberal political vision, their governance has largely been defined by the massive economic, social, and ecological dislocations of a country with 1.3 billion people in the throes of market transition, rapid urbanization, and global integration. Caught between the disillusionment with outmoded ideological fantasies and the fear of political eruptions, the Chinese leadership has jealously guarded the party’s political dominance while promoting economic liberalization and development. Ideologically, they have chosen a distinctively pragmatic middle course, preferring to stay away from either end of the ideological spectrum. For now, the economic reforms and rapid growth have generated substantial popular support, which helped to limit the appeal of radical student demonstrators in 1989 and continues to provide the social basis for the Chinese combination of economic liberalization and political authoritarianism.
No country can sustain modernization without effective institutions of governance. For many countries with per capita income levels similar to China, the existence of an effective state that can maintain order and provide basic public goods remain a forlorn dream. Both in terms of world historical comparisons and against the background of Maoist rule, China has accomplished much in economic transformation and institutional development since the late 1970s.
In his book, Remaking the Chinese Leviathan: Market Transition and the Politics of Governance in China , Dali Yang of the University of Chicago says well:
Ideally, the further improvement of governance calls for the promotion of democratic accountability throughout the Chinese political system … it is clear that the Chinese
Communist Party leadership has promoted the governance reforms in order to keep its monopoly on political power. And in the short to intermediate term it may very well succeed in doing so. However, if and when China does become more democratic – whatever the combination of contingent and structural factors involved – there is little doubt that such a democratic policy will need not just competitive elections but also effective institutions for implementing the policies made by democratic institutions, monitoring the effectiveness of such policies, and timely correction and redress of errors and abuses in policy implementation.
In this sense, the governance reforms being undertaken to improve the efficiency,
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transparency, and accountability of the administrative state will prove indispensable for the fledging democratic polity if and when elite politics does make the democratic turn. As
Samuel Huntington famously noted several decades ago: “Organization is the road to political power, but it is also the foundation of political stability and thus the precondition of political liberty.” The reconstitution of the Chinese state has fundamental implications for the expansion of liberty and democracy.
1
Under Mao’s rule, China’s legal system was neglected and abused. When Deng Xiaoping came into power after Mao’s death, he had to put into place a working legal system. The response has been a legislative onslaught the pace and breadth of which has been nothing short of stunning. Today, lawyers and consultants who dismiss the law and advise their clients that all is possible with the right connections ( guanxi ) are simply guilty of gross malpractice. Significantly, a number of administrative laws have been passed establishing legal mechanisms for challenging government officials and holding them accountable.
One of the main motivating forces behind China’s turn toward rule of law was that its leaders were convinced that legal reforms were necessary for fast economic development. However, rule of law in China had to take time to be successfully implemented. During this time, China’s economic development proceeded at a fast rate. Thus, many legal scholars and practicing lawyers were surprised how a country with a weak legal system could develop so rapidly in the economic arena.
In the early years of China’s Open Door Policy, foreign investors were hesitant because they were put off by the lack of a functioning legal system. The vast majority of investment in China occurred after 1992, when Deng Xiaoping took his famous southern tour to the Shenzhen Special Economic
Zone. Foreign investors were not completely rational in their investment decisions. There were attracted to a mass market of 1.3 billion Chinese people. They would make decisions which they would not make in other parts of the world. A poor legal system did not discourage them from making investment decisions. In any case, foreigners did not have much data about China. Even such basic information as the profitability of foreign-invested enterprises is hard to come by.
Furthermore, even if foreign businessmen got hold of some data, they found contradictions among the data.
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Other decisions were made not because of rational analysis but because of internal politics in the boardrooms of large multinational corporations. China strategy was, and still is, determined at the board level or at the CEO level. Senior management of these corporations were far away from China but they were alarmed at what other companies were doing in China. They had to issue orders to their subordinates to develop business in China at whatever costs that might be incurred. They were les concerned with the legal system in China. In any event, Chinese partners often saw a contract between their party and a foreign party as the beginning, rather than as an end, to the prolonged process of negotiation and the actual development of business.
However, it should be noted that the experience of other Asian countries tend to confirm that exclusive or even predominant reliance on a rule of relationship in China will not be sufficient to sustain long-term growth. Those who attribute the success of Asian countries to relation-based capitalism often underestimate the role law actually played in the economic development in this region. They tend to equate rule of law with democracy and a liberal version of rights that emphasizes civil and political rights. Although the political regimes may not be democratic and the legal system may not provide much protection for civil and political rights, the Asian countries that experienced fast economic growth tended to score high on the protection of economic interests.
In China, there is some evidence that the lack of rule of law had affected adversely the pace of economic development and the amount of foreign capital flowing into the country. This is particularly visible toward the late 1990s. Admittedly, the downturn in foreign investment cannot be solely attributed to shortcomings in China’s legal system. Certainly, the outbreak of the Asian financial crises in 1997 and 1998 had a negative impact on the inflow of foreign investment.
Nevertheless, the investment climate improved as China entered the WTO. Foreign investment once again rose in amount.
The question remains whether China is an exception to the general understanding in the West that foreign investment requires rule of law and enforceable property rights. Initially, China has the good fortune of tapping into a large overseas Chinese community, which provides the necessary capital and entrepreneurial skills to make use of China’s vast human resources to turn China into an export machine. These overseas Chinese businesspeople have family connections in China and, to them, they were not too concerned with the lack of a well-developed legal system in China. Chinese businesspeople tend to rely on trust more than on contractual agreements. When there are disputes, they tend to resolve them with the mainland Chinese through intermediation or a third party respected by both than through the legal system. However, as their business expand in China, even these overseas Chinese businesspeople have to turn to the formal legal system. For one thing, they still suffer from frequent change in laws, the inconsistent application of laws, and the predatory
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government officials who impose random fees on profitable companies. While they may rely on personal relationships they may see their work and expenses go down the drain if a particular official is transferred to another post or arrested on corruption charges. Hence, even for overseas Chinese businesspeople, there are definite limitations for complete reliance on relationships.
In its accession to the WTO, China has undertaken many obligations, both commercial and legal.
Besides lowering tariffs and allowing foreign companies greater market access, China will be required to make and apply laws in a uniform, impartial and reasonable manner. Proponents of China’s accession to the WTO maintained that, apart from economic benefits that could be enjoyed by foreign companies, China’s accession to WTO will promote rule of law. Some have even suggested that such rule of law will bring about political reform in the direction of democracy and better protection of human rights.
However, China still has the rights to approve every type of commercial activity. Entry into the
WTO will not lead to the immediate dismantling of the entire burdensome approval system. Many transactions will still have to be approved on a case-by-case basis. As a result, foreign investors will still have their fate in the hands of Chinese administrative officials.
On the whole, China’s accession to the WTO will have a positive effect on the development of the legal system in the longer term. WTO accession will create additional pressure on the Chinese government to separate government from enterprises and to overhaul the administrative system. The need to comply with the WTO’s requirements may provide reformers with the necessary political capital to push through reforms aimed at strengthening the judiciary. While the Chinese government’s initial strategy was to develop two regulatory regimes, one for foreign investors and one for domestic companies, the two will eventually merge in time. Hitherto, the government’s strategy has been to emphasize commercial law in order to provide a foundation for economic growth.
However, such strategy will, in time, introduce important spillover effects into non-commercial areas.
Reforming the legal system alone without concomitant changes in other institutions, economic policies, and cultural practices will limit the effectiveness of reforms. While rule of law may be necessary for sustained economic development, rule of law, by itself, does not necessarily lead to democracy. However, one should bear in mind that most institutional changes have effects on other institutions no matter what the original intentions are. In this event, rule of law may be a way to achieving democracy when combined with changes in other institutions. Hence, limited government and the implementation of rule of law may be necessary, but not sufficient, requirements upon which a modern democracy can be built. Thus, with the rapid pace in China’s economic development, China would be moving toward democracy. This we shall discuss below as how wealth is related to the successful development of democratic institutions.
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Democracy has been defended in the West as the best solution to political organization because each individual casts one vote, representing his or her choice. The individual in a mature economy should know what is in his or her best interests. However, this view was and still is not quite acceptable to Chinese leaders. China is undergoing a rapid transition. In that process, there are many problems that have been created. Confucian and Party leaders believe that they know what the best interests are for the Chinese people although, in private, they would admit that they might not know the best interests of many individuals. The ruling regime is, therefore, obligated to create the material, social, and spiritual conditions for a harmonious society in which each person is able to flourish in a way consistent with the flourishing of others.
Chinese leaders do not deny the importance of democracy because democracy has simply worked in advanced industrialized countries. However, the way they look at democracy is that democracy allegedly promotes economic development.
Political scientists in the West have long pondered over the relationship between democracy and economic development. The basic question is whether democracy brings about economic development or economic development brings about democracy. In 1959, social scientist Seymour
Martin Lipset made a simple, powerful point: “the more well-to-do a nation, the greater its chances to sustain democracy.” Lipset’s thesis has prompted many political scientists to do regression analysis and gather field data. After forty years of research, with some caveats and qualifications, his fundamental point still holds.
Of course, some poor countries have become democracies. However, in many of those situations, the lifetime of democracy is short. There are certainly exceptions, such as India. The most comprehensive statistical study of this problem, conducted by political scientists Adam Przeworki and
Fernando Limongi, looked at every country in the world between the years 1950 and 1990. It calculated that in a democratic country that had a per capita income of under $1,500 (in today’s dollars), the regime had only an average life expectancy of just eight years. Only when the income exceeded $6,000 would the democratic regime become highly resilient.
2 The chance that a democratic regime would die in a country with an income above $6,000 was 1 in 500. Thirty-two democratic regimes have existed at incomes above roughly $9,000 for a combined total of 736 years.
Not one has died. By contrast, of the 69 democratic regimes that were poorer, 39 failed – a death rate of 56 percent.
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One might indeed conclude that a country that attempts a transition to democracy when it has a per capita income between $3,000 and $6,000 will be successful. There were many countries which attempted to introduce democracy in one way or another. However, it is simply remarkable that the success of such democratic experiments could be so readily related to its per capita income.
Of course, this is by no means to belittle the value of leadership in championing democratization in countries that were not democratic. People such as Vaclav Havel, Nelson Mandela, Lech Walesa, and Kim Dae Jung have an honored place in the history of liberty. But studies showed that their heroic efforts often failed because their societies were not ready. Some commentators argued that leadership played an important role in the development of democracy. These leaders had the moral will to do what others had failed to do. However, just as an illustration, let us consider South Korea’s dissident-turned president, Kim Dae Jung, who was in jail for a long time. What made him fail in the
1970s but succeed in the 1990s? Did he suddenly gain “moral will” in the 1990s? In Taiwan, Chen
Shui-bian was not the first to champion democracy. There were others before him but they failed.
They were, by no means, less committed than Chen.
It is impossible to group all democratic experiments and examine the role of leadership or the political will of the people. It is still valid that wealth is the best answer to the success of democratic regimes. China now has a per capital income above $4,000 (measured in terms of purchase power parity).
3 The likelihood of a transition to democracy increases when per capita income is between
$4,000 and $6,000. Thus, given China’s rapid growth rate, the regime will soon be facing a period – when it is most vulnerable to democratic transition.
Nevertheless, it is fair to say that economic development is not sufficient for political reform and the emergence of democracy. Countries may develop economically but still not become democratic.
A case in point is Hong Kong. Hong Kong is an affluent society but democratic developments had to wait until the last five years of British colonial rule. Beijing is not opposed, in principle, to the development of democratic institutions in Hong Kong. It was, and still is, concerned with whether political reforms would put into power those politicians who were opposed to Beijing for the sake of opposition. However, recently, Beijing has softened its position and agrees to advance democratic developments in Hong Kong in accordance with the Basic Law, which serves as guidelines for the governance in the Hong Kong Special Administrative Region. In short, higher levels of prosperity and economic development are likely to lead to growing demand for democracy. Taiwan, South
Korea, and Indonesia are good examples in Asia. Whether or not economic development is the cause of democratization, in the long term, economically advanced countries are most likely to be, and remain as, democracies.
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Many Chinese citizens of whatever political inclination sincerely believe that in mainland China today, democracy is secondary as an objective to sustained economic development. They believe that an authoritarian government may channel more resources into investment rather than to consumption.
Without investment, there can be insufficient economic growth to raise the living standard of the great masses of people.
However, advocates of democracy argue that a market economy requires freedom of business association and free flow of information. In their absence, an authoritarian government may make wrong decisions that will eventually undermine economic growth. Furthermore, without democratic elections, there is simply no way to hold authoritarian regimes accountable. In all likelihood, China will need to adopt democracy at some point in the future.
First, without democracy, the ruling regime’s claim to legitimacy simply rests on the ability of the regime to deliver economic growth and a higher standard of living for the broad masses of people. It is quite an accomplishment already for the CCP to sustain an annual growth rate of 8% over the past twenty-five years. However, this performance cannot be sustained forever. At some point in the future, the rate of economic growth will drop. Should that occur, the Party may lose the support that it is currently enjoying with the broad masses of people. Somehow, the authoritarian regime has to gain support by opening its doors to non-Party members. It is already doing so by admitting “red capitalists” into the Party.
Second, how the wealth is distributed is also of crucial importance. The absence of democracy can be viewed by many people as a way wherein Party members and their family members and friends can gain economic advantages at the expense of those who are outside of the inner circles. In the Soviet Union, economic reforms and premature privatization led to massive plundering of state assets. In China, this phenomenon also occurs although to a lesser extent than what was happening in
Russia. Sons and daughters of senior Party members and government officials – the so-called princelings – took advantage of unique business opportunities and became fabulously wealthy while many disadvantaged by reforms have been left without medical care and sometimes even without food or shelter. Some party members and government officials are not accountable to anyone for their actions. This creates a negative view toward the regime by some members of the Chinese society.
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Third, economic reforms have produced a more pluralistic and deeply divided society in China.
Democracy can provide a procedural mechanism to address the grievances of the masses of the people.
Some people believe that the implementation of rule of law can address some of the social cleavages between the haves and the have-nots. However, this is unlikely to be sufficient. The have-nots will seek a betterment of their likelihood. In some countries, such as Singapore, the general public was willing to tolerate limitations on social and political freedoms in part because of their rising living standards and considerable benefits such as subsidized housing. However, Singaporeans are now seeking greater personal freedoms and try to make the democracy in Singapore more liberal. In Hong
Kong, the British colonial administration was able to hold off popular demand for democracy by implementing rule of law and by adopting a series of economic reforms that brought some welfare programs to a society that was regarded by Milton Friedman as the best example of a laissez-faire economy. However, before the return of Hong Kong to the PRC, the British colonial administration attempted to introduce democracy at a rate that alarmed the authorities in Beijing because the latter believed that such political reforms might create a political system that was wholeheartedly against the interests of the People’s Republic. As a footnote, Professor Friedman did not fully understand the land policy and the market power of major property developers in Hong Kong.
In China, despite sustained economic growth, the ruling regime would not have the means to buy off a disgruntled populace because law alone cannot mediate conflicts between increasingly disparate interest groups and segments of the populace who have been affected in radically different ways by reforms. Only through democratic processes and through the working of democratic institutions can some of the problems created by economic reforms and the adoption of the Open Door Policy be adequately addressed.
The Party is aware of the social ills created by its political and economic agendas. The government is experimenting with more democracy within the Party by choosing members for important posts through multiple candidate elections with secret ballots. It is conceivable that the
Party may split into several parties as what had happened in Japan and Taiwan. The CCP may still be the most powerful party. However, it will no longer be the sole voice for the Chinese people. The
Party has also begun to study how other authoritarian regimes have transformed themselves into social democratic parties. In other words, the Party may lose its ideological message and become an organization to hold on to state power with a number of smaller parties to check its excesses. The
Liberal Democratic Party of Japan is an example. The political system in Japan is called the 1½ party system.
Over time, the National People’s Congress and local people’s congresses can provide an institutional basis for promoting democracy. The experience of other authoritarian states, such as
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Poland, Hungary, Taiwan, and the former Soviet Union demonstrate how legislatures may become an alternative source of normative authority to challenge the Party even in the absence of democracy. In fact, the NPC had, in the past several years, built up its power base, as evidenced by its willingness to oppose Party intervention in the legislation process and to reject Party-approved candidates. There are signs of budding pluralism as the Party has become more tolerant of diverse viewpoints and dissenting views. Thus, we believed that China will, in the future, become democratic for the reasons cited above. However, how democracy will become institutionalized is still not clear. It may develop gradually over a prolonged period of time or it may occur because a number of senior Party members decide that democratization is in the long-term interests of the Chinese nation and of the Chinese people. Westerners may be skeptical of such developments and they believe that democratization can only take place when there is a regime change in China. They believe in the Russian model.
However, just twenty years ago, nobody would believe that Taiwan would become a democracy.
Now, Taiwan is a democracy, but its democratic institutions and mechanisms are far from perfect.
The DPP, an opposition party before 2000, had little experience in public administration. Thus,
Taiwan still has a long way to go in perfecting its democracy. Nevertheless, China can definitely learn from Taiwan’s example.
After the June 4 Tiananmen Square incident in 1989, Leftists and conservatives in the
Chinese Communist Party and the Chinese government regained some of their power and influence.
They were opposed to economic reforms in general and price reforms in particular. Price reforms had led to serious inflation and rampant corruption as two prices developed for each of many important commodities. Before he died, Deng Xiaoping yearned to see China irreversibly on the road to greatness. In spring 1992, the eighty-seven-old Paramount Leader took on his political battles for the last time.
He assembled a small group of relatives and comrades and traveled by train to southern China.
He was to visit Shenzhen Special Economic Zone (SEZ) in the Guangdong Province, which was facing Hong Kong, still a crown colony of the defunct British empire. This SEZ was created by Deng
Xiaoping during the early 1980s, as a place where capitalistic mechanisms could be observed before they could be introduced to the rest of China. Thus, SEZs served as a “control” experiment.
Although there were, at that time, four SEZs, they were regarded with deep suspicion by conservative leaders in Beijing. The question is whether these SEZs are ultimately socialist or capitalist in nature.
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Deng had little regard for theoretical arguments. Following tactics used by Mao Zedong during his lifetime, Deng mounted a flank attack upon the Leftists or conservatives not in Beijing but by taking a trip to Shenzhen, the closest place in China to the capitalist enclave, Hong Kong, which was regarded by Milton Friedman as the perfect example of a laissez-faire society. From then on, Deng’s trip would be known as Nanxun , which means “Southern China” but connotes something grander, along the lines of “Imperial Inspection Tour of the South.” In Shenzhen, Deng spoke to a large crowd.
“The success of Shenzhen clearly shows that there was no need to worry whether we are following
‘socialism’ or ‘capitalism’. Only suspicious people would raise the question and they are selfdefeated”.
“From now on, we should increase foreign investment, form more joint ventures, and take advantage of Western technology and management. Don’t you have to worry! Some critics think that we may sink into capitalism sooner or later, but they have no common sense. These foreign joint venture firms make profits under our law, they pay taxes and provide our workers with jobs and pay.
What’s wrong with that? If we don’t continue to improve people’s living standard, if we don’t continue to build the economy, there will be only a dead-end road for our Party.”
Before he took departure from Shenzhen, Deng once again addressed the Shenzhen Party
Secretary and his followers, saying, “you must speed up the development.” It was an astounding statement to make. Shenzhen was already moving at a high speed in absorbing foreign investment and developing foreign trade. Now Deng said that such processes should be pushed even at a higher rate. Many conservatives in Beijing were content to see economic reforms placed under proper control and perhaps confined to a few places, such as the SEZs. However, Deng was not just issuing edicts to party secretaries in these SEZs; his southern tour symbolized his total commitment to economic reform and the Open Door Policy. Deng took up a metaphor previously used by Mao, “We must not act like women with bound feet”, an analogy to earlier practices in Qing Dynasty when women could not walk fast because they had their feet bound by clothing from an early age in their lives. Such practices were condemned by Mao.
News of Deng’s Nanxun eventually surfaced in the country’s most important newspapers, such as
People’s Daily . Those who opposed economic reforms on ideological or practical grounds were bombarded with counter-attacks from those in the party and the government who rallied behind
Deng’s
Nanxun proclamations. The whole Party and the country, the Politburo now asserted, should study seriously Deng Xiaoping’s important statements on building socialism with Chinese characteristics. Once the Chinese media were permitted to report on Deng’s Nanxun , his every step became a political earthquake, his every word a revealed truth. Virtually, in a country where changes in public statements were not made overnight, there was a gushing of public statements pertaining to
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Deng’s “Imperial Tour of the South.” Mainland writers now gushed over Deng, calling the new round of reforms “a warm spring wave that spread over all China, clearing away people’s hesitation, anxiety, and doubt.” Provinces across China sought ways to speed up their reforms. The entire nation was, in essence, shifting to the fast lane. From then on, China’s economic growth rose and was sustained at an average annual rate of 9 percent over the next quarter of a century. Without this last offensive movement by the aged Paramount Leader, China might be involved in ceaseless debates on the proper speed and scope of economic reform. China would lose its momentum and China might even follow the footsteps of the Soviet Union in disintepration. What is more? The adoption of the
Open Door Policy which was strongly advocated by Deng Xiaoping and his staunch followers coincided in timing with the globalization of businesses in advanced capitalist countries. Prior to
1992, China did not receive much foreign investment. Whatever she did have was primarily from the
Chinese Diaspora living at her doorsteps in Hong Kong, Taiwan and in Southeast Asian countries.
However, since 1992, foreign investment poured in and, in recent years, the amount contracted for consistently stood over US$ 60 billion a year. This amount has surpassed the level of foreign investment flowing into the United States in a single year in recent years. The United States used to be the greatest recipient of direct foreign investment because it is still the least risky country in terms of political stability and economic cycles.
In 1992, China’s GDP jumped to an unprecedented rate of 12.8 percent, a number that far exceeded the estimate of 6 percent made by Li Peng, then Premier of China. Though such white-hot growth would bring about serious problems, such as inflation and corruption, it would turn China into an economic superpower whose modernization and prosperity would astound the world. Deng
Xiaoping had turned a strategic dilemma, in which he was confronted by a group of hardliners who opposed economic reforms, into a total victory through a brilliant maneuver reminiscent of Mao
Zedong’s uncanny tactics. Through his
Nanxun , Deng had finally established his legacy as a great reformer in Chinese history. The excesses of Mao’s period would now be under control, and China would rejoin the outside world on terms more or less favorable to her. China was not coming out from her isolation, begging for financial and technical assistance. This is very important to the psychology of the Chinese people. The broad masses of the Chinese people and their leaders regained their confidence and, with a fierce determination to win back China’s former glory, this generation of the Chinese people would build China into a great nation and a great civilizing force.
When Deng told audiences to “watch out for the Right, but mainly against the Left,” he was making an explicit, final break with the Party’s rigid, doctrinaire, ultra-Leftist past. Though Deng was rejecting Maoist mass movements with all their ideological structures, he believed he was enhancing – not rejecting – the original essence of Mao Zedong Thought. From the beginning of Deng’s economic reforms in 1978 to his Southern Tour in 1992, China had been debating about political ideology. She
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was crossing the river of reform, in Deng’s metaphor, “stone by stone.” After 1992, the debate was over, the path was clear, and the speed of transformation of the Chinese economy was simply stunning.
Encouraged by this new thinking, senior army officers and intellectuals circulated among themselves important messages generating from Deng’s Nanxun . The Leftists at major newspapers, such as People’s Daily and Guangming Daily were removed from their responsibilities. There was now a relaxed atmosphere toward economic reform.
Jiang Zemin, president of the PRC, lost no time to build on Deng’s vision. In May, he asked the
Politburo to be more enthusiastic about Deng’s talks and ideas. In June, he gave a pathbreaking speech to the graduating class at the Central Party School in Beijing, which prepares senior party members and governments officials for even higher posts. In his speech, Jiang made it clear that any
Party official who criticized or challenged Deng’s vision and wisdom would be removed from his post, to be replaced by someone who was more in line with current thinking about the socioeconomic development in China. This speech also hinted at greater things to come. Jiang was using the graduation ceremony at the Central Party School to test his ideas in politics and government. The
Fourteenth Party Congress would soon be convened in September. Jiang Zemin was testing his idea of changing the prevailing name of “socialist commodity economy” to the blatantly reformist name
“socialist market economy.”
In a culture attuned to slight shifts in wording, the new term was an ideological bombshell. After decades of anti-Rightist, capitalist-bashing propaganda, too abrupt a change in language could be disruptive. Apparently, when Jiang made this suggestion in changing the name of the Chinese economy in his speech at the Central Party School, he gained great support.
To be sure, the name “socialist market economy” was probably coined by Deng Xiaoping. For years, Deng had been saying that capitalist systems have planning and socialist systems have markets, and that the Party should stop debating theoretical distinctions between capitalism and socialism.
Although it would take another year for the name “socialist market economy” to become China's official guiding principle, there was no doubt that the reform had entered, in the words of a China
Daily editorial, an “unprecedented new phrase.”
In the field, Deng’s Nanxun was critical to the success of his reforms. The Shenzhen Special
Economic Zone was a piece of rural land opposite Hong Kong when Beijing decided to develop it into an experiment in combining the best feature of socialism and capitalism. Originally, many people both in China and Hong Kong were skeptical about its success. Gradually, Hong Kong businessman
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took advantage of the cheap labor and low land costs in Shenzhen to produce goods for exports.
Within a decade or two, over 90 percent of Hong Kong’s manufacturing has been moved to Shenzhen and neighboring cities and towns in Guangdong Province. In the short span of twenty-five years,
Shenzhen has become a major city in its own right with a population of seven million. Its labor costs have risen to such an extent that manufacturing and assembly operations have to be moved out of
Shenzhen to other places in southern China to enjoy the lower labor costs available in those places.
Thus, the direction of the investment is pointing inland. Not only in this phenomenon confined to investment from overseas, Chinese capital formation is also pointing inland. This means that when factories owned and operated by Mainlanders are becoming uncompetitive in production costs, they are being moved inland to enjoy the differentials in costs that still exit today.
The Chinese admire what their brethren have accomplished in Hong Kong. However, in 1992,
Hong Kong was still a crown colony of the British empire. Deng cannot possibly go all the way to
Hong Kong to encourage his fellow countrymen to learn from this highly capitalistic and entrepreneurial city that wins the admiration of Milton Friedman and some neo-classical economists.
Surely enough, the Chinese themselves know very well that Hong Kong is not, and cannot be, their example. There are many factors that account for Hong Kong’s phenomenal success. These factors would not apply to Mainland China. To go to Hong Kong to rally support from the Chinese people and their leaders for economic reform is simply politically unwise, if not downright impossible. Thus,
Shenzhen is a logical place to conduct Deng’s last brilliant political maneuver. It is a show of theatrical performance that finds few parallels in Chinese history. In any way, Deng has successfully capitalized on the capitalist enclave that is known as Shenzhen Special Economic Zone to recharge
China’s economy. As in the case of Newton’s Three Laws of Motion, once started, the momentum is sustained and is winning admiration all over the world. Deng once said he didn’t care about the color of a cat. The cat may very well be a black cat or a white cat. But as long as it catches mice, it is a good cat. Deng learnt from Mao, but the student has also established a permanent place for himself in
Chinese history and even in world history by regaining a proper place under the sun, so to speak, for
China.
Hence, in a way, Shenzhen Special Economic Zone has acted as a catalyst in the rapid transformation of the Chinese economy. Taiwan is a democracy. But let us go back twenty years in time.
In 1986, China was uncertain about the prospects of its economic reform and its Open Door
Policy. Taiwan was not yet a democracy although its economy was about to be transformed from an agrarian and industrial society into a society where information would play a significant part.
Microelectronics was about to develop in Taiwan. After twenty years, there have been many changes
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in both China and Taiwan. We cannot be sure of anything in this highly uncertain world. However, there is one thing we can be sure of. In the next twenty years, there will be even greater changes in both China and Taiwan. Going back to physics, we are taught not just to think of numbers but also of orders of magnitudes. Numbers give us a feel for the size or quantity of things. Without numbers, we are locked into unproductive thoughts. For example, it is important to know the size of

(pi) in a circle. In ancient China, the Chinese had already calculated the value of

with a great degree of precision. It was computed to be 3.1416. Thus, the ancient Chinese were already able to masterfully construct vehicles running on wheels and other construction projects. However, what is also very important is the order of magnitude in the scheme of things. In other words, during the past twenty years, both Mainland China and Taiwan have experienced changes that could only be spoken of as changes in orders of magnitude, for example, from 1 to 10, from 10 to 100, or even 100 to 1,000, and so on. We are pretty sure that, during the next twenty years, both Mainland China and Taiwan will experience changes that can only be spoken of as changes in orders of magnitude.
Thus, because of these vast changes that have happened and will happen in the past and in the near future, both Mainland China and Taiwan can learn from each other. Taiwan can provide a few lessons in industrial organization and the development of democratic institutions to Mainland China.
China’s long-range economic strategy is to transform its state-owned enterprises into versions of
Japan’s industrial groups, the Zaibatsu (renamed keiretsu after the war) or South Korea’s chaebol
(which, unlike Japan’s groups, are more likely to be family-owned). By grouping profitable and not so profitable enterprises together into developmental conglomerates and supplying bank credit to them on a preferential basis, China hopes to forge its own versions of Mitsubishi, Sumitomo, Daewoo, and Samsung. Needless to say, this will divide the labor force into labor aristocrats working for strategic corporations and ordinary workers in medium and small enterprises who sell intermediate goods to the big companies. While American economic theorists generally disapprove of the zaibatsu type of corporate organization, something Japan invented in the late nineteenth century, the postwar descendants of the original zaibatsu were crucial to the economic development of Japan, Korea, and
Taiwan. China has every reason to try to emulate them.
The real economic model for Mainland China, although never mentioned for all the obvious reasons, is undoubtedly neither Japan nor South Korea but Taiwan, where the state and the Nationalist
Party own outright or directly control about 50 percent of all corporate assets and account for close to
30 percent of Taiwan’s gross national product. Indeed, the Nationalist Party (KMT) is the wealthiest political party in the world. Numerous and successful state-owned enterprises are the single most
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striking feature of Taiwan’s economic landscape. Taiwan was largely untouched by the economic meltdown of the late 1990s in Asia.
If Taiwan is outside of the People’s Republic, citizens in Mainland China could only observe
Taiwan’s democracy and political economy with curiosity. However, if Taiwan is re-unified with
China, the Chinese people in Mainland China would try to learn a few lessons from Taiwan. Just as
Deng Xiaoping took on the Shenzhen Special Economic Zone as a model of economic development for the rest of China, the Chinese people in Mainland China could take on Taiwan as a model of economic and political development. Thus, Taiwan could serve as a catalyst in the transformation of
China’s polity. If the development of democracy in the People’s Republic remains much uncertain, being a member of China, Taiwan can stimulate thinking and re-thinking on the part of Mainland
Chinese. Eventually, there will be forces in China to transform China into a more democratic society.
In 2002, President Jiang Zemin made a speech on “The Three Represents”. His said: “As long as our Party always remains the loyal representative of the development needs of China’s advanced productive forces, the forward direction of China’s advanced culture, and the fundamental interests of the large majority of the Chinese people, it will stand invincible forever and will lead the people onwards”. It was a threefold dictum – advanced productive forces, advanced culture, fundamental interests of the people. In early March, 2002,
People’s Daily
carried an editorial highlighting Jiang’s proposal of the Three Represents. “All the struggles carried out by our Party are, in the final analysis, aimed at liberating and developing productive forces,” People’s Daily claimed. It also said: “any move to surpass the present historical developmental stage by indiscriminately copying and applying, to today’s practice, a number of characteristics and practices of socialism at its mature stage will all the same hinder the development of productive forces.” 4
In essence, the Party’s mouthpiece was saying that it was all right to abandon some of the idealistic principles of socialism in today’s China because China was still far away from reaching the mature state of socialism. The Three Represents did have opponents from Party members who believed that socialism should be developed not as a far-away goal but as an objective to be reached within the lifetime of the present generation. Furthermore, there were critics both inside and outside the Party who claimed that Jiang Zemin was trying to supplant Deng Xiaoping’s theory with his Three
Represents. Jiang claimed that he was making a logical and desirable extension of Deng Xiaoping’s
Theory. What was truly being replaced was nineteenth century Marxism and Maoist class struggles.
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The first of The Three Represents implied that entrepreneurs and technical personnel could be included in the Party because they were the driving force behind China’s advanced productive forces.
If these people were banned from joining the Party, the Party could not truly represent the interests of the nation and hence would not be able to command the respect and obedience of the great masses of
Chinese people in order to lead the nation into an advanced stage of socioeconomic development.
Jiang masterfully maneuvered around the historically loaded term capitalist by inventing a new label for this group of potential Party members. They were now to be known as the “new social strata”. Different names can have different implications and hence different degrees of acceptance by the public. In America, following the Great Depression in the 1930s, President Franklin Roosevelt introduced the concept of “social security”. The name was acceptable to both liberals and conservatives in America. Likewise, when the American government wanted to build networks of inter-state freeways after World War II, the word “freeways” sounded more acceptable than
“highways”. Furthermore, these inter-state freeways were endorsed with a defense connotation. Thus, a chairman of General Motors could say that what was good for General Motors was good for
America. As a result, suburbs sprawled into the countryside.
With a new name, Jiang Zemin included private businessmen as a new social stratum in the Party membership. Thus, the Chinese Communist Party had been transformed from a revolutionary party engaged in years of class struggles into a ruling party whose primary role was to build China into a great nation and a great civilizing force with a culture developed through more than 4,000 years of recorded history. The 16 th Congress passed a resolution to amend the Party Constitution.
Immediately following the above amendment came a new passage that involved the principles embodied in The Three Represents as the Party’s guiding philosophy. In the next paragraph – the second of the Constitution – The Three Represents was mentioned in the same sentence as its wellknown predecessors. The line read: “The Communist Party of China takes Marxism-Leninism, Mao
Zedong’s Thought, Deng Xiaoping Theory, and the important thought of the Three Represents as its guide to action”. Jiang Zemin’s path-breaking theory was now enshrined, albeit without his name attached, in the Party Constitution.
In March 2004, the National People’s Congress wrote the Three Represents into China’s State
Constitution. The State Constitution contains provisions that “the State represents and protects human rights” (making China’s first legal guarantee of human rights), and that citizens’ lawful private property shall not be violated (thus establishing personal and public assets on an equal footing).
Jiang was succeeded by Hu Jintao. President Hu was beginning to articulate his own vision and mission. But he explicitly stated that he was extending, and not supplanting, Jiang’s overarching
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vision. Hu began speaking of “three close to’s” – close to reality, close to life, close to the masses.
Critics voiced their opposition because they thought that Hu was supplanting Jiang Zemin’s The
Three Represents with his own vision. In fact, President Hu was following President Jiang in the development of overarching goals and strategies previously set by the former president. Nevertheless,
Hu emphasized social cohesion and harmony among the great masses of the Chinese people.
Internationally, Hu projects confidence and dignity, personifying a country that has already become a great and much respected nation.
Such belief in the importance of social cohesion and harmony may lead to the eventual flourishing of democracy in China. In fact, Karl Marx understood that when a country modernizes its economy, embraces capitalism, and creates a national bourgeoisie, the political system will change to reflect the transformation. Changes in the “base”, in Marxist lingo, always produces changes in the
“superstructure”. China’s leaders may eventually broaden the nature and scope of economic liberalization to include some degree of political liberalization. The real question is what type of democracy will take root in China. We believe that it may not be an imprint of liberal democracy to be found in the United States and some European countries. However, we do believe that China will develop into a democratic federation by the middle of the 21 st century. Below, we elaborate this point.
In his book, The End of History and the Last Man , Francis Fukuyama talks at length about thymos .
Plato’s thymos is nothing other than the psychological seat of Hegel’s desire for recognition: for the aristocratic master in the bloody battle is driven by the desire that other people evaluate him at his own sense of self-worth. Plato argued that while thymos was the basis of the virtues, in itself it was neither good nor bad, but had to be trained so that it would serve the common good. Thymos, in other words, had to be ruled by reason, and made an ally of desire. The just city was one in which all three parts of the soul were satisfied and brought into balance under the guidance of reason. The best regime was extremely difficult to realize because it had to satisfy the whole of man simultaneously, his reason, desire, and thymos . That regime was best that best satisfied all three parts of the soul simultaneously. By this standard, when compared to the historical alternatives available to us, it would seem to Fukuyama that liberal democracy gives the fullest scope to all these three parts.
Thus, Fukuyama says:
If it is true that the historical process rests on the twin pillars of rational desire and rational recognition, and that modern liberal democracy is the political system that best satisfies the
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two in some kind of balance, then it would seem that the chief threat to democracy would be our own confusion about what is really at stake. For while modern societies have evolved toward democracy, modern thought has arrived at an impasse, unable to come to a consensus on what constitutes man and his specific dignity, and consequently unable to define the rights of man. This opens the way to a hyperintensified demand for the recognition of equal rights, on the one hand, and for the re-liberation of megalothymia on the other. This confusion in thought can occur despite the fact that history is being driven in a coherent direction by rational desire and rational recognition, and despite the fact that liberal democracy in reality constitutes the best possible solution to the human problem.
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Will China become a liberal democracy?
In his book, China’s Long March Toward Rule of Law , Randall Peerenboom writes with great insights:
At the end of the day, it is hard to imagine that in the long run, China will not adopt the basic institutions of democracy. But it is equally hard to imagine that the purpose of democracy in
China will be to create the widest possible range of diversity and defiant individuals who challenge authority at every turn. It is precisely because of such fundamentally different goals and orientations that we will be able to enjoy diversity on a global scale. China is obligated to provide political dissidents with the rights conferred on them by the PRC constitution and various international treaties to which China is a signatory and under international customary law. Yet Chinese citizens may not want to see China become just another France or Germany, much less than the USA, with its inner city war zones populated by gun-toting teenagers not likely to see their twenty-first birthday … As a late bloomer,
China may be able to take some lessons from its liberal predecessors and avoid some of the dysfunctional practices of the USA or other liberal democracies. In any event, it is not unreasonable for Chinese citizens to aspire to such an alternative vision of democracy and human rights.
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Presently, Chinese leaders are turning to Confucius. To return to the ancient way, Confucius felt, men must play their assigned roles in a fixed society of authority. Confucius was, in fact, a great innovator in his basic concept that good government was fundamentally a matter of ethics. He did not question the hereditary right of the lords to rule, but he insisted that their first duty was to set a proper example of sound ethical conduct. In a day when might was right, he argued that the ruler’s virtue and the contentment of the people, rather than power, should be the true measures of political success.
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Confucius was China’s first great moralist, the founder of a great ethical tradition in a civilization which, above all others, came to concentrate on ethical values.
The judicious balancing of inner virtues and external polish is characteristic of the moderation of
Confucius in all his ideas. He set the East Asian pattern of compromise, of always seeking the middle path. As the Mencius so aptly says: “Confucius did not go to extremes.” Moderation and balance may help explain the eventual triumph of Confucianism. Its high ethical principles gave political authority a stronger foundation than mere hereditary right and served as a constant stimulus for the improvement of government. Another basic reason for its success was its timeliness. A bureaucracy of the educated was slowly growing up in China in response to political needs, and this functional group required a philosophy, which Confucius admirably applied. While never questioning the legitimacy of hereditary power, Confucius assumed that men of superior learning, whatever their original social status, had the right to tell the rulers how they should conduct themselves and their government. Confucius thus propounded the idea of a “career open to talent” – a concept that was essentially revolutionary and an implicit challenge to hereditary power. As the Chinese people are turning back to their imperial past, they are finding great value in ancient thinking of what good government should be and can be.
Democracy is a way to develop and institutionalize harmony in a complex society. With Marxism and Leninism discredited in the West, Chinese leaders and the Chinese people are seriously questioning their own ways of governing. The present generation of leaders went through much suffering during the Cultural Revolution and have seen the breakdown of moral standards during and after the Cultural Revolution. Out of such baptism by fire, the Chinese people may come to the realization that they need to have harmony and social cohesiveness. Democracy is a way to develop such harmony and social cohesiveness in a complex and dynamic society.
It has been said that: There is no America without democracy, no democracy without politics, and no politics without political parties. It will be interesting to see how this applies to China.
It is true that the continuing absence of political democracy and basic personal freedoms in China has deeply troubled many observers in the West. Until China gained admission to the World Trade
Organization in 2002, these concerns regularly gave rise in the United States to debates on whether to trade with China on a “Most Favored Nation” basis. They still cause questions about whether to give
Chinese firms advanced American technology, or let them buy an American oil company. Both sides
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in this debate share the same objective: to foster China’s political liberalization. How to do so, however, remains the focus of intense disagreement.
But if a rising standard of living leads a society’s political and social institutions to gravitate toward openness and democracy – as the evidence mostly shows – then as long as China continues its recent economic expansion, Chinese citizens will eventually enjoy greater political democracy together with the personal freedoms that democracy brings. Since 1978, when Deng Xiaoping’s economic reforms began, the Chinese have seen a sevenfold increase in their material standard of living. The improvement in nutrition, housing, sanitation, and transportation has been dramatic, while the freedom of Chinese citizens to make economic choices – where to work, what to buy, whether to start a business – is already far broader than it was. With continued economic advance (the average
Chinese standard of living is still only one-eighth that in the United States), broader freedom to make political choices too will probably follow. Indeed, an important implication of the idea that it is in significant part the growth rather than just the level of people’s living standards that matters for this purpose is that the countries in the developing world whose economies are actually developing, like
China, will not have to wait until they achieve Western-level incomes before they experience significant political and social liberalization.
To the extent that economic growth brings not only higher private incomes but also greater openness, tolerance, and democracy – benefits we value but that the market does not price – and to the extent that these unpriced benefits outweigh any unpriced harm that might ensue, market forces alone will systematically provide too little growth. Calling for government to stand aside while the market determines our economic growth ignores the vital role of public policy: the right rate of economic growth is greater than the purely market-determined rate, and the role of government policy is to foster it. While economic growth makes a society more open, tolerant, and democratic, such societies are, in turn, better able to encourage enterprise and creativity and hence to achieve even greater economic prosperity.
The concept of economic growth had taken root in early American history. The early Puritans had spoken of their “pious errand into the wilderness,” a “mission” to create a Christian
Commonwealth in the New World to serve as a “beacon” for others to follow – to establish, if not St.
Augustine’s City of God, then at least John Winthrop’s City upon a Hill. The development of universal public education reflected not only the Puritans’ emphasis on science but also the more general Protestant commitment to direct knowledge of scripture by the laity. The extended project of spreading European civilization (and Protestant Christianity) across an untamed continent had obvious religious overtones as well. Westward expansion now became Manifest Destiny. The eighteenthcentury idea of an “American experiment” now became, in many eyes, the belief that God had chosen
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America as the nation through which to work his will, no less than he had long ago chosen the ancient
Israelites. Americans and others too came to see the United States as a “redeemer nation,” guiding the path toward the millennium.
7
In America, Calvin’s belief that riches came from God took even greater hold on popular attitudes in an era when new industries and new railroads were not only raising living standards generally but creating concentrated wealth on a scale never seen before.
We now return to modern times. As sociologist Daniel Bell put it, by the 1960s faith in economic growth as a “social solvent,” providing the wherewithal to correct whatever needed fixing in the world, had become “the secular religion of advancing industrial societies: the source of individual motivation, the basis of political solidarity, the ground for the mobilization of society for a common purpose.
The traditional faith in scientific advance as the fountain of economic and therefore moral progress likewise flourished anew in this time of prosperity and general optimism. When President
John F. Kennedy proposed a manned moon landing as a high-priority goal of American national policy, and the project succeeded within a decade, the bold endeavor captured the popular imagination.
Most Americans instinctively understood that advances in scientific knowledge were the basis of gains in economic productivity, and in retrospect the chief surprise in this regard was how rapidly many of the space program’s technological achievements – fuel cells, computer hardware, communication satellites, even equipment for monitoring human cardiovascular function – found practical commercial applications. But beyond the scientific excitement and whatever anticipation the pubic had of direct economic benefits, the popular enthusiasm for space exploration carried an echo of the traditional assumption that the advance of knowledge, working in significant part through economic channels, would lead in time to a morally improved society.
The strong rise in incomes that marked America’s first quarter-century following World War II did not continue into the second. Nor did the movement toward a more progressive society.
Although the single event that most visibly heralded the new era of sluggish growth was the price increase and (temporary) embargo imposed in 1973 by OPEC, it is clear in retrospect that changes in energy costs were not the fundamental force slowing America’s economic progress. Indeed, despite voluminous economic research over the years, the causes of the post-1973 slowdown remain something of a puzzle.
Puzzle or not, the post-1973 slowdown was real enough. Growth of productivity – the increase in output for a fixed amount of labor input, which is ultimately the basis of rising living standards –
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slowed from the 2.9 percent per annum average pace that America had maintained from 1948 to 1973 to just 1.4 percent over the next twenty years. Even the one major sector of the economy in which productivity growth more or less kept up, manufacturing, proved of little comfort. Manufacturers achieved much of their productivity gains during their period by substituting machinery for labor.
Rather than redeploy the released workers in other jobs, firms often simply discharged them to go into other, less productive industries. Although the output produced in manufacturing increased by 51 percent between 1973 and 1993, the number of workers on manufacturing payrolls shrank from nearly
19 million to fewer than 17 million.
8
With slower productivity gains, the growth of America’s per capita real income likewise slowed, from the 2.4 percent per annum advance realized between 1948 and 1973 (and 2.9 percent between
1959 and 1973) to 1.7 percent on average over the next two decades. The stagnation of most
Americans’ incomes seemed all the more frustrating because of the growing sense that people were working harder just to keep in place.
More to the immediate point, however, enjoying a high standard of living is not the same as undergoing rapid or sustained income growth . Some of the world’s highest-income countries – most dramatically Japan, but also many European countries – have recently experienced only sluggish growth. The level of a country’s income and its income growth are obviously related. Any country that enjoys a high standard of living today must have undergone fairly robust growth over some substantial period in the past. Conversely, any country that grows fast enough, and for long enough, will eventually achieve a high living standard too. If China can maintain the 8.1 percent per annum growth pace it has achieved over the past quarter-century, after another sixteen years its average income will be up to today’s level in South Korea or Portugal, and another nine years will take it to where America stands today. Hence merely observing that countries where freedoms are more widespread today tend also to have higher average incomes does not by itself say much about the consequences of economic growth.
The distinction is important because some of the most significant implications of a connection relating economic growth to the political and moral improvement of a society would not follow merely from a relationship to a high living standard. If what mattered were only a country’s current level of income, there would be no cause for concern in this regard when a country like the United
States begins to stagnate economically. Similarly, if the current income level were all that mattered, there would be less ground for optimism that a country like China, where per capita income is still low but growth is rapid, might become more open and democratic anytime soon.
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As we have seen from the experience of America and the large Western European democracies, it normally takes time for the experience of growth or stagnation to affect people’s perceptions, then more time for these changed perceptions to influence prevalent social attitudes, and then still more time for a country’s political institutions to respond even to widespread changes in popular thinking.
Many of the countries where citizens enjoy substantial freedoms today – for example, South Korea,
Taiwan, Argentina, Chile, and South Africa – were much different twenty, or in some cases, just ten years ago.
In his book, The Moral Consequences of Economic Growth , the renowned political economist
Professor Benjamin M. Friedman of Harvard University writes:
It is tempting to suppose that the way in which economic growth brings about the advance of freedom, especially in the more extreme cases in which a democracy replaces a patently nondemocratic regime, is by greasing the wheels for just such a transition. At least over significant spans of time, this seems to be so. But the role that economic growth plays along the way is more complex, indeed paradoxical. Over shorter periods, a rising standard of living acts as a stabilizing force in most societies, making more secure whatever political structure a country has in place, be it democratic or not. Conversely, in the short run stagnation or outright economic decline generates opposition to a country’s existing political system, regardless of how open or democratic it may be.
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Professor Friedman powerfully concludes:
At the outset of the twenty-first century, America’s problem is not unemployment. It is the slow pace of advance in the living standards of the majority of the nation’s citizens. The twenty years from the early 1970s through the early 1990s saw the income of the average
American family stagnate, and the earnings of the average American worker sharply decline.
Some improvement returned in the latter half of the 1990s, but it was modest and did not persist. For the majority of American families, the pace of their advance remains much too slow, and the economic growth fueling that advance remains fragile. The widespread sense that our standard of living has stagnated over the last generation does not stem from the public’s study of national income statistics, but from average Americans’ awareness of what they have personally experienced …
America’s greatest need today is to restore the reality, and thereby over time the confident perception, that our people are moving ahead. If doing so will require public policy choices that are hard, so be it. Only with sustained economic growth, and the sense of confident
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progress that follows from the advance of living standards for most of its citizens, can even a great nation find the energy, the wherewithal, and most importantly the human attitudes that together sustain an open, tolerant, and democratic society.
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In America, the extreme emphasis on individual rights rather than social duties has produced the world’s most litigious society: After the 1970s, the ratio of lawyers to the rest of population suddenly exploded, more than doubling in the last quarter century. Americans rely increasingly on formal institutions, and above all on the law, to accomplish what they used to accomplish through informal networks reinforced by generalized reciprocity – that is, through social capital. The USA has 300 lawyers per 100,000 citizens, compared with 12 per 100,000 in Japan and around 100 per 100,000 in the UK and Germany. The law has become one of the US’s fastest-growing profession: Cooperation is giving way to a pervasive adversarialism in which confrontation and litigation, rather than community endeavor or political action, are seen as the principal means of achieving one’s goals. As the individualization and competitiveness of society has penetrated more deeply into the moral fabric, the appeal to litigation has permeated large areas of private life, where norms, traditions and expectations of reciprocal behavior used to define accepted practices, such as bringing up children, responses to death, and relationships between the sexes.
A consequence of the breakdown in social cohesion and rise in insecurity has been the rapid rise of high-income people living in privately guarded buildings or housing developments, with around 28 million Americans (10 percent of the total) living in this fashion. The private gate communities whose high walls and electronic security devices protect their inmates from the dangers of the society they have deserted are a mirror image of America’s prisons. They stand as a symbol of the hollowing-out of other social institutions – the family, the neighborhood, even the business corporation – that in the past supported a functioning society. In the wake of September 11, the whole of the United States adopted a siege mentality that eerily parallels the efforts of rich Americans to protect themselves from the poor within their own society. Despite the extraordinary efforts taken in the wake of September 11, there are few in Washington who believe the country is safer than it was before September 11. A study from the Council on Foreign Relations released in October 2002 concluded: “America remains dangerously unprepared to prevent and respond to a catastrophic terrorist attack on US soil. In all likelihood, the next attack will result in even greater casualties and widespread disruption to American lives and the economy” (
Financial Times , November 19, 2002).
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The driving force of the conservative lobby has been to maintain low taxes and a small state: The watchwords for a successful capitalism are liberty, flexibility, self-interest, welfare and enterprise. Its enemies are the “burdens” of regulation, taxation, welfare and any form of social obligation. The mainstream of US political opinion maintains a contemptuous attitude toward the attempts of Europe to retain a sense of social cohesiveness through state action.
A significant minority of US opinion still clings to the hope that the US will turn away from the current path of development and take a different path that is more in tune with the real needs of the whole society. A regime which provides human beings no deep reasons to care about one another cannot long preserve its legitimacy irrespective of how democratic its institutions are. In Imperial
China, behind the edifice of authoritarian rule was a pervasive morality based on the necessity of all strata of society to observe their duties in order to sustain social cohesion, to achieve social and political stability and to ensure social sustainability. When these functions were operating effectively, there was “great harmony” ( da tong ), a prosperous economy and a stable society. When they were operating poorly, there was “great turmoil” ( da luan ), economic retrogression and social disorder.
Lao Zi says: “When the way prevails in the empire, fleet-footed horses are relegated to plowing the fields; when the way does not prevail in the empire, war-horses breed on the border.”
The USA’s current mission to spread the individualistic, materialistic, anti-state philosophy which glorifies the finance-dominated free market threatens deeply China’s hopes to negotiate a way through the massive challenges it faces. The consequence of the currently dominant US free market fundamentalism both within the USA and in its international relations is to undermine social coherence , by denigrating the useful functions of the state. It strives to establish a society based on minimizing the government’s functions in order to maximize individual freedom and rights.
Adopting such a philosophy would gravely endanger China’s development. In the turbulent environment faced by China, a sense of social coherence and a central role for the government is the sine qua non of system survival, let alone successful development for China’s 1.3 billion citizens.
Hence, for China, social coherence takes precedence over rapid development of democratic institutions in the immediate, and even in the intermediate, future.
However, in the long term, China may need to develop into a democratic federation albeit with
Chinese characteristics. A continental-sized China cannot rule from the center effectively and efficiently over a long time. A democratic federation may be an answer but will take time to develop.
Thirty years or so is still a brief stretch of time in the long span of Chinese history. We are confident that a politically stable China, whether it is termed “red” or “communist” by American conservatives, will find its way to developing such political institutions, mechanisms and procedures in a
“sequential” and probably “nonlinear” way.
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By analogy, in a branch of operations research known as linear programming, the best step is not to find an optimal solution. The best strategy is to find a feasible solution, indeed, any feasible solution. From this, we can proceed to finding a better feasible solution. We keep on finding better and better feasible solutions. Eventually, with luck and effort, we may end up with the optimal solution. This strategy is probably applicable to a China that is making a rapid transition from an agrarian society into an industrial society and further still into an information society. China will, in our humble opinion, become a democratic federation by mid-twenty-first century.
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China was ruled by the Manchus from 1644 to 1911. This was the Qing Dynasty. In the 1850s, the Qing Dynasty was already reeling under the incursions of foreign powers and the British victory in the Opium War. In Fuyuan-shui, a small village in Guangdong Province in southern China, a local school-teacher, Hong Xiuquan, was trying to better himself by passing the Imperial examinations, the time-honored route to a good job in the government bureaucracy. He failed and returned home in humiliation. He took to his bed in a fever. After three days of delirium, he woke to reveal that he had been given a vision: He was the second Son of God, the younger brother of Jesus, and he had been sent by God to save China.
Surprisingly, his family and friends mostly believed him. One friend organized a God
Worshippers Society in his honor. When the local police units came after them, Hong and his followers fled and joined bands of robbers in the mountains of the nearby Guangxi Province. The robbers, too, were converted.
In 1851, Hong adopted the title of Tian-wang (Heavenly King) and declared a new dynasty named
Taiping Tianguo (Heavenly Kingdom of Great Peace). He came down from the mountains and swiftly gained adherents as he swept north through the verdant valley of the Yangtze River. Soldiers, farmers weakened by famine, poor workers, and miners flocked to his banner. He preached a primitive communism, land reform, prayer, and an abstemious lifestyle that included strict separation of the sexes, though he himself kept a harem. By the time he got to Nanking (Nanjing), the Heavenly
King had a million followers. He took Nanking, tried and failed to move north towards Beijing. He declared Nanking to be the capital of his Heavenly Kingdom. He was turned back at Shanghai by a private army with Western officers. Squabbling in the top ranks led to executions and schism, but with his hard core of believers, he held Nanking and much of southern China for thirteen years. He was only defeated finally when the Manchus turned the leadership of the army over to Chinese officers. Over 100,000 followers of the Heavenly King chose death rather than surrender. The Way of Heavenly Peace had cost more than 20 million lives. Though the Qing Dynasty tottered on for nearly another half-century, the Taiping Rebellion was the beginning of the end.
In 1900, the twenty-sixth year of the Guangxu regime, the Boxer Rebellion broke out in Beijing.
About one hundred thousand people of the Boxer sect, claiming to be invincible to bullets, surrounded and attacked the foreign establishments in the city. Soon afterward the Eight-Country Allied Force
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attacked and occupied Beijing, and the empress dowager, who encouraged and supported the Boxer sect, fled the capital.
In 1901, Li Hongzhang, a top-ranking Chinese mandarin, was forced to sign the humiliating
Boxer Protocol, under which China agreed to pay an indemnity totaling 450 million taels of silver to fourteen countries over thirty-nine years. This was the historically infamous Genzi Indemnity. In
1908, the U.S. Congress passed legislation empowering President Theodore Roosevelt to return to
China the excess money above the loss actually incurred by the United States. The money was to be spent for building schools in China and for financing students to study in America. The two governments agreed to establish the Tsinghua School and, beginning in 1909, to send one hundred
Chinese students per year to America. Thus, China resumed sending students to America under the
Genzi Indemnity Fund Project after the Qing court had stopped sending Chinese students to America in 1881.
In 1909, 1910, and 1911 examinations were held in Beijing for candidates drawn from a nationwide student pool. The applicants were required to know Chinese and English and to possess
“good health, an upright character, no defects in physical appearance, and an unblemished background.” In October 1909, the first group of Genzi Indemnity Fund students (the group included three additional students who were children of court officials) went to America. They studied chemical engineering, mechanical engineering, civil engineering, mining, agriculture, and commerce.
Among the students was Mei Yiqi, future president of Tsinghua University.
On October 10, 1911, the 1911 Revolution (Xinhai Geming) broke out, and soon afterward China became a republic. But the country was thrown into chaos and fragmentation because of infighting among the regional warlords. Thus, the second movement to send students abroad met its demise because of the violent turmoil.
The yearning of China’s youth to study abroad, however, could not be quashed. In 1911, the
Tsinghua School was established. Over the next decade it alone sent 566 students to America.
Between the mid-twenties and the end of the thirties, after nearly a hundred years of war and chaos,
China enjoyed a period of relative peace. The success of the Northern Expedition established the power base of the Nationalist government. The regional warlords had to agree, at least temporarily, that the country was united under the leadership of the government in Nanking (Nanjing). Political stability allowed a brief respite during which the country quickly developed its economy.
Of course, the civil war continued. The April Twelfth Incident in 1927 led to an open split between the Nationalists and the Communists. The wound would not heal. Chiang Kai-shek initiated
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five campaigns to rout out the Red Army, and Mao Zedong led the Red Army on the Long March to the remote and impoverished hinterland of northern Shanxi in interior China.
But the relative stability allowed China to resume sending students to study overseas. On August
17, 1928, the Tsinghua School was renamed Tsinghua University. But the tranquility did not last long.
On July 7, 1937, gunshots rang across the Marco Polo Bridge outside Beijing. The breakout of the
War of Resistance against Japan once more dealt a serious blow to the study-abroad project. One can only feel grieved by China’s history of studying abroad. The earlier project of sending teenagers to
America was abruptly ended by the ignorance and ineptitude of the Qing court; studies of the Genzi
Indemnity Fund students were interrupted by the breakout of revolution in the Republic; and the program in the thirties was assaulted by the breakout of another war. In those hundred years, days of tranquility were rare.
Since the First Opium War (1839 – 42), fighting had broken out nearly every decade, tearing the country to shreds; peasant rebellions, foreign invasions, military coups, civil wars, and revolutions.
We Chinese hardly ever had a period of peace that lasted more than ten years so that we could seriously and persistently pursue a meaningful task.
Today, Tsinghua University is the most prestigious university in China. Zhu Rongji, the former premier of China, was a graduate of Tsinghua University; so are four members of the Standing
Committee of the Politburo of the Chinese Communist Party, including Hu Jintao, who is President of the PRC, General Secretary of the Chinese Communist Party and Chairman of China’s Central
Military Commission. China suffered tremendously from the Taiping Rebellion and Boxer Rebellion, which were religious sects.
In April 1999, 10,000 followers of Falungong (Wheel of Law), a Buddhist-influenced movement centered on the philosophy and breathing techniques of gi gong , teaching compassion, benevolence, and kindness, plus some weird ideas about an apocalypse, gathered in Tiananmen Square in a silent bid to be recognized as a legitimate entity in PRC society. Mostly from Tianjin, they were hurt at being described in an academic article as crazy people. Shocking the CCP, they appeared out of nowhere, and it was the largest illegal demonstration since the Tiananment students’ demonstration in
1989. The Chinese leaders were probably worried about the organizational capabilities of this religious sect. If unchecked, the Chinese leaders might come to believe, the Falungong adherents could pose a threat to the stability and order within China. Anyway, we do advocate freedom of religion in China irrespective of the organizational capabilities of certain religious sects.
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Matthew Ricci was the first Jesuit (an ordained priest of the Society of Jesus) to go to China in
1582 although another missionary, Francis Xavier, had tried but failed and died, gazing across at the coast of China in 1552. Ricci was born in Italy in 1552, the same year when Francis Xavier died.
The earliest religion of China contained far less magic and far fewer logical errors than any primitive creed known to Ricci. A single, omnipotent, supreme Being was worshipped in the form of Heaven, together with various subsidiary protective spirits of stars, mountains, rivers, and the four corners of the world. Virtue pleased, vice displeased Heaven, which rewarded or punished men and women in this world according to their deeds. So reverent was religious awe that only the Emperor and high officials might perform sacrifice, and the people never attributed to Heaven or other spirits the reprehensible conduct with which Egyptians, Greeks and Romans defiled their gods. This primitive religion no longer existed in its original form. Over a thousand years before Ricci’s arrival, its beliefs and practices had already become partially incorporated in three main sects, to one or more of which most Chinese claimed to belong: Confucianism, Daoism, and Buddhism. Of these the most flourishing, the most highly esteemed and boasting the largest number of great books was
Confucianism, the national philosophical system of China, professed – at least in public – by the majority of scholars and mandarins. By preserving the essentials of the primitive theology, in particular, the Emperor’s sacrifice to Heaven, it was more as a state religion than a vital creed. It had been handed down in the most curious fashion, not consciously chosen or proclaimed, but imbibed through education, the essential criterion for passing state examinations being a thorough knowledge of the works of Confucius, whose doctrine became the stamp of the ruling class.
One of Ricci’s greatest difficulties was to disentangle the authentic teaching of Confucius from the traditional system known as Confucianism. From a study of the Analects, he became convinced that Confucius had taught a reverence for Heaven, upon which all earthly things depend, and that this religion was untainted by idolatry. Yet while reverencing the traditional Chinese Heaven, Confucius initiated a change from supernatural to ethical thinking, a shift of emphasis from God to man and human relations, which ever since had dominated Chinese philosophy. The creation of the world and who sustained it were questions which interested few early thinkers, and the myths they invented as explanations were generally discredited. Confucius too ignored these problems, believing that reason was powerless to establish the nature of God or the existence of life after death.
Ricci brought to completion a work on which he had been engaged since 1591: the translation into
Latin of the four classical books of Confucianism. So great was Chinese pride, so inbred their hostility to foreign teaching, that until they were convinced empirically that they had no monopoly of truth, they would dismiss superciliously a theology and revelation which could never be proved to
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their senses. Ricci knew that the conversion of China would probably be a long process; that his role was to sow rather than harvest. Ricci believed that his ultimate purpose was to refute Buddhism and replace it by Christianity.
In China, as Ricci was aware, Christianity was for the first time in history confronted with a civilization older and at least as great as the Greco-Roman, with a population far more numerous than that of Europe. Christianity could not conquer her merely by force of arms, numbers or superior intelligence. Abandoning an age-old exclusive provincialism, she must recognize and tolerate all that was best in the older civilization, and introduce only her essential message: her revelation and theology. If she attempted to impose unessentials – philosophic, literary, artistic or ritual – or to cut
Chinese civilization to Western patterns, she would remain as exotic tied to Occidental methodology and customs which made her message unacceptable to the Chinese mind. The church, in fact, in order to show herself truly universal, in order to sail the China sea, must jettison all local and national prejudice, even her age-old habits of mind, and take on a cargo of Eastern wisdom compatible with her message, without deviating one point from her essential course.
Ricci never ceased to marvel at that the most populous and richest nation of the world, with a well-equipped army of a million men, should have refrained from aggressive war for many centuries, though she lay close to petty states capable of being swallowed in a matter of weeks. Peace had produced that unity in time as well as in space which made it possible to read and understand the written language of 2,500 years before. It had also produced a remarkable continuity of government, for although each dynasty always issued a penal code of its own, this was generally a more humane version of the preceding collection. To reap riches man had only to subordinate himself to the imperial will and a bountiful heaven.
Without converting the Son of Heaven, Matthew Ricci died on May 11, 1610. The Minister of
Rites let it be known that the Emperor, informed of Ricci’s death, had shown signs of grief. At the end of the seventeenth century, France having won the hegemony of continental Europe from Portugal and Spain, French Jesuits began to arrive in China and for the next hundred years played a leading role at court. Two of the French priests proved of great assistance to Emperor K’ang Hsi in the Qing
Dynasty in negotiations with the Russians who, under Peter the Great, were expanding eastwards in quest of sables and gold. Partly as a token of gratitude for arranging a suitable treaty, K’ang Hsi was persuaded in 1692 to take the momentous step of issuing an edict of toleration for the Christian religion. The work which Ricci initiated had been brought to fulfillment. Missionaries from the
Catholic Church and Protestant churches reached China to preach the Gospels of Christ and set up educational institutions in China. Many of them believed that the evangelization of China depended on the Church being at the forefront of the movement of modernization, not only through the teaching
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of academic disciplines but by promoting social responsibility and discussing contemporary social and moral issues in the light of the gospel.
When the Chinese Communists came to power, they drove out the missionaries. However,
Christianity did not die out in the People’s Republic. David Aikman, former Beijing Bureau Chief of
Time magazine wrote a very interesting book, Jesus in Beijing: How Christianity is Transforming
China and Changing the Global Balance of Power . Mr. Aikman gave the following account. A scholar from one of China’s premier academic research institutes, the Chinese Academy of Social
Science (CASS) in Beijing said: “One of the things we were asked to look into was what accounted for the success, in fact, the pre-eminence of the West all over the world. We studied everything we could from the historical, political, economic, and cultural perspective. At first, we thought it was because you have more powerful guns than we had. Then we thought it was because you had the best political system. Next we focused on your economic system. But in the past twenty years, we have realized that the heart of your culture is your religion: Christianity. That is why the West has been so powerful. The Christian moral foundation of social and cultural life was what made possible the emergence of capitalism and then the successful transition to democratic politics. We don’t have any doubt about this.” 1
China’s own Public Security Bureau estimated that there are at least 25 million Christians in
China. Both Chinese within China and visiting outside observers generally believe that the numbers of Christians who attend churches not approved by the government – unofficial, so-called “house churches” – may exceed by a factor of three or four those under the various Chinese governmentapproved umbrellas. In effect, the number of Christian believers in China, both Catholic and protestant, may be close to 80 million than the official combined Catholic-Protestant figure of 21 million.
2 But the reality is simply that no one knows for sure. All we do know is that Christianity has grown at a staggering speed since 1979, when China began to relax the fierce restrictions on religious activity that had been imposed during the Cultural Revolution in the 1960s. It was already clear in the
1980s that Christians were beginning to show up, though almost never identified as such, within the
Chinese Community Party. A recent issue of a Hong Kong magazine (December 2005) mentioned that as many as one-third of the members of the CCP had attended some sort of religious activities in recent years. Economic growth, increasing access to information, added civic freedoms, and the need for a consciousness to combat the social ills of prosperity all combine to create an opportune atmosphere for the growth of Christianity in China both as a movement and as an ideology.
Many Chinese wondered: is capitalism just a way of doing business, or did it come with concrete ethical and philosophical foundations? Many Chinese sociologists note that, in the coastal city of
Wenzhou, in Zhejiang province, south of Shanghai, Christianity in the 1980s and 1990s seemed to
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surge proportionately to the success of Wenzhou retailers in making money. In fact, a decade ago, some Chinese, thinking about capitalism, Christianity, and Wenzhou, were making the intellectual connection between religion and the rise of capitalism, the central thesis of R.H. Tawney in his influential book with the same name, Religion and the Rise of Capitalism . Highly educated Chinese were not quite satisfied with that either the Marxist interpretation of religion or the standard Western
Darwinian understanding of life adequately explained the human condition in general and the Chinese condition in particular.
David Aikman concludes in his book with the following comment:
China is in the process of becoming Christianized. That does not mean that all Chinese will become Christian, or even that a majority will. But at the present rate of growth in the number of Christians in the countryside, in the cities, and especially within China’s social and cultural establishment, it is possible that Christians will constitute 20 to 30 percent of China’s population within three decades. If that should happen, it is almost certain that a Christian view of the world will be the dominant worldview within China’s political and cultural establishment, and possibly also within senior military circles. What do I mean by a
“Christian view of the world?” Of course, there is no uniform “Christian view” on many domestic and international issues. Christians differ with one another over political and social questions. But what I mean is an Augustinian sense of international responsibility. The word
“Augustinian” derives from Augustine’s calling in his major work,
The City of God , for a profound sense of restraint, justice, and order in the wielding of state power.
3
He added:
The Christianization of China is likely to be concurrent with China’s emergence as a global superpower. A Christianized China may spend less time thinking of ways to outmaneuver and neutralize the U.S. than the military strategists of the current regime. This is not because they will have ceased to be patriotic, but because they will not see the world as a dog-eat-dog squabble between major powers …
China’s moment of its greatest achievement – and of the most benefit to the rest of the world – may lie just ahead. That moment may occur when the Chinese dragon is tamed by the power of the Christian Lamb. The process may have already started in the hopes and works of China’s house church leaders.
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Below is a message delivered by our preacher from a Protestant church.
The gospel of Jesus is founded on economic equity, because economic inequities are the basis of domination. Ranking, status, and classism are largely built on power provided by accumulated wealth.
It is rather the poor whom God elects and blesses, the meek and brokenhearted and despised who will inherit God’s coming reign on earth. It is the merciful not the mighty, the peacemakers not the warriors, the persecuted not the aristocrats, who will enter into the joy of God (Matt 5:3-12). In parable after parable, Jesus speaks of the “reigning of God” using images drawn from farming and women’s work, not warfare and kings’ palaces. It is not described as coming from on high down to earth; it rises quietly and imperceptibly out of the land. It is established, not by armies and military might, but by an ineluctable process of growth from below, among the common people.
Some of us engaged in struggles for social justice have been incredibly naïve about what has been happening in our own psyches. Our very identities are often defined by our resistance to evil. It is our way of feeling good about ourselves: if we are against evil, we must be good. For the struggle against evil can make us evil, and no amount of good intentions automatically prevents its happening.
The whole armor of God that Ephesians 6:10-20 counsels us to put on is crafted specifically to protect us against that contagion of evil within our souls. When we resist evil with evil, when we lash out at it in kind, we simply guarantee its perpetuation, as we ourselves are made over into its likeness.
Jesus’ teaching is a way of engaging evil that involves neither caving in to it nor hurling ourselves against it blindly, on its own terms. To those trapped in the Myth of Redemptive Violence, nonviolence must appear suicidal. But to those who have looked unflinchingly at the record of violence in the everyday world, nonviolence appears to be the only way out. And not just for
Christians; for the world.
If questioned, most Christians, Catholic or Protestant, will claim that they support the use of violence in certain cases on the basis of just-war thinking. In fact, however, they often confuse just war with other forms of violence. Some mean the entirely different idea of the holy war , or crusade, which is a total war aimed at the utter subjugation or extermination of an enemy. Examples would be the Hebrew conquest of Canaan, the medieval crusades, or the Ayatollah Khomeini’s war against Iraq.
Others who believe they are advocates of just war are in reality supporting a political war or a war of national interests. These wars are not justified by ethical reflection but merely by the presumed necessities of power politics. Might simply makes right.
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Of course, Christians must resist evil! No decent human being could conceivably stand by and watch innocents suffer without trying to do, or at least wishing to do something to save them. The question is one of means. Christians are not forbidden by Jesus to engage in self-defense. But they are to do so nonviolently. The God whom Jesus reveals refrains from all forms of reprisal. God does not endorse holy wars or just wars. God does not sanction religions of violence. Only by being driven out by violence could God signal to humanity that the divine is nonviolent and is opposed to the kingdom of violence. To be the true God’s offspring requires the unconditional renunciation of violence. The reign of God means the elimination of every form of violence between individuals and nations. This is a realm and a possibility of which those imprisoned by their trust in violence cannot even conceive. Jesus is cautioning us not to return evil for evil, not to mirror evil, not to respond to evil in kind. This refusal to pay back in kind is one of the most profound and difficult truths in
Scripture, however. Since our hate is usually a direct response to an evil done to us, our hate almost invariably causes us to respond in the terms already laid down by the enemy. Unaware of what is happening, we turn into the very thing we oppose. We become what we hate. “Whoever fights monsters,” warned philosopher Friedrich Nietzsche, “should see to it that in the process he does not become a monster.” “You always become the thing you fight the most,” wrote Carl Jung, the famous psychologist and philosopher.
We are to love our enemies, says Jesus, because God does. God makes the “sun rise on the evil and on the good, and sends rain on the righteous and on the unrighteous (Matt. 5:45). We should love our enemies and pray for those who persecute us so that we may be children of this strange parent, who “is kind to the ungrateful and the wicked” (Luke 6:35) Much of what passes as religion denies the existence of such a God. Is not God precisely that moral force in the universe that rewards the good and punishes the evil? This had been the message of John the Baptist, and it would later be the message of the church. In John’s preaching, God is depicted as verging on a massive and final counteroffensive against evil, in which all evil will be exterminated. One whose side of reality will be wiped out.
The radicalism of Jesus’ image of God is hidden by the self-evident picture that draws from nature. God clearly does not favor some with sunshine and others with rain, depending on their righteousness. Yet society has in every possible way created the impression that only some are in
God’s favor and others out. God’s all-inclusive parental care is thus charged with an unexpected consequence for human behavior: we can love our enemies, because God does. If we wish to correspond to the central reality of the universe, we will behave as God behaves – and God embraces all, evenhandedly. This radical version of God, already perceived by the Hebrew prophets, is the basis for true human community today.
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The date was April 25, 1945, the place the eastern German city of Torgan on the River Elbe, the event the first meeting of the armies, converging from opposite ends of the earth, that had cut Nazi
Germany in two. Five days later, the Fűhrer, Adolf Hitler, killed himself. Soon after that, the
Germans surrendered unconditionally. It is difficult to say precisely when the Cold War started.
In a hastily composed 8,000-word cable, dispatched on February 22, 1946, George F. Kennan, a respected but still junior Foreign Service officer serving in the American embassy in Moscow, stated that what would be needed was a long-term, patient but firm and vigilant containment of Russian expansive tendencies. Stalin got hold of this telegram through his intelligence networks. He told his ambassador in Washington, Nikolai Novikov, to prepare a telegram, which he sent to Moscow on
September 27, 1946. In this telegram, Novikov claimed that “the foreign policy of the United States reflects the imperialistic tendencies of American monopolistic capitalism and is characterized by a striving for world supremacy.”
The European Recovery Program, announced by George Marshall in June 1947, committed the
United States to nothing less than the reconstruction of Europe. At that time, the greatest threat to western countries in Europe was not the prospect of Soviet military intervention, but rather the risk that hunger, poverty, and despair might cause Europeans to vote their own communists into office, who would then obey Moscow’s wishes. The Marshall Plan, as it came to be known, succeeded very well. The United States had seized both the geopolitical and the moral initiatives in the emerging
Cold War.
However, not all communists in eastern Europe obeyed Moscow. In Yugoslavia, Josip Broz Tito had come to power on his own efforts. The Yogoslave dictator might be a “son-of-a-bitch,” the new
American secretary of state, Dean Acheson, acknowledged astringently in 1949, but he was now “our son-of-a-bitch.” On August 29, 1949, the Soviet Union got its own bomb. It was silent over the successful test. On October 1, 1949, a week after President Truman’s announcement of the Soviet atomic bomb – a victorious Mao Zedong proclaimed the formation of the People’s Republic of China in Beijing.
Soon the Korean War broke out. The members of the Grand Alliance in the Second World War were now Cold War adversaries.
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Truman left office in January 1953, and Stalin left life two months later. New leaders cam to power in Washington and Moscow who had yet to experience the nightmares that came with nuclear responsibility. In August, 1957, the Soviet Union successfully launched the world’s first intercontinental ballistic missile, and on October 4, of the same year, it used another such missile to launch Sputnik , the first artificial earth satellite.
Nikita Khrushchev was a poorly educated peasant, coal miner, and factory worker who had become a Stalin protégé and then Stalin’s successor. He understood the power of nuclear weapons carried on missiles. In April, 1961, the Bay of Pigs landings against Fidel Castro’s Cuba failed.
During the same month, the Soviet Union successfully put the first man into space. In August, East
Germany constructed the Berlin Wall. Then there was the Cuban crisis. This crisis, universally regarded now as the closest the world came, during the second half of the 20 th century, to a third world war, provided a glimpse of a future no one wanted: of a conflict projected beyond restraint, reason, and the likelihood of survival.
In 1972, the United States and the Soviet Union signed an Anti-Ballistic Missile Treaty that banned defenses against long-range missiles. The idea behind this treaty was that the vulnerability that came with the prospect of instant annihilation could become the basis of a stable, long-term,
Soviet-American relationship. Then there was the Vietnam War. With his “opening’ to China,
Richard Nixon had placed the United States in the enviable position of being able to play off its Cold
War adversaries against one another. He had become the first American president to visit both
Beijing and Moscow. The Soviet Union and China had become so hostile to each other that they, in fact, competed for Washington’s favor.
On August 9, 1974, Nixon resigned due to the Watergate affair. He encountered an adversary more powerful than either the Soviet Union or the international communist movement. It was the
Constitution of the United States of America. Nixon was replaced by Ford. Within the United States, liberals and conservatives alike denounced Ford and Kissinger for having abandoned the cause of human rights. Pursuing détente was hardly worth it if it meant perpetuating injustice by recognizing
Soviet Union in Eastern Europe. Kissinger had advised Ford not to receive Solzhenitsyn – by then an involuntary exile from the Soviet Union and a bitter critic of détente – at the White House: this came across as excessive deference to Moscow. Ford found it necessary to prohibit subordinates from even using the word “détente”; he also disassociated himself from Kissinger as the presidential election approached. Jimmy Carter was elected as president of the United States.
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In his book, The Cold War , John Lewis Gaddis, professor of history at Yale University, gives a vivid description of the actors who were coming to the world stage and who would have a profound impact on contemporary world history.
First there was Pope John Paul II. He was an actor before he became a priest. Few leaders of his era could match him in his ability to use words, gestures, exhortations, rebukes, and even jokes to move the hearts and minds of the millions who saw and heard him. In Professor Gaddis’ words:
“Real power rested, during the final decade of the Cold War, with leaders like John Paul II, whose mastery of intangibles – of such qualities as courage, eloquence, imagination, determination, and faith – allowed them to expose disparities between what people believed and the systems under which the Cold War had obliged them to live.” An entire generation had grown up regarding the absurdities of a superpower stalemate – a divided Berlin in the middle of a divided Germany in the middle of a divided Europe, for example, as the natural order of things.
Then there was Deng Xiaoping. At the time of Nixon’s visit to Beijing in 1972, Deng was in exile with his family growing vegetables and nursing his son, whom Red Guards had thrown from the roof of a building, permanently paralyzing him. Mao called Deng back to Beijing in the following year, saying that he had done good things seventy percent of the time and bad things thirty percent.
Soon, Deng was purged again. He fled to southern China and emerged as China’s “paramount leader” in 1978 after Mao passed away in 1976.
Deng claimed that Mao had been right seventy percent of the time and wrong thirty percent. He went to the United States, capturing the warmth of the American people. By the time of his death in
1997, China’s economy had become one of the largest in the world.
In the United Kingdom, Margaret Thatcher became the first woman to be prime minister. Her path to power had not been easy. She was born into an ordinary family without wealth or social status.
She was disadvantaged in a male-dominated political establishment. She brought sweeping changes to her country and gained admiration from all over the world. She was the “iron lady.” The invasion of Afghanistan by the Soviet Union did not surprise her. She said, “I had long understood that détente had been ruthlessly used by the Soviets to exploit western weakness and disarray. I knew the beast.”
She told an American audience: “but the fact is that the Russians have the weapons and are getting more of them. It is simple prudence for the West to respond.”
In the United States, a professional actor, Ronald Reagan, came to power. His rise to power, like that of Deng, Thatcher, and John Paul II, would have been difficult to anticipate, but at least his acting skills were professionally acquired. Reagan was a skillful politician and one of American’s sharpest
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grand strategists ever. His strength lay in his ability to see beyond complexity to simplicity. And what he saw was simply this: that because détente perpetuated – and had been meant to perpetuate – the Cold War, only killing détente could end the Cold War.
Reagan came to this position through faith, fear, and self-confidence. His faith was that democracy and capitalism would triumph over communism. His fear was that human beings would disappear because of a nuclear war. His self-confidence was that he could unify western democracies, particularly the American people, against détente.
On May 13, 1981, there was an assassination attempt on the pope in St. Peter’s Square. John Paul
II recovered, attributing his survival to divine intervention. On March 30, 1981, six weeks before the attempt on the pope’s life, another would-be assassin shot and almost killed Reagan. Had Reagan died, the Reagan presidency would have been a historical footnote and thereby there would probably have been no American challenge to the Cold War status quo. George H.W. Bush, Reagan’s vice president, like most foreign policy experts of his generation, saw that conflict as a permanent feature of the international landscape. Reagan, like Thatcher, Deng and John Paul II, did not.
Reagan saw that the Cold War itself had become a conventional wisdom. Too many people in too many places had accepted that it would be a permanent thing. He sought to arouse emotions among his people that the Cold War could come to an end.
The first occasion came at Notre Dame University on May 17, 1981, only a month and a half after
Reagan’s brush with death. He made a bold prediction, all the more striking for the casualness with which he delivered it:
The West won’t contain communism, it will transcend communism. It won’t bother to … denounce it, it will dismiss it as some bizarre chapter in human history whose last pages are even now being written.
This was a wholly new tone after years of high-level pronouncements that the West should learn how to live peacefully with the Soviet Union as a competitive superpower. Now Reagan was focusing on the transitory nature of Soviet power and on the certainty with which the West could look forward to its demise.
Reagan also deployed religion. “There is sin and evil in the world,” he reminded the National
Association of Evangelicals on March 8, 1983, in words the pope might have used, “and we’re enjoined by Scripture and the Lord Jesus to oppose it with all our might.” As long as communists
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“preach the supremacy of the state, declare its omnipotence over individual man, and predict its eventual domination of all peoples on Earth, they are the focus of evil in the modern world.”
The “evil empire” speech completed a rhetorical offensive designed to expose what Reagan saw as the central error of détente: the idea that the Soviet Union had earned geopolitical, ideological, economic, and moral legitimacy as an equal to the United States and the other western democracies in the post-World War II international system.
On March 23, 1983, Reagan surprised the world by repudiating the concept of Mutual Assured
Destruction. He had been shocked to learn that there were no defenses against incoming missiles, and that is the curious logic of deterrence this was supposed to be a good thing. Reagan proposed
Strategic Defense Initiatives (SDI). It challenged the idea that vulnerability could provide security. It called into question the 1972 Anti-Ballistic Missile Treaty. The ultimate purpose of SDI, Reagan insisted, was not to freeze nuclear weapons, but rather to render them impotent and obsolete.
Reagan was deeply committed to SDI: it was not a bargaining chip to give up in future negotiations. That did not preclude, thought, using it as a bluff; the United States was years, even decades, away from developing a missile defense capability, but Reagan’s speech persuaded the
Soviet’s leaders that this was what might happen. Having exhausted their country by catching up in offensive missiles, the Soviet leaders suddenly faced a new round of competition demanding skills they had no hope of mastering because of their backwardness in computer technology. The reaction, in the Kremlin, approached panic. Soviet leaders concluded that the Reagan administration might be planning a surprise attack on the Soviet Union. There followed a two-year intelligence alert, with agents throughout the world ordered to look for evidence that such preparations were under way. On
September 1, 1983, a South Korean airliner accidentally flew into Soviet airspace over Sakhalin.
Soviet air forces shot it down, killing 269 civilians, among them 63 were American passengers.
At the age of 54, Mikhail Gorbachev was appointed by the Politburo as general secretary of the
Communist Party of the U.S.S.R. after the death of Cherenko. Gorbachev had been trained as a lawyer, not as an actor, but be understood the uses of personality at least as well as Reagan did. For the first time since the Cold War began, the U.S.S.R. had a ruler who did not seem sinister, boorish, unresponsive, senile – or dangerous. When a Soviet citizen congratulated him early in 1987 for having replaced a regime of “stone-faced sphinxes,” Gorbachev proudly published the letter.
Gorbachev knew that the Soviet Union could not continue on its existing path. But unlike John
Paul II, Deng, Thatcher, Reagan, and Walesa, he did not know what the new path should be. He poured enormous energy into shattering the status quo without specifying how to reassemble the
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pieces. As a consequence, he allowed circumstances and often the firmer view of more far-sighted contemporaries to determine his own priorities.
On April 26, 1986, an accident occurred at the Chernobyl nuclear power plant. This event changed Gorbachev. He no longer trusted the scientists, specialists and ministers, who had been telling the Soviet leaders that everything was sound and safe. From then on, there would have to be glasnost (publicity) and perestroika (restructuring) within the Soviet Union itself.
At the summit meeting in Reykjavik, Ireland in 1986, the leaders of the United States and the
Soviet Union had found that they shared an interest, if not in SDI technology, then at least in the principle of nuclear abolition. The logic was Reagan’s, but Gorbachev had come to accept it. The two men never agreed formally to abolish nuclear weapons, nor did missile defense come anywhere close to feasibility during their years in office. But at their third summit meeting in Washington, D.C., in December 1987, they did sign a treaty providing for the dismantling of all intermediate-range nuclear missiles in Europe.
In the meantime, Secretary of State Shultz, a former economics professor at Stanford University, advised Gorbachev as early as 1985 on the impossibility of a closed society being a prosperous society. He told Gorbachev and his advisers that as long as it retained a command economy, the
Soviet Union would fall further and further behind the rest of the developed world. When Reagan visited the Soviet Union in May, 1988, Gorbachev arranged for him to lecture at Moscow State
University on the virtues of market capitalism. From beneath a huge bust of Lenin, the president evoked computer chips, rock stars, movies, and the “irresistible power of unarmed truth.” The students gave him a standing ovation.
However, Gorbachev was never willing to leap directly to a market economy in the way that Deng
Xiaoping had done. He reminded the Politburo late in 1988 that Franklin D. Roosevelt had saved
American capitalism by borrowing socialist ideas of planning, state regulation and the principle of more social fairness. The implication was that Gorbachev could save socialism by borrowing from capitalism, but just how remained uncertain.
By 1985, there was talk in Washington of a “Reagan Doctrine”: a campaign to turn the forces of nationalism against the “evil empire.” It was a direct confrontation to the Brezhnev Doctrine, which claimed that the Soviet Union had the right to resist all challenges to Marxism-Leninism wherever they might occur. The most sensational one came at the Brandenburg Gate in West Berlin on June 12,
1987, when – against the advice of the State Development – the president demanded: “Mr. Gorbachev, tear down this wall!”
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The year 1989 marked the 200 th anniversary of the great revolution in France that swept away the ancient régime, and with it the old idea that governments could base their authority on a claim of inherited legitimacy. The year began quietly enough with the inauguration of George H.W. Bush as president of the United States on January 20, 1989. Calculated challenges to the status quo, of the kind John Paul II, Deng, Thatcher, Reagan, and Gorbachev himself had mounted over the past decade, had so softened the status quo that it now lay vulnerable to less predictable assaults from little-known leaders, even from unknown individuals. Scientists know this condition as “criticality”: a minute perturbation in one part of a system can shift, or even crash, the entire system. They also know the impossibility of anticipating when, where, and how such disruptions may occur, and what the effects may be.
In Poland, Walesa was released from prison and the martial law was lifted. Then there was the
June 4 th incident in Tiananmen Square in Beijing. In East Germany, Erich Honecker, the long-time hard-line ruler, had produced an implausible 98.95 percent vote in favor of his government in the election held in May, 1989. East Germany television repeatedly ran a Beijing-produced documentary praising “the heroic response of the Chinese army and police to the perfidious inhumanity of the student demonstrators.” All of this seemed to suggest that Honecker had the German Democratic
Republic under firm control. East Germans were moving into Austria through Hungary. On October
7, 1989, Gorbachev arrived in East Berlin to celebrate the fortieth anniversary of East Germany. On
November 9, Egon Krenz, who had succeeded Honecker, relieved the mounting tension in East
Germany by relaxing – not eliminating – the rules restricting travel to the West. The word went out that the Berlin Wall was open. At last, the border guards at Bornholmer Strasse took it upon themselves to open the gates, and the ecstatic East Berliners flooded into West Berlin. In Moscow,
Gorbachev slept though the whole thing and heard about it the next morning. All that he could do was to pass words to the East German authorities that they had done the right thing. Next came the
German reunification. Bush and West Germany Chancellor Helmut Kohl successfully persuaded
Gorbachev that he had no choice but to accept a reunified Germany within the NATO alliance.
On August 18, 1991, Gorbachev was placed under house arrest. His own colleagues, convinced that his policies could only result in the disintegration of the Soviet Union, had decided to replace him.
Boris Yeltsin, by standing on a tank outside the Russian parliament building and announcing that the coup would not succeed, had ensured its failure. Subsequently, Yeltsin replaced Gorbachev as the dominant leader in Moscow.
He quickly abolished the Communist party of the Soviet Union. A Commonwealth of
Independent States was formed. On December 25, 1991, the last leader of the Soviet Union called the
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president of the United States to wish him a merry Christmas, transferred to Yeltsin the codes needed to launch a nuclear attack, and reached for the pen with which he would sign the decree that officially terminated the existence of the U.S.S.R. In his farewell address, Gorbachev wearily said: “An end has been put to the “Cold War,” the arms race, and the insane militarization of our country, which crippled our economy, distorted our thinking, and undermined our morals. The threat of a world war is no more.”
Professor Gaddis commented in his book, The Cold War , as follows:
Gorbachev was never a leader in the manner of Vaclav Havel, John Paul II, Deng Xiaoping,
Margaret Thatcher, Ronald Reagan, and Lech Walesa – even Boris Yeltsin. They all had destinations in mind and maps for reaching them. Gorbachev dithered in contradictions without resolving them. The largest was this: he wanted to save socialism, but he would not use force to do so. It was his particular misfortune that these goals were incompatible – he could not achieve one without abandoning the other. And so, in the end, he gave up an ideology, an empire, and his own country, in preference to using force. He chose love over fear, violating Machiavelli’s advice for princes and thereby ensuring that he ceased to be one.” 5
The Cold War has ended. Communism has disappeared in Europe. It would appear that China is the left-over business from the Cold War. So some Americans hope for a regime change in the PRC.
In the language of President Reagan, the Soviet Union was an evil empire. Détente could not work.
The Cold War could not come into an end unless and until the Soviet Union ceased to be an evil empire. Is the People’s Republic of China an evil empire?
There are two ways to look at this question. Figuratively, there are two ways to look at China: one with a zoom lens and the other with a prism. With a zoom lens, one can magnify the imperfections or even the ugliness of China. There is still rampant corruption. There are still serious violations of human rights. There is still limited room for personal freedom. With a zoom lens, we may see details while forgetting the overall picture. The PRC has been improving in many ways since its foundation in 1949. The zoom lens should be used more flexibly to bring into focus details as well as the overall picture.
The other way of looking at China is through the prism. As most people know, the prism can break a ray of sunlight into a spectrum of different colors. Using a prism to look at China, one can discover differences and shades of colors. To the impartial observer, China is not necessarily ugly.
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As the prism refracts a ray of sunlight into seven colors, the impartial observer will see differences and mixes interwoven. It is this China which is a better description of what China is today.
China is not an evil empire. It just seeks to restore its former glory as a culture and as a civilization. It is not much interested in confronting the West and, in particular, the United States in the globe. Americans may be interested in having another century of Pax Americana . China is not an evil empire. Therefore, it will not be following the footsteps of the Soviet Union.
From the very beginning, Josip Broz Tits of Yugoslavia, Jawaharlal Nehru of India, and Zhou
Enlai of China have sought a non-alignment policy, free from the dominance of either the Soviet
Union or the United States. China was not an imperialist empire with neighboring countries taking its orders. So, it is wiser to view China with a prism than with a zoom lens. If China is not an evil empire, Americans should enjoy better relationships with the Chinese.
In short, the Cold War has ended. There should be no reason for Americans to think of China as the left-over business from the Cold War. The Pacific is not a region where America would have to contest with China in terms of military might, economic power, and political preferences. By all means, use the prism and not just the zoom lens in examining the present-day China.
Following the 1991 Gulf War, President George H. W. Bush made good on his promise to bring peace to the troublesome Middle East. In October 1991, the United States and the Soviet Union cohosted an historic meeting in Madrid, Spain with attendants from Israel, Palestine, and several
European and Arab nations. It was the first time in recent history when senior Israeli and Palestinian leads met face-to-face and conducted constructive talks. James Baker, the talented Secretary of State from America, stressed that peace should come directly from these Middle East leaders and that the
United States would not be pulling strings as if these leaders were actors in a play. Baker let it be known that any peace that emerged would have to ensure both Israeli security and some measure of
Palestinian self-determination.
Earlier, a Norwegian organization had conducted a research project on the living conditions in the
Palestinian territories. Through this project, Norwegian investigators were able to cultivate extensive contacts with both Palestinians and Israelis. The Norwegians were able to gain the trust and respect of the Israelis in part because Norway was not a member of the European Union, which, to Israelis, had a bias toward Palestinians. Through secret talks, the Norwegians were able to secure some kind of
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agreement between Israeli and Palestinian officials to recognize the rights of both peoples to exist and to construct an initial agreement toward the resolution of their conflicts. However, the mutual distrust between these two parties necessarily entailed the endorsement and involvement of the United States.
Thus the Oslo process had become known as the Oslo Accords.
6
Soon after Clinton became president in early 1993, he dispatched his secretary of state, Warren
Christopher, and special Middle East coordinator Dennis Ross to the Middle East to follow up the work that had begun under the previous administration. In August, the parties agreed to a
“Declaration of Principles,” which aimed at a two-state solution. This declaration was carefully constructed in such a way that there would be mutual recognition of the rights to exist and that Israel would return some of the land it won in the various wars in exchange for peace.
These initial steps toward peace were made possible because of a number of events that took place in Europe and the Middle East. First of all, the Soviet Union disintegrated in late 1992.
Hitherto, the Soviet Union had supplied arms and money to the Palestinians. This source was cut off with the collapse of the Soviet Union. Second, because the PLO had supported Saddam Hussein in the first Gulf War, it lost financial and moral support from Kuwait and Saudi Arabia. On his part,
Israel’s prime minister Rabin had come to the conclusion that the PLO was pivotal to any stable
Palestinian government that would come into existence as a result of the ongoing peace talks. Rabin also understood that Washington’s involvement was absolutely necessary for the implementation of any peace deal. While neither side trusted each other, they each would trust commitments the parties made to the United States. In other words, the Declaration of Principles had to be signed before the
American government and the American public. In addition, Rabin knew he would need highly visible and consistently strong support for any negotiations with the PLO. Hence, the United States became the crucial and indispensable peacemaker, fulfilling what President Clinton constantly reminded his fellow countrymen and foreigners that the United States was the indispensable nation in the contemporary world.
President Clinton understood both Rabin and Arafat craved the credibility that entering the White
House could give them. Thereby, he offered to host a gala signing ceremony of the Declaration of
Principles at the White House. On September 13, 1993, the world witnessed the display of the power and influence of the indispensable nation as President Clinton held hands with the two reluctant warriors, Yitzak Rabin and PLO chairman Yasir Arafat and spoke to them with the following words:
“Go in peace. Go as peacemakers.” 7
Subsequently, on May 4, 1994, Israelis and Palestinians signed the Gaza-Jericho Agreement, also known as the Cairo Accord. This led to the establishment of the Palestinian Authority (PA) under the
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unchallenged leadership of Yasir Arafat. In July 1994, President Clinton, now a stateman on the world stage rather than just another domestic politician, invited King Hussein of Jordan and Prime
Minister Rabin to the White House to sign the Washington Declaration, in which both leaders pledged their wholehearted commitment to peace in the region. The 1994 Nobel Prize in peace was awarded to Prime Minister Rabin, Foreign Minister Shimon Peres, and PLO Chairman Yasir Arafat.
Unfortunately, Rabin did not live long to see the realization of his dreams. On November 4, 1995,
Rabin spoke to tens of thousands of people gathered in Tel Aviv’s Square of the Kings of Israel. He passionately addressed the crowd with the following words, “there is now a chance for peace, a great chance, and we must take advantage of it … I have always believed that the majority of the people want peace and are ready to take a chance for peace.” 8 Tragically, these would be the final words that
Rabin spoke in public. As Rabin took departure from the crowd, a Jewish fundamentalist law student,
Yigal Amir, walked up to Rabin from behind and shot him several times. The far right in Israel opposed Rabin’s efforts to make peace with the Palestinians. With the death of Rabin, the Oslo peace process came to a halt and Rabin’s assassination reminded one of the Gandhi’s assassination in India almost fifty years ago.
During fifteen intense days in July 2000, Clinton tried to re-open negotiation talks between Israeli prime minister Barak and PLO chairman Arafat at Camp David. Earlier, in 1978 President Jimmy
Carter had successfully brought about negotiation talks between Israel and Egypt at Camp David.
With the support of his new secretary of state, Albright and Dennis Ross, Clinton took the unprecedented step of putting forward his own concepts and proposals, although he did so only orally.
Clinton had to shuttle between the two leaders as Barak insisted not to negotiate personally with
Arafat. Despite the great efforts exerted by Clinton and his team, the talks ended without any agreement.
The untimely death of Rabin on November 4, 1995 unquestionably dealt a severe blow to the peace talks. Had he lived on, the Oslo process might see the end of hostilities in the Middle East.
Rabin had the vision, political courage, and will to press for progress on both sides. Also to blame was the lack of involvement of the Arab states to push Arafat into making concessions in order to reach final peace agreements.
In April 2004, Israel prime minister Ariel Sharon unilaterally declared that Israel would no longer wait for the Palestinians to negotiate a peace settlement. Instead, he declared that Israel would, on its own, withdraw from Gaza and retain some of the West bank settlements. He also made it explicit that
Palestinian refugees would no longer have the right to return to Israel. In the end, the United States would have to see how it would again exercise its role as the indispensable nation in the world.
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Turning around to Europe, the United States was presented a rare opportunity to play a peacemaking role in Northern Ireland. For a long time, governments on both sides of the Atlantic had always believed that the disputes in Northern Ireland were best left to London and Dublin.
In Northern Ireland, the fighting parties finally reached an agreement on broad principles of cooperation. Since coming into power, the British prime minister John Major took a more moderate approach to Northern Ireland than his predecessor, Margaret Thatcher. He believed that his Irish counterpart, Albert Reynolds, was a partner with whom he could work toward a solution to the bloody conflict in Northern Ireland. On December 15, 1993, Major and Reynolds put forward a “Joint
Declaration,” in which the British government committed itself to abide by the wishes of the majority of the citizens of the North.
The new British recognition of the right of self-determination for the citizens of Northern Ireland addressed the key demand of the predominantly Catholic Nationalist community, namely that
Northern Ireland could join Ireland. Equally, the predominantly Protestant Unionist community insisted there would be no change in the status without the consent of the majority, which happened to be Unionist.
Significantly, by addressing the key concerns and main complaints of the Catholic Nationalist community, the Joint Declaration weakened, if not put off, the argument of the IRA (Irish Republican
Army) that violence and terrorism were the only means that could achieve unification with Ireland.
The Joint Declaration also lent support to the more moderate parties, such as the Nationalist Party, the
Social Democratic and Labor Party, which opposed violence of any kind. Thus, the door for peace was finally opened. However, as with the Middle East Declaration of Principles, the parties could only negotiate if a third party acceptable to all would join the process to bridge the gap of distrust.
Once again, the indispensable nation would be involved as an intermediary among the parties.
The endless conflicts in Northern Ireland had produced a depressed economy with a high unemployment rate. In 1988, unemployment in Northern Ireland reached 17.9 percent compared with
9.3 percent in the rest of the United Kingdom. Clinton saw that a way to settle the disputes was to bring trade and investment into Northern Island. Thereby, he appointed former Senator George
Mitchell in 1995 as the special advisor to the president and secretary of state for economic initiatives in Northern Ireland. In due course, Mitchell ultimately became the key mediator in the peace process.
His years of experience as Senate majority leader had instilled in him the patience and vision necessary to bring the negotiations to fruition. After making great efforts, Mitchell finally succeeded in bringing about a historical peace agreement among the parties on Good Friday, April 10, 1998. As
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chair of the talks, Mitchell had summoned his skills in keeping negotiation ongoing despite their mutual animosity and distrust. When John Hume and David Trimble received the Nobel Prize in peace in 1998 for the agreement, many felt that George Mitchell should be honored as well.
President Clinton’s personal commitment to Northern Ireland was vital to the negotiation process.
In a speech delivered in 2000, Irish prime minister Berlie Ahern told President Clinton that “the success of the peace process would not have been possible without you.” The role of the United
States was critical in building confidence and trust among the parties. While neither side trusted any commitments made to each other, any commitment made to the United States, especially the president, could be trusted. The indispensable nation had proved once again that the political, economic, and moral power of the United States was instrumental in bringing peace to other parts of the world.
Surely, the United States has its own interests. Regional instability could widen into major conflicts and could broaden into other regions. The United States does not want to be seen as merely exercising its might in the display of morality of power. It also wants to be seen as exercising the power of morality. The above two examples well illustrate the contributions that could be made by the United States to world peace. Maybe, Americans may rethink how to bring peace to the unsettled disputes in the Taiwan Strait. The United States can play a much desired role in the process of
Chinese reunification. This will greatly improve the Sino-American relationship and will lead to long-lasting peace and sustained economic growth in Asia Pacific.
Sometimes, it has been said that great men make history. Sometimes, it is the other way around.
History makes certain individuals great. William Shakespeare once wrote: “There is a tide in the affairs of man, which taken at the flood leads on to fortune; omitted, all the voyages of their life are bound in shadows and miseries. On such a full sea are we now afloat, and we must take the current when it serves, or lose our ventures.” American leaders are confronted with a choice. They can continue to depict the People’s Republic of China as not quite holy, or they can make history by writing a new chapter in world history. The choice is open.
In the meantime, both as a culture and as a civilization, China can also contribute to a more friendly and peaceful relationship between Christianity and Islam as discussed below.
When America decided to ratchet up the pressure on North Korea by declaring that North Korea was part of “the axis of evil,” the Chinese probably anticipated that given the difficult and
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unpredictable nature of the North Korean regime, America would eventually seek China’s assistance to persuade the North Korean leader to be more cooperative. That is exactly what happened. After releasing a lot of verbal bluster on North Korea, America discovered that it had few real levers to exert pressure. Bilateral economic sanctions would not work because North Korea had already isolated itself. Nor was military invasion feasible. The price that South Korea, and possibly Japan, would have to pay from a military conflict would have been too high. The North Korean economy has been badly crippled but despite this, the North Korean military machine remains formidable.
Hence when America needed to assert influence over North Korea, only one country had “persuasive” powers: China. America asked for help and China responded positively. Indeed, at one stage, in a powerful message of its serious intentions, China, virtually the sole supplier of oil to North Korea, cut off its oil supplies to North Korea for a few days.
The North Korean issue is politically complex. It has many dimensions. But when America decided that the denuclearization of the Korean peninsula was a national priority, it also created a certain degree of dependence on China. And it serves Chinese interests to increase, not reduce, such
American dependence on China. By assisting America, China can restrain America from exerting pressure on China in the areas of China’s own political vulnerabilities.
Iraq and North Korea are important. But they are dwarfed by another issue where eventually
China can be very helpful to America’s interests. In this one area, China’s help can reach metaphysical proportions: its relations with the Islamic World. Given the deep and growing divide between Americans and Islam (despite the appearance of good ties between America and some
Islamic governments), Americans cannot walk into the Islamic world now and be perceived as a positive agent for change. The Islamic world has become very suspicious of America. By contrast, the Islamic world has no deep historical suspicion of China. There has never been a deep divide between China and Islam, despite the enormous differences in culture. There have been many encounters between China and Islam but the contacts have not been deep. Even though China has a sizeable Muslim population of its own (which has been restive from time to time), this Muslim minority has not dictated the terms of China’s engagement with the Islamic world. As a consequence, without any historical baggage in their relationship (unlike, say, Islam with Christianity and the
Crusades), there is no natural antipathy between Islam and China. Instead, there has long been admiration of the great Chinese civilization within the Islamic world. In his book, Beyond the Age of
Innocence: Rebuilding Trust Between America and the World , Kishore Mahbubani, former
Singapore’s Ambassador to the United Nations and currently Dean of the Lee Kuan Yew School of
Public Policy in Singapore, makes the following remarks:
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If China successfully modernizes, its success may have a powerful ripple effect throughout the Islamic world. Many Islamic thinkers are reluctant to use the West as a model for Islam to emulate (even though, in private, many admit that they must match the West in education and science and technology). But these same thinkers would have no hesitation to use China as a positive example. China’s success could lead to its becoming a beacon of hope, with
Islamic scholars visiting Beijing to learn from Chinese civilization, as indeed they have done in centuries past. The Prophet Mohamed once said: “Seek knowledge, even into China. That is the duty for every Muslim.”
One of America’s greatest strength is its spirit of pragmatism. But this pragmatism is evident mostly in its day-to-day work, at the micro level. Americans should consider being a little less ideological and a little more pragmatic at a much higher level. Instead of viewing China’s rise as a threat to America and its long-term interests, Americans should consider the possibility that it may have a major and positive catalytic effect on the rest of the world’s population, especially the Islamic world. America’s short-term geopolitical interest may not be served by a resurgent China. But
America’s stake in a more peaceful global community may be well served by a successful China providing a beacon of hope for the Islamic world, especially since the United States has ruled itself out as a possible beacon-bearer. Is there sufficient wisdom within the American body politic to both see and realize this? And is the American political system sophisticated enough to balance short-term against long-term interests?
America’s relations with the 1.2 billion Muslims in the world are clearly in trouble. If America is not careful, its relations with 1.3 billion Chinese could be heading in the same direction. In strategic terms, it would be unwise for the 290 million Americans to have a difficult relationship simultaneously with two groups of people who, combined, have a population almost ten times that of
America. Their minds enveloped in the current mood of hubris, it is difficult for some key American thinkers to accept the suggestion that a little bit of prudence should be injected into American policies.
America has been imprudent in its policies toward China. It has used China when it suited
American geopolitical interests and ditched it when it no longer served American interests. Since the end of the Cold War, as part of the post-Cold War hubris, America has presumed that a young nation just over two centuries old could remake a five-thousand-year-old civilization in its image. In the
1990s, China was beginning to enter into one of its most peaceful and prosperous periods, after more than a century of civil wars, foreign humiliations, internal convulsions, and wars at its doorstep. It was precisely at the moment when the Chinese felt that they were standing up with dignity that
America noisily discovered that China’s human rights record was blemished. Hence America decided to portray China as an unfortunate relic of the Soviet Communist era, one that would be washed away
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by the new tide of freedom and democracy spilling all over the world. At dinner parties, thoughtful
Americans could only ask: “How long will this Chinese Communist regime last?” When thoughtful
Chinese met, the main question they asked was, “How long can we prolong this wonderful period of peace and prosperity we are finally enjoying?” When those thoughtful Americans saw the Chinese government on the verge of extinction, the Chinese saw themselves as finally having surfed the tide of history that would restore China to its rightful place in the first league of nations.
The first source of misunderstanding between America and China will derive from their different national experiences. America, too, is culture-bound. It looks at the future through the prism of its own history. Since it emerged on the world stage, all the geopolitical rules of engagement and conflict between naval or friendly powers were set by European thinkers. World War I, World War II, and the Cold War were essentially Western geopolitical games, even though some of the players, like
Japan, were non-Western. Indeed, unwittingly, Japan may have contributed to some of the misunderstanding that surrounds the rise of China. From the very first days of the Meiji restoration in
1868, when Japan decided to modernize and develop itself, it had decided that the road to success was to emulate Western societies and be accepted by the Western club. Japan took on both the best and worst practices. It developed a first-rate economy, not once but twice in the Twentieth Century. But as it succeeded, it copied the European imperialist dynamic of expanding militarily and occupying weaker neighboring states. After having been defeated in World War II, it again obeyed faithfully the post-World War II rules of the game, developed a first-world economy and happily joined the powerful Western clubs, becoming the first Asian country to join groups like the Organization for
Economic Cooperation and Development (OECD) and G7. In doing so, Japan created a natural expectation in the West that any subsequent successful non-Western country would follow the path established and used not once but twice by Japan.
China will not. Superficially, China will behave like any other nation-state, joining in and participating in various multinational forms. But if China continues to succeed and develop its strength and emerges as a real great power, it will fall back on its own distinct history in determining the role it will carve out for itself in the world. For such a large country as China, it is surprising that
China has a minimal imperial tradition outside its borders. Throughout the period of the European
Dark Ages, China became powerful for a prolonged period of time. Indeed the Chinese civilization had reached a new peak as early as the eighth century A.D. with the Tang Dynasty. In all these periods, China could have easily expanded its empire beyond its borders but it expressed no desire to do so. It was happy to receive tributes from its neighbors and be acknowledged as “The Middle
Kingdom” or, implicitly, as the center of the universe.
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Unlike Japan in the early twentieth century, China will feel a lesser compulsion to expand militarily to demonstrate its power. It will not compete with America in developing a huge navy with nuclear aircraft carriers to project its military power to every corner of the world. The Chinese naval force has been discussed briefly in Chapter 2. After the military humiliations of the past two centuries,
China will certainly develop and maintain a strong military capacity to defend itself. It will certainly acquire a nuclear deterrence with sophisticated missile delivery systems. But when its power grows, it will be confident that other countries, beginning with Asian countries on its periphery, will begin to acknowledge China once more as “The Middle Kingdom.” When that happens, China will feel that it has once again arrived. The envoys arriving in Beijing bearing political and psychological tributes will mark the restoration of China’s place in the world.
China will contribute to world peace and prosperity just as America has contributed to world peace and prosperity. Perhaps it is time for Americans to rethink their foreign policies toward China.
Certainly, Americans can contribute to the reunification of China, hence reducing the tension over the
Taiwan Strait. The Chinese people in Taiwan have set too many preconditions for talks for reunification of China. The People’s Republic of China has to become democratic; China’s per capita income has to approach, if not match, that of Taiwan. Chen Shui-bian has categorically stated: “The
One China principle does not allow room for individual interpretation. So to accept the ‘One China’ principle is to give up on Taiwan’s sovereignty and turn Taiwan into a part of China, into a local government of the PRC, or its special administrative region. This is not reconciliation; this is not dialogue; this is surrender.”
In the biblical language, preconditions are images, and images are manifestations of unlove.
Where there is no love, there is death. That is why the Taiwan problem is a dead lock. Americans can help break this deadlock. President John F. Kennedy once said: “Problems are created by men; therefore, they can be solved by men.”
Americans can speed up the process of Chinese reunification, thus winning the hearts and minds of the Chinese people, and the Chinese will, in reciprocity, try to win the hearts and minds of the
American people. Blessed are the peacemakers for they shall be called sons of God (Matt 5:9).
Many Americans are uneasy about a communist China absorbing a free, democratic and prosperous Taiwan. They think that Americans have once lost China to Mao Zedong and the People’s
Liberation Army. They should not take the risk of losing “another” China to the Chinese communists.
However, times have changed. As pointed out in Chapter 9, China is trying to adopt a Third Way between free-market capitalism and socialism. It has enough problems on hand than to meddle in the affairs of the people in Taiwan, much less to challenge American might in other parts of the world. A
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civilization that has never developed a sense of imperialism and colonialism will find enough problems in developing into a democratic federation and a world-class economy. These are the greatest wishes of this generation of Chinese leaders both within and without the Chinese Communist
Party.
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America is a mature economy. To give an indication of such maturity, let us consider the following figures. There are 31 million more registered cars than licensed drivers in the United States.
With that surplus alone, the United States could supply every man, woman, and child in Canada with his or her own car. There are 15 million vacant homes in the United States. With that surplus alone, the United States could house virtually every family in Australia.
1
There are also limits to growth for corporations. Consider, for example, General Electric. Here is a company that has a history of acquiring 100 or more companies in recent years. Why? Because it takes an ever-increasing amount of new revenue to push General Electric’s top line ever upward. As internal businesses mature, an increasing amount of revenue growth at the $140 billion industrial giant must come from acquired businesses, and a $1 billion acquisition today barely has an impact on
General Electric’s top line. However, this wasn’t always the case.
Throughout the 1970s, General Electric experienced outstanding revenue growth, averaging more than 10 percent a year. The 1980s, however, were far less kind to General Electric’s top line with an average rate of growth of just over 3 percent. General Electric nearly tripled its revenue from 1970 to
1979, yet was only able to muster a 25 percent increase in sales from 1980 to 1989. Even more striking is the fact that a much bigger General Electric more than tripled its revenues in the 1990s, topping $100 billion for the first time in 1998. General Electric’s revenue grew from $33 billion in
1970 to $111 billion in 1999.
2
After disappointing sales in the 1980s, General Electric became an acquisitions machine, gobbling up more than 500 companies over the course of Jack Welch’s final five years as chairman. After the departure of Jack Welch upon his retirement, GE found it difficult to continue a policy of acquisitions simply because there are now fewer targets for acquisitions. As a result, GE falls back on a more mature rate of growth.
There is little doubt that American corporations are finding it more and more difficult to generate growth in their revenues. Since the turn of the twenty-first century, revenues at quite a number of
American corporations have stopped growing. If revenues stop growing, so will the earnings. The
Wall Street is not so much interested in revenues as in earnings. To please the Wall Street, American
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corporations have been cutting costs since the 1980s. However, there is a limit to how much cost can be cut.
Folklore suggests that if you place a frog in a pan of water on a stove and heat it gently and slowly, the slow warming will not alert the frog but will make it sleepy and content. Eventually, it will cook itself to death with no reaction at all. Since the 1980s, the rate of growth in revenues of many American corporations has dropped while there is still growth in revenues. For example, during
Period 1 of 10 years, the revenues of a corporation may be growing from $100 million to $200 million.
During Period 2 of another 10 years, the revenues may grow from $200 million to $250 million and during Period 3 of still another ten years, the revenues may grow from $250 million to $280 million.
Throughout these three periods, there is growth of revenues, but the rate of growth in revenues has slowed down. Just as in the case of the frog cooking itself to death, many corporations may still cheer themselves of the continuous growth in their revenue. They are, however, lulling themselves into a false sense of security.
In fact, the more success a corporation is, the more difficult it is to continually outperform itself.
For instance, take the case of Wal-Mart. Here is a company with sales over a quarter of a trillion dollars a year. It is approaching the size of Mexico’s GDP. There is a limit to how much more Wal-
Mart can expand in the United States. Surely enough, Wal-Mart tries to expand internationally, but many foreign retailers have learnt lessons from Wal-Mart, and the competition overseas is intense as well. Thus, Wal-Mart has to consider acquisitions in international markets to push up its revenues.
Hence, with a steady drop in the rate of growth in revenues, many corporations have resorted to cost-cutting to push earnings up. When they come to the limit of cost-cutting, they resort to acquisitions. As a result, inorganic growth (acquisitions) of corporations has far outpaced organic growth. To put things in perspective, the DOW 30 has increased revenues by $850 billion from 1990 to 2000. General Electric alone accounted for more than $100 billion of that increase.
Nowadays, American corporations are finding it difficult to grow by acquisitions as well. Part of the reason is that there are no longer so many attractive targets for acquisitions. Second, the stock market has dropped so that acquisitions have become much more expensive. For example, before the burst of the Internet Bubble, Cisco could acquire tens of smaller high-tech companies with its shares, which were rising rapidly in a frenzied stock market, namely NASDAQ. However, even for hightech firms, they face the problem of revenue growth and the more subtle problem of a decreasing rate of revenue growth.
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GE is now turning to innovation as a way to generate growth. But that involves nothing less than a change in corporate culture. During the reign of Jack Welch, GE’s executives were rated and classified into three categories. The bottom category, constituting about 10 percent of GE’s executives, would be asked to leave GE. Thus, many GE executives had become rather conservative and hesitated to take risks. Failure in new ventures or innovative practices might land them in the bottom ten percent and hence would force them to leave GE.
In his insightful book, The Death of Demand: Finding Growth in A Saturated Global Economy ,
Tom Osenton writes: 3
In many ways, the erosion of the rate of revenue growth since 1980 has occurred so slowly that most corporations have focused on the continuous upward movement of total revenue, effectively lulling themselves into a false sense of security. Unfortunately, these changes were so subtle that many corporations never saw them coming while others pushed forward, cutting costs and virtually abandoning investments in R&D.
Yet, nothing could prevent or reverse the downward trend of the rate of revenue growth.
Certainly, corporations continued to grow, but at much slower rates – the slowest in history.
Even the youngest of the major sectors has already seen its best days. Technology, largely driven by the introduction of the personal computer, truly took off in the late 1970s and early 1980s. An example is Microsoft. Although Microsoft continued to grow at healthy rates through the 1990s, its rate of growth was already in decline, starting the decade at 47.3 percent in 1990 and beginning the next decade at almost one-third that rate in 2000. However, since the turn of the 21 st Century,
Microsoft’s annual revenue growth rate has begun to resemble more mortal corporations with growth rates in the 12 percent range.
The Internet became a more accessible and user-friendly communication tool with the advent of the World Wide Web. In combination with e-mail, the web has become one of the most powerful and pervasive innovations in history coming on the heels of the worldwide adoption of the personal computer. The dotcom companies of the late 1990s thought that they had found technology’s Holy
Grail – the secret to technology’s revenue-generating power. However, that hope quickly faded when revenues consistently fell short of expenses in thousands of efforts that offered impractical and unprofitable value propositions.
There are people who point to the possibility of new technologies arising over the horizon. Such technologies would propel the American economy to new heights. Examples are fuel cells,
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biotechnology and nanotechnology. Fuel cells as an alternative to oil in driving automobiles are under serious research. However, the tangible results may still be decades off. Certainly, there is great hope around the health care sector, especially in the pharmaceutical and biotechnology industries as they search for and deliver new solutions to medical problems through the introduction of new categories of drugs and biotech innovations. As a matter of fact, the largest 20 public biotechnology firms collectively are about the same size as the Coca-Cola Company – around $20 billion. The top 20 biotechnology firms would have to quintuple in size to reach 1 percent of the U.S.
GDP.
Although pharmaceuticals and biotechnology are strong growth engines within the health care sector, it is extraordinarily difficult for just one or two dynamically growing industries to have an impact on an economy that has grown so large.
Nanotechnology is a catchall phrase used to describe building up circuits and devices atom by atom. There have been plenty of demonstrations at the laboratory level of atom-by-atom manipulation. It is not obvious, though, what can be scaled up. The uncertainty factor is high – one of the products in the pipeline right now could turn out to be a big winner, or it could take decades.
The pay-off from nanotech could be enormous, however. What is clear is that nanotechnology represents the next big breakthrough in manufacturing technology. The ability to make things atom by atom, conceivably by special order from each customer, would be a leap forward comparable to that of the assembly production line. Outside of semiconductors, the production technology in most of manufacturing – the assembly line – is a mature technology. Henry Ford could walk into any car assembly factory today and nod his head. In fact, manufacturing production technology hasn’t changed much.
The world is in a fundamentally different place than it was when Professor Alfred Marshall of
Cambridge University first theorized about the issues of demand and supply. It must have been inconceivable for Professor Marshall to consider that some day there would be more cars than people to drive them, more houses than people to live in them. When he wrote his opus magnum Principles of Economics in 1890, it must have been impossible for him to imagine that so many people would now have access to such abundance of goods and services.
However, all these developments are still under way. It is simply not sure when they can be fully commercialized and have a significant impact on the American economy. In the meantime, it is probably advisable to consider what China can offer to American business, big or small.
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For most of recorded history, China was the world’s largest economy. Until the end of the fifteenth century, it was by far the leader in technology and had the highest per capita GDP on the planet. Europe overtook China in per capita GDP by about 1600, but China remained the world’s largest economy until well into the nineteenth century. As late as 1820, the Middle Kingdom accounted for nearly a third of global GDP. By 1950, however, that had shrunk to less than 5 percent and China’s per capita GDP was one of the lowest in the world.
4
With the founding of the People’s Republic on October 1, 1950, Mao Zedong was committed to economic growth. That commitment was what was behind the Great Leap Forward that took place at the end of 1950s. With the turmoil during the Great Leap Forward and the Cultural Revolution,
Chinese economy had slowed down from time to time. But during the reign of Mao Zedong (1950 –
1976), China’s economy registered an average annual growth rate of 4.4 percent. Surely enough, there was much inefficiency in the Chinese economy when Deng Xiaoping came to power after the death of Mao. However, Deng did have a sizeable economy to build upon with his Open Door Policy and economic reform. Deng knew that Japan and other East Asian countries had grown much faster than China. He was determined to have China growing as fast as, if not faster than, these economies.
Shortly after the June 4 Incident at Tiananmen Square, Deng was asked why he did not allow more political reform. Deng said he wanted a fast growth rate for China’s economy. Fast growth would definitely introduce some political instability as well as social unrest. To reduce such possibilities, he was determined to have political stability even at high costs as the world witnessed the events that took place at Tiananmen Square on June 4, 1989.
Today, a true great leap forward is under way in China, powered by investment in manufacturing.
At over 40 percent of GDP, China has one of the world’s highest savings rates. The heavy flow of foreign investment into China pales next to the investment the China themselves are making. Indeed, there is evidence that some of the “foreign” investment is really of domestic origin. Because foreign investment sometimes receives special benefits, canny Chinese send money to Hong Kong and overseas and then bring it back. Depending on the extent of that practice, domestic investment is anywhere from 42 to 45 percent of GDP, to which much be added the foreign investment. In total, the domestic plus foreign investment equals close to half of China’s GDP, and nearly all of it goes into new infrastructure and manufacturing plants. To put this figure in perspective, U.S. investment is 19 percent of GDP, Japan is 24.2 percent, and the European Union is 19.9 percent.
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The result has been an explosion of production that is bringing China back to its historic position as the world’s largest economy. Much of China’s production is of exports, which have increased eight fold to $400 billion since 1990. In 2004, China enjoyed an overall trade surplus of $70 billion.
In 2005, China slipped past Germany to become the world’s second largest exporter, just behind the
United States. Much of its production is also for a rapidly growing domestic market that is now the world’s largest for over one hundred products, including mobile phones, machine tools, cement, steel, and television sets. China has become the second largest national market for personal computers and will certainly pass the United States in this category in the not too distant future.
When China’s abundant labor force is combined with modern production technology and techniques, good transportation and communications infrastructure, a currency managed to remain weak against the dollar, and substantial tax and financial incentives, the total manufacturing package is extremely powerful. To this must also be added the potential economies of scale and long-term market opportunities of operating in what already is, or shortly will be, the world’s largest market for many products.
While most people only see the Chinese-made consumer products, the real battle now shaping up is in the $2 trillion market for industrial goods, from small motors to locomotives. Until now, the first world’s technological edge and established networks of high quality suppliers have kept production of these products at home. But no more. Moving to China can save 20 – 35 percent, with no less of quality even in production of the most sophisticated equipment. Very significant is the fact that whereas Japan re-invented manufacturing during its rise to wealth, China is de-inventing manufacturing by removing capital and reintroducing skilled manual labor on the plant floor. Its low costs allow a rethink of every business process that, in addition to cost savings, enables less complexity in plant processes and a shorter time to market. Finally, there is the huge risk of opportunity loss by not being in China. To avoid that, business leaders will take risks to invest in
China that they wouldn’t consider in other markets such as Mexico, which lies close enough to the
United States. However, while China promises a lot, making money in China has not always been easy. This we shall address shortly.
What exactly is the size of the Chinese consumption market? In his book, The Rise of the
Chinese Consumer, Theory and Evidence , Jonathan Garner, a managing director of Credit Suisse First
Boston, wrote that he believed that the Chinese consumer would likely have displaced the U.S. consumer as the engine of growth in the global economy by 2014 5 . This will provide great opportunities and pose great challenges for consumer goods companies around the world. Garner believes that current US dollar comparisons lead to significant underestimate of the true size of
China’s economy. Presently, based on foreign exchange market rates, China's GDP ranks fourth in
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the world in current US dollar terms behind the United States, Japan and Germany. In PPP
(purchasing power parity) terms, China is already the second largest economy in the world and 62 percent of the size of the U.S. economy. PPP is a rate of exchange that accounts for price differences across countries, allowing international comparisons of real output and incomes. Proponents of using
PPP exchange rates argue that market foreign exchange rates distort the real size of GDP particularly if the PPP rates differs substantially from the market exchange rates. In China, these two rates are greatly different.
Given China’s growth rate, what can we say about the Chinese consumption market in then next
10 years. In PPP terms, the Chinese economy would be 90% of the size of the U.S. in ten years and will be almost six times the size of German economy.
6 The comparison will be less striking if we return to a market exchange rate. Nevertheless, even that gives us great uncertainties. From the prospective of a U.S.-based investor interested in US$ earnings and streams from investments in
Chinese or foreign companies servicing the China consumer market, much hinges on whether China revalues toward the PPP exchange-rate level. For more than a decade, China has maintained its currency at a level well below its PPP exchange rate.
Based on official exchange rates, we may underestimate the size of the consumption market in
China. For 2004, analysts at Credit Suisse First Boston estimated the US$ value of aggregate household consumer spending in China at US$704 billion. This represents only 9 percent of US consumer spending and 3 percent of global consumption spending. Thus currently, in US dollar terms,
Chinese consumers are only a marginal force in global consumption spending.
However, Garner believes that major undervaluation of the Renminbi versus its purchasing power parity (PPP) exchange rate means this figure significantly underestimates the underlying quantity of consumption activity within China. We may take a look at other statistics to check the accuracy of our earlier estimates of the Chinese consumer market. For example, China now consumes
40% of the world’s output of cement, 30% of cotton, 30% of its iron ore and 28% of its crude steel.
Based on a number of factors, such as continued GDP growth at 7% per annum and a steady 5.5% increase in the share of consumption spending within the GDP and a steady appreciation of the
Renminbi from 0.2 of this PPP level to 0.55, Garner concludes that the US$ value of consumption spending in China in 2014 will amount to US$3,726 billion (in 2000 US$). This will represent a compound annual growth rate (CAGR) of 18% for the 10-year period (2004-2014).
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Thus, based on his analysis, Garner projects that by 2014 the US$ value of consumption spending in China will represent 37.3% of US consumption spending and 10.5% of the estimated global
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consumption spending 8 . Incremental additional annual US$ consumption spend in China will most likely be larger than that in the US by this time. Garner estimates that China will have an incremental spend of US$ 524 billion (in 2004 US$) per annum ten years from now compared with the US$262 billion in the United States. The Chinese consumer is, therefore, likely to have displaced the US consumer as the engine of growth in the global economy.
Garner concludes that his projected path for Renminbi convergence with its PPP level implies that by 2014 China’s GDP economy would amount to US$ 7,508 billion (in 2004 US$), or 49% of the size of the US. This is, in the opinion of Garner, a more realistic scenario.
Thus, Garner concludes that the US$ size of China’s economy will almost quintuple via the combined effect of the underlying growth and revaluation over the next ten years. This would have major and profound implications for multinational corporations wishing to capitalize on the sustained economic growth in China in general and on the fast expansion of the Chinese consumption market in particular.
However, it still remains to be seen how multinational corporations can reap the harvest from the seeds they sowed. In a way, most multinationals have their China Dreams. But they should be aware of the rising sentiment of nationalism in China’s consumer culture. A fast expanding Chinese consumption market does not necessarily translate into streams of profits for multinational corporations.
For 700 years, ever since outsiders first started writing about the place, the western world has believed that there are untold riches to be garnered in China. In the thirteenth century, Marco Polo described the country with unrestrained awe; in the fifteenth century, Christopher Columbus set out from Europe to bring home its bounty; in the eighteenth century, the emergent British empire looked on China as the ultimate destination for its maritime trade routes. Over the past 150 years, with the rise of globalization, the belief in China’s unparalleled potential has taken on the order of an obsession. That obsession reached a peak in the last decade of the twentieth century and early twentyfirst century, when over US$600 billion of foreign capital flowed into the country. The investment was of a magnitude different from anything seen previously. Foreigners were, and still are, chasing the “China Dream.” 9
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During the last decade of the twentieth century, two things stood out: the Internet (a new dream) and China (the oldest dream of all). The Internet dream was punctured, with a loud bang, in 2000.
Despite rising numbers of Internet users – young and old – investors took fright at online business that ate cash instead of generating it. Traditional questions were finally raised about business plans, revenue sources and returns on investment. Introspection turned to panic, and, in one of the fastest acts of wealth destruction in human history, New York’s NASDAQ stockmarket – barometer of the global technology sector – shed 60 percent of its value in one year. Three trillion dollars of market capitalization – equivalent to over a third of the annual output of the American economy – was wiped out. Companies like Yahoo! lost nine-tenths of their value. Millions of Americans and Europeans who had invested in internet stocks – either directly or indirectly through their savings and pension schemes – saw the worth of their holdings decimated. Recession in the information technology economy threatened to trigger a broader global recession. Through all this, the China Dream survived relatively unscathed. Faith in China proved more resilient than commitment to one of the most remarkable, utilitarian technologies of human history. When foreign capital inflows to China threatened to fall in the late 1990s – because of slowing growth and poor investment returns – the government promised further deregulation and negotiated to join the World Trade Organization. At the point international investors began to dump internet stocks, there had been nothing companies could do to reassure them. China’s promises, on the other hand, held up.
In the following, we shall briefly talk about GM’s ventures in China.
The early 1990s saw great financial losses among giant American companies. IBM, reputably the most powerful corporation on earth at that time, reported loses that ran into billions of dollars. In
1993, such losses amounted to $3 billion. Lou Gerstner was brought in to replace Aker Jones to breathe new life to IBM. In 1991, General Motors (GM), the absolute epitome of American industry, posted a loss of $4.5 billion and was on the brink of bankruptcy. By the end of 1992, it would have lost $12 billion in its North American operations during the previous 36 months. The board saw no alternative but to reshuffle the team of top management. The international operations, headed by Jack
Smith in Europe, were doing relatively well. His star was rising fast. At the end 1991, he opened up a new front in his empire – a pick-up truck joint venture with Jinbei Automotive, the same company that was about to list its minibus unit via Brilliance China Automotive in the New York Stock
Exchange.
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In 1992, Jack Smith was appointed chief executive officer of GM. He immediately slashed costs and downsized that the GM staff. In 1993, he marvelously brought GM back to profitability in its
North American operations. But still he was thinking of bigger things for GM at least in its international operations. He was all the more convinced that GM should be a big operator in China.
In Shanghai, Volkswagen had been running a profitable operation and had set a sales target of
100,000 units for 1993. VW would be the first automaker to have real economies of scale in China and, in a heavily tariff-protected markets, its 1970 vintage sedans were selling for nearly $30,000 a piece. The Chinese partner in the Volkswagen joint venture in Shanghai was aggressively pushing the sales of these sedans through government action. As a result, VW was starting to make real money.
Jack Smith and his colleagues were determined that GM needed to make a full range of cars in China and rip the initiative from VW and Peugeot-Citrően. Jack Smith was the mastermind behind GM’s three-pronged grand strategy in building its presence in China. The joint venture in northeast China could be expanded to manufacture sport-utility vehicles as well as pick-ups. Another plant was needed to manufacture small cars under Adam Opel marque and another to make next generation minivans, or multi-purpose vehicles (MPVs), which were showing signs of rapid import growth. In all, GM wanted three Chinese car plants, able to make up to a million vehicles a year.
Like many global giants, GM was thinking big in China. Elsewhere, capacity planning would be done carefully and somewhat conservatively and usually subject to stringent financial exercises, such as capital budgeting processes. In China, many global giants, including GM, had abandoned their normal practices.
Jerry Wang, GM’s managing director for Asia, had total faith in the potential of the China market.
He told reporters in 1992: “China has 250 million families – just say 10 percent of them own a car – that’s 25 million already.” 10 Such projections were not uncommon in those days. Some people even went wilder. In 1994, the regional business magazine Asia Inc.
pointed out that at the German level of car ownership – one vehicle for every two people – the 571 million cars in China would be enough to fill a seven-lane highway stretching from the earth to the moon.
11 Little attention was paid to the fact that, at that time, China did not have the infrastructure to hold that many cars and trucks.
Subsequently, the Chinese government did invest heavily in infrastructure partly to develop regional economies and partly to keep full utilization of the industrial capacity of industries, such as steel and cement, in coastal areas. As a matter of fact, Chinese planners had targeted at the automotive industry as a pillar industry of the Chinese economy. They were led to the conclusion that the automotive industry would be vital to the successful growth of the Chinese economy because they were impressed by the key roles played by this industry in the United States, Japan, Germany and other advanced industrial countries. In fact, in the United States, the automotive industry and its related industries accounted for as much as 25 percent of America’s GDP. In Japan, it was lower but still highly
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significant. However, the Chinese government soon noticed that when Chinese households became wealthier, the first priority on their purchasing list was not automobiles but a home or an apartment.
Home ownership and home appliances were growing rapidly. Today, of the one hundred wealthiest persons in China, over half of them made their fortunes in property development. Chinese economic planners had to adjust their plans. Some foreign automakers also adjusted their plans for China but some still held onto their earlier visions and missions in China. It is under this consideration that we shall further examine GM’s grand strategy in China.
By late 1993, GM’s top management were about to commit GM to the China market to make it the number one automotive player in China. GM’s decision to make Shanghai its core investment was an easy one. In Shanghai, VW had already a highly successful joint venture with the Shanghai automotive manufacturer. That manufacturer could be a partner with GM as well. So GM was protected on the downside because of the experiences gained, and lessons learnt, by the Chinese from their joint venture with VW. Furthermore, as a prelude and a complement to his Southern Tour, Deng
Xiaoping had launched a campaign to restore the metropolis to its former commercial glory.
In February 1994, learning from the industrial structure of the Japanese automotive industry,
China’s State Planning Commission issued a policy paper which stated that the government would consolidate the nation’s automotive sector into just three or four main producers. No new foreign car plants have been licensed since 1992, and officials at the Ministry of Machine Building (MMI), in charge of the automotive sector, indicated that there would be at most three foreign car factories licensed before 2000. There would be a license for a luxury car and a license for a joint venture to make multi-purpose vehicles (MPVs) or “people carriers”. China was also interested in a subcompact, mass market car but had not yet decided how to proceed.
They were as many as two dozen foreign car makers wishing to enter the Chinese market. They were ready to do battle in order to win any of the three licenses. Louis Hughes, the head of international operations of GM who had moved up the administrative hierarchy of GM together with
Jack Smith, already believed that his company was close to clinching deals to manufacturer both luxury and compact cars at the end of 1993, but nothing had happened. The deals were not signed and the competition became all the more fierce as time progressed. Ford Motor, under Chairman Alex
Trotman, had also become fixated on China. Mr. Trotman lectured his board and journalists that there was much unsatisfied demand for cars and trucks outside western Europe, the United States and Japan.
He pointed out that 80 percent of the world’s population living in the less developed countries accounted just for 8 percent of global sales of cars and trucks. That was going to change, particularly in countries such as China, where per capita income was rising fast. Even Japanese car makers, which had spurned the idea of production in China in the 1980s, were excited about official projections of
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1.3 million car sales in 2000, more than four times the level of 1993. Toyota, Nissan, Honda,
Mitsubishi and Subaru were all seeking licenses with offers of the state-of-the-art technology and the latest car models.
The bidding for licenses came down basically to who would pay the most. And the most turned out to be a lot. Although Ford and Toyota were keenly interested in building a luxury car in Shanghai, and Daimler-Benz had been the early front runner, GM’s Jack Smith was determined to win at all costs. The GM CEO and his head of international operations had come to the conclusion that a partnership with Shanghai Automotive Industry Corporation was so valuable and so instrumental in their China grand strategy that they should pay whatever was required. China’s 1994 national automotive policy stated that component manufacture was the number one priority for the development of the industry. Earlier, several foreign auto-makers, such as VW, had complained about the quality of Chinese automotive components and had taken steps to build a network of closely coordinated suppliers of components. China did not just want to remain as an assembler of cars in joint venture deals. In response to Chinese concerns, GM’s largest component subsidiary, Delphi, started an investment process whereby it would commit over $350 million to fifteen factories producing automotive components over forty years. China also wanted to learn how to design cars as well. So GM once again complied with the Chinese wish. GM committed $40 million for a joint venture Technical Development Center for automotive design. GM also financed the GM
Technology Institute at Beijing’s Tsinghua University, which, in addition to its general reputation as the finest technical institution in China, had the best automotive engineering department in China, and the GM-Shanghai Jiaotong Powertrain Technology Institute at Shanghai’s Jiaotong University, which was the counterpart of Tsinghua University in southern China. GM spent so heavily on public relations, charitable donations, seminars and the like that in a poll which appeared in the Beijing
Youth Daily newspaper the company was ranked the best-known foreign auto-maker in China. This was no small accomplishment considering that European and Japanese cars were much more noticeable on the roads in China.
GM offered $750 million in cash for a 50 percent ownership of a joint venture with a capacity of only 100,000 vehicles during the initial stage of production. Asked why Ford, which had also spent millions of dollars on its lobbying campaign, always lagged behind GM in the bidding war, a senior
Chinese auto industry official told one journalist: “Mr. Jack Smith gave his personal promise and kept it that GM would provide China with whatever it wants.” However, Chinese planners did not want to rely too heavily on one single partner even when that partner was the leading automotive manufacturer in the world. Accordingly, Daimler-Benz beat out its rivals to make MPVs in south
China and the contract was inked in the presence of President Jiang Zemin and Chancellor Helmut
Kohl in July 1995.
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Soon after, GM closed the deal for the Shanghai car plant that had been a personal obsession for the company’s CEO, Jack Smith, for more than three years. Jack Smith saw himself the mastermind behind the global revival of GM and believed that he was a true successor to Alfred Sloan, Jr. when the latter built GM into the most famous and largest industrial concern in the world. A special, retrospective signing ceremony was laid on in the Great Hall of the People when Vice President of
United States Al Gore paid a state visit to China in March 1997.
In many developing countries, the experience of multinational automotive companies has been that private car ownership takes off when economies reached a level of around $6,000 per capita.
Incidentally, as pointed out previously, at or above $6,000 per capita income, a democratic regime has a good chance of survival if democracy is introduced in one way or another. At around $6,000 per capita income, the pooled resources of families make car ownership an affordable proposition.
Mexico and Hungary readily jump into the mind as examples of such developments. However, it was difficult to calculate the true per capita income of the Chinese population. If we make the calculation on the basis of foreign exchange market rates, China’s per capita GDP would not reach $6,000 until some time after 2020 even if China’s economy continued to expand at the so far sustainable rate of 8-
9 per cent annually. Yet in 1994, when annual sales of domestically made cars were 250,000, international car makers were planning to build 2.7 million units of annual manufacturing capacity.
As pointed out previously, global giants had lost their normal prudence in capacity planning when they were confronted with a continental China with a population of 1.3 billion consumers.
As it was, Chinese fears of losing the vast potential market to foreign interests meant that only 1.3 million units of capacity were licensed. Thomas McDaniel, GM’s Vice President for Asia Pacific operations, told reporters several times in 1993 that China would buy one million cars that year. He was relying on official statistics. As a matter of fact, the Chinese were not trying to distort the truth about the automotive industry in China. Many foreigners simply did not do their home work. What the Chinese meant by one million vehicles was that the figure included all kinds of vehicles that had wheels, such as passenger cars, trucks and also agricultural vehicles, namely the three-wheeled minitractors.
American CEOs tend to be very ambitious. Otherwise, they would not be able to justify the huge compensation packages given them by the broad of directors. CEOs have to display their self-worth by producing grand strategies. China, in the 1990s, was precisely the place for grand strategies. Jack
Smith saw growth opportunities in China that would translate into an increase of GM’s share of that
Asia car market from 2 percent to 10 percent.
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Understandably, corporate strategy in China was always made at the board and CEO level. Once made, there would be no coming back as the executives below had to execute whatever had been decided upon. At GM, Chief Executive Officer Jack Smith and head of international operations Louis
Hughes invested an enormous amount of personal time and credibility in their China adventure.
When the Peugeot joint venture in Guangzhou in southern China was close to insolvency in 1995, GM saw it not as evidence of the weakness of the markets but as a rare opportunity to acquire the elusive third plant that boardroom strategy said the company must have. By 1996, the Peugeot factory was selling less than a hundred cars and losing a million dollars a week. GM wanted it because Jack
Smith believed that if he had revived GM’s North American operations earlier, he too could breathe new life to a French joint venture. However, the deal was finalized by Japan’s Honda, which was eager to have a strong Chinese presence too. In fact, Honda promised to export the cars it would assemble with the-state-of-the-art technology. Of course, that promise could be altered in due course because both the Chinese and Japanese people generally made it a practice not to freeze agreements in a written contract. They are open to changes. When Honda had only a 4 percent market share in
China in recent years, that might change when the Honda plant turned to domestic sales as well.
Stan Clements, their second general manager of GM’s pick-up truck joint venture told reporters that theirs was a success story and should be presented as such. It was a curious remark to make about the manufacturing line that had produced a few hundred pick-up trucks in seven years. Mr.
Clements, however, insisted that GM did learn quite a lot about the Chinese market. The financial losses were perfectly justifiable in view of the lessons learnt. Undoubtedly he was more positive about his GM venture than executives of American Motors about their Beijing Jeep venture more than a decade ago.
By 2002, GM had invested more than $2 billion in auto parts and vehicle manufacturing businesses. With early 1990s forecasts of required China capacity of up to a million units, it was hardly a success story. GM insisted, however, it was making an operating profit at sales of 30,000 vehicles, but it was unsure whether such revenues were covering its vast cost of capital. There are two ways global giants could report operating profits in China. First, they could put aside the financial costs known as the cost of capital. Second, they could manipulate figures in their internal accounts of transfer costs. For example, certain costs actually incurred in the China operations could be transferred as expenses incurred at the headquarters. In certain situations, this practice is justifiable because, after all, the investment in China is a true investment in every sense. Nevertheless, GM’s forecasts of future sales in China remained optimistic. GM was laying the groundwork for future success.
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By 1999, the date offered by GM’s new CEO, Richard Wagoner, was 2020, by which time, he said, China would be the largest auto market in the world. In 2001, Wagoner readjusted the date to
2025. He was optimistic largely because car sales in China was picking up while global car sales were forecast to fall in both 2002 and 2003. But by this point his target had also been defined – for
China to exceed the current size of the U.S. market. As Richard Wagoner put it in June 2001: “This
China is a once-in-a-lifetime bet.”
There are three problems with such optimistic forecasts. First, as pointed out previously, affluent
Chinese go for home ownership first. Second, Chinese planners are more concerned with public transportation than with private car ownership because of traffic congestion problems and air pollution problems. Third, China is facing a shortage of oil as she is running out of oil and gas in the foreseeable future. Thus, China could not supply the fuel to cars running around her cities and on highways at a sufficiently low cost. If unchecked, the demand for oil could lend to geopolitical problems which can result in conflicts on a wide scale.
Nevertheless, the domestic market for automobiles is still steadily climbing. The average household penetration rate of ownership of private cars is estimated at 12%. In terms of major brands currently owned, foreign car companies and their joint venture brands have seized 65 percent of the private car market. Volkswagen (VW) has a 32%, larger than the sum of all domestic Chinese brands.
GM is number two with 10% and is very strong in Shanghai.
China remains a huge opportunity for all global automotive OEMs in the foreseeable future.
Disposable personal income growth is undoubtedly the single biggest driver for consumer spending and automotive demand. It is estimated that Chinese personal income will grow at the 8% – 10% annual rate for the next 10 – 20 years if there is no war with Taiwan and the U.S. and no collapse of the Chinese financial and banking systems.
As the Chinese economy continues to develop, we believe that the current annual level of car sales of around three sales per 1,000 of the population would grow toward a convergence with the statistics observed in other developing countries in Eastern Europe and Latin America, namely 10 –
12 units per 1,000 of the population. This projection suggests that the Chinese car market should quadruple in size in the medium term.
For GM, when China’s car sales were booming in 2002 and 2003, it was the best of times. GM made more profits in Asia than its entire North American operations. However, we should be more sophisticated about GM’s North American operations. Based on the Kaiser Family Foundation
Health Benefits surveys, average monthly employer contribution to health insurance premiums in the
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United States increased 240.7 percent during the period from 1998 to 2003. GM, the largest private purchaser of health care in the United States, spends $5 billion per year on healthcare (more than its spends on steel), two-thirds of which is for its 450,000 retirees. The price of an average GM vehicle assembled in the United States includes over $1,000 in costs related to the company’s healthcare burden.
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In 2004, the automotive market in China slowed down, in part due to the greater emphasis on sound credit analysis in the Chinese financial system and in part due to the introduction of their government’s austerity program. Thus, the 2004 slow down in automotive sales was seen to be a temporary phenomenon. However, the excess in supply is still a major problem as capacity plans are coming into their completion.
Only 3% of first-time car buyers in China are willing to pay a premium for foreign brand cars while 53% indicate that they will not. Interestingly enough, many Chinese car drivers regard VW,
GM and Honda as local brands but not Toyota. This reflects the image projected to the Chinese public when foreign brand vehicles assembled through joint venture agreements were sold under
Chinese names. In 2005, Chinese cars prices are some 15 – 20 percent above international prices.
There is room for price adjustment in the immediate and intermediate future. As a result, an aggressive pricing strategy still remains the most effective means to grab market shares and that brand recognition in China is somewhat distorted for many of the global giants even when their brands are well known outside of China.
Of the European original equipment manufactures, only VW has a very significant position in the
Chinese market. This is due, in part, to VW’s first move into the China market with a consistent strategy that called for full attention to assembling, distribution and after-sales services. Also in a consistent way, VW upgraded the capabilities of the Chinese component suppliers with capital, technology and training. VW’s market share has dropped from over 50 percent five years ago to under 30 percent but it still enjoys a comfortable position by introducing new models and sharing technology with Chinese partners, thus gaining the hearts and minds of the Chinese partners and the
Chinese public. VW is now well positioned in the Chinese market not only as an assembler of existing and new models but also as a majority shareholder in joint ventures that are making major components such as engines and transmissions.
Ford Motor did miss the auto boom in China in 2002 and 2003. However, it is now all the more determined to build up its production capacity in China in the future. On the other hand, now that GM has captured 10 percent of the Chinese market and has developed a strong brand perception among the Chinese folks, it is well positioned in the China market in the immediate and intermediate future.
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By consolidating its position in China and other Asian economies, GM may finally reach its goal of being a powerful global player in the extremely competitive global automotive industry. The wishes of Alfred Sloan, Jr. may now be brought into reality by a generation of new leaders in the GM global empire.
As a footnote, GM lost $10.6 billion in 2005. However, it was doing reasonably well in China.
In China, GM is unburdened by the high costs that hobble its U.S. operations, including generous health care for its more than one million U.S. workers and dependents, and nearly full wages to thousands of idled United Auto Workers. VW retains the biggest share of the Chinese passenger-car market. However, it is suffering a drop of market share from 53% in 2000 to 24% in 2005. These drops resulted at least in part from the fading appeal of once hot-selling models like the Santana, now seen by many consumers as clunky and dated.
In retrospect, GM is not the only global industrial empire with big ambition in China. People have been betting on China for centuries and will continue to do so. Despite all the evidence
(accumulated so far) that only a small minority strikes it rich in the Chinese domestic market even when that market is fast expanding, there is never any shortage of corporate gamblers. The reasons why many who try but finally fail in one way or another are entirely intelligible, but the potential rewards of success are deemed to be so great that companies are compelled to participate. At times when the economies of developed countries are weak as during the early 1990s and the first years of the new millennium, the China Dream
13 has a particular potency because it stands out in starkest relief from the mundane reality of the normal business life. It is just these times when corporate gamblers place their biggest bets on the propositions with the longest odds and the largest potential returns. GM has betted on China just as VW has. VW has won very well and GM is doing better than it was in the 1990s, when a senior GM executive insisted that GM’s accumulated losses were minimal because the “physical write-off” had to be judged against the “intangible benefits” of having learnt so much about the China market.
However, it still remains true that corporate gamblers do not quite understand the collective psyche of the Chinese people. The collective psyche is more than a matter of multiculturalism. In the following, we would like to draw the attention of the reader to the deep and probably profound sense of nationalism in China’s consumer culture. This understanding will help corporate gamblers rethink their grand strategies in China. It will also caution corporate strategists in making aggressive moves simply based on the analysis and recommendations of highly trained professionals in international consulting firms and investments banks.
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In the early twentieth century, the Chinese people were aware of imperialist powers were intruding into their daily lives with goods manufactured in the West and Japan. Politicians worried about trade deficits and intellectuals worried about how China was becoming colonized by foreign countries. Manufacturers were finding themselves struggling to survive under the heavy inflow of foreign goods. Thus was born a nationalistic consumer culture which developed into a National
Products Movement (hereafter, “the movement”). Chinese consumers were trying to draw a distinction between Chinese goods (national goods) and foreign goods. They were hoping to develop a consumer culture that had strong nationalistic sentiments.
Why did the Chinese government not step in and ban or restrict the inflow of foreign products.
The answer is simple. Because of various treaties signed during the Qing Dynasty, China had ceded its power to set tariffs to foreign countries. In essence, foreign countries set the tariff rates at the coastal cities, such as Shanghai. Naturally, they allowed the flooding of Chinese markets with their own products, including opium. Prominent commercial and industrial leaders, individuals with clear economic interests at stake, formed the backbone of the movement throughout China. According to the movement’s rhetoric, “Chinese people ought to consume Chinese products.” The movement did not recognize an abstract world of goods; rather, it divided the world into nations of products.
Americans have been aware of links between consumerism and nationalism since late colonial times.
Other countries, such as Japan, Korea, France, Germany and Spain, had also experienced similar
“national product movements” with various degrees of intensity. What set the Chinese case apart was that China was not formally a colony of any imperialist power, yet it lacked many aspects of sovereignty, including the ability to set tariffs. Thus, the Chinese called themselves a “semi-colonial” nation. In effect, the movement was not directed by the state but came about because of the initiatives undertaken by the Chinese people.
Participants in this movement used terms such as “cleansing China’s national humiliations.” Part of this campaign was to remove foreign elements from Chinese production and markets, thereby producing “authentic”, “pure”, and “complete” Chinese products. This was an impossible ideal, given the backwardness of Chin’s production and distribution systems at that time, and it could only be fully realized when the Chinese Communist Party came into power in 1949.
Importantly, there was only a relatively weak sense of national identity among the great masses of
Chinese people before the Communists came into power. Many Chinese would have to view their interests in terms of themselves, their families and communities, thus making sacrificing for the
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nation by buying national products difficult, even unthinkable. Not surprisingly, the movement never convinced or forced consumers to avoid imports completely and buy only certified national products.
However, this movement did succeed to penetrate the nascent consumer culture of China. The legacies of the movement are visible across the twentieth century, particularly after the Communist
Revolution in 1949. To the Communists, their victory over the Nationalists was always a dual liberation both from the political oppression of class domination at home and from the economic domination of the imperialist powers.
The history of the movement captures China’s long-standing ambivalence toward foreign involvement in China’s economy. True, Deng Xiaoping had adopted an Open Door Policy in late
1970s to permit the use of foreign capital to develop the Chinese economy. However, the deep suspicion of foreign capital is still there. China still remains concerned with “self-reliance”, even as the definition of the term changes. Moreover, this lingering concern regularly manifests itself outside government activities. For example, the book, China Can Say No , written by several young Chinese authors, become an instant bestseller in China. In the book, the authors passionately pled for renewed anti-American boycotts and urged readers not to fly on Boeing planes. Demonstrations in the mid-
1980s rallied against Japanese were identifying Japan’s trade and investment with China as neoeconomic imperialism and the second occupation of China. Likewise, the “war of chickens” between
Kentucky Fried Chicken and domestic fast-food companies called on the Chinese to eat Chinese food.
These contemporary “national product” campaigns reflect the deep ambivalence over the role of foreigners in the Chinese economy. Domestic manufacturers continue to use nationalistic appeals to win customers and states supports.
The centrality of nationalism in Chinese consumer culture may be difficult for some non-Chinese to understand. Nationalism is probably a central part of every consumer culture, including that of the
United States. However, Americans are no longer too concerned with what are “national products” and what are not. In 2005, America’s trade deficit reached $800 billion. Americans are concerned not because of the massive inflow of foreign products but because these products had eliminated a great number of American jobs. Many people think that Boeing is an American company when, in fact, Boeing subcontracted a substantial part of its work to foreign parties particularly to countries, such as Japan, which insisted on subcontracting as a precondition for the purchase of Boeing planes.
When American Airlines bought Airbus planes from Europe, there were few popular protests. It is true that Wal-Mart has a “Buy American First” policy. However, pure economic considerations have driven Wal-Mart to source its goods from all concerns of the world so that its customers are provided with the cheapest products with the right quality. Thus, in America, we can say that individuals are more concerned with price and quality than with the nationality of the products they purchase.
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Even if one wanted to buy something “American”, that would be difficult. A Detroit-based company may market a car in the United States under its own brand name. However, the car may very well be designed by Germany engineers in Germany, equipped with a Japanese engine and assembled in Mexico with components and parts imported from all over the world. Likewise, what is
Chrysler's nationality now that it has been acquired by Germany’s Daimler-Benz. It would appear to most Americans that nationality no longer counts as an issue in the purchasing decision.
When China’s trade surplus with the United States reached $200 billion in 2005, it would appear to many Americans that China hardly needs to worry about its domestic market being overrun by inexpensive foreign goods. However, this is only a recent development.
The National Product Movement never ended. Indeed, its themes continue to shape interactions between Chinese, their material culture, and their sense of nation. The relevance of nationalistic consumption did not die with the death of Chairman Mao in 1976 even though the irony of China voluntarily ceding tariff autonomy by joining the World Trade Organization (WTO) may suggest so.
Nevertheless, it is questionable whether a treaty alone can undo the deep connection between China’s nationalism and its consumer culture. Indeed, rather than eliminating the issue of nationalistic consumption, China’s entry into the WTO may, in fact, reinvigorate it. China may open itself to international trade now but what will happen if it stops running massive trade surpluses? And how will the Chinese react when WTO demands lower tariffs and the abolition of informal restrictions on foreign management and control? As state-own enterprises continue to shed workers and leave them to all kinds of insecurities, how would the Chinese react? A new generation of students have grown up since the June 4, 1989 incident at Tiananmen Square. They evoke the language of nationalistic consumption. They protested the U.S. bombing of the Chinese embassy in Belgrade in 1999 with poems that included lines such as “Resist America Beginning with Cola, Attack McDonald’s, Storm
K.F.C.”
The Chinese consumer market is going to be huge as suggested by analysts at international investment banks. However, the growing size of this consumption market does not necessarily translate into big profits for American firms doing business in China. To profit from such a market,
Americans must improve their relationships with the Chinese. Only then can they realize their China dreams. Right now, Taiwan stands as a key issue in the improvement of the Sino-American relationship. Farsighted Americans would probably take into account the interaction between nationalism and consumer culture in China.
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Putting too much weight on statistic figures provided by highly trained professionals in international consulting firms and international investment banks may mislead one into the belief that all that one needs to do in order to succeed in China is to be aggressive in both strategy and tactics.
At some point in the future, some American firms may feel denial into the huge consumption market in China. Such feelings may usher in a trade war. In an age of global interdependence, protectionism and trade war will be a severe mistake, producing grave consequences for all; yet this is where we may be heading if we continue to hold on to all clichés and false analogies – like the one asserting that the current shift from manufacturing to services in the United States is a repetition of the move from agriculture to manufacturing a century ago. We also share the responsibility of maintaining the perception of fairness which lies at the heart of the American collective psyche. If there is an insufficient understanding of the role that nationalism may play in China’s consumer culture in the years to come, there may be a new round of trade war. With it, the belief in opportunity for all may be undermined, and with it, the broad participation that makes America what it is: a haven for openness and innovation but with a sense of inclusion.
In 2001, Hallmark Cards, the $3.9 billion company in greeting cards business, published a book,
Emotion Marketing: The Hallmark Way of Winning Customers for Life . We note down a few lessons from this well written book: 14

Human beings are emotional creatures who have a deep-rooted need to connect with each other and the world around them. Our emotions serve a critically important role in our quest to survive, thrive, and realize our full potential. Emotion brings depth and meaning to life. It bridges the gap between our innermost needs and our daily actions to achieve satisfaction. It moves us to act, to participate in the game of life. It validates our decisions and empowers us to feel good or bad about them. It helps us navigate through hundreds – if not thousands – of decisions we make every day. Without emotion, life is stripped of its meaning, its essence, its experienced value, and its rewards.
 Using emotion in marketing isn’t a new idea. Advertising agencies have always known that tapping into an audience’s emotions – love, fear, pride, jealousy, pleasure – works. Ford
Motor Co. in 1999 spent an estimated $10 million to air a two-minute showcase of its seven automobile brands around the globe on the same day. The commercial featured a war veteran riding a Ford Mustang convertible in a homecoming parade, an Italian couple passionately embracing in front of a Volvo, and Japanese girls playing in cherry blossoms near a Mazda.
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The vice president of global marketing for Ford explained, “We are serious about trying to understand people and their lives and their needs in an emotional way so that we can design vehicles, products, and services they opt to choose.” He wants viewers to “come to the conclusion that Ford Motor Co. has a heart and soul and has the kind of people and products that people will want to get to know better.” In a 21 st century market that will hold few – if any – competitive advantage in terms of product or price, emotional engagement comprises a growing proportion of the value being exchanged.
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The battleground of the future is for the hearts and minds of each consumer. The winners will be those that provide a balanced value proposition by leveraging both rational and emotional benefits relevant to their customers. Only organizations willing to add emotional value can expect to achieve and sustain long-term competitive advantages.
Chinese unification is a deeply embedded emotion in the collective psyche of the Chinese people.
If Americans help facilitate the process of Chinese reunification, the Chinese people will be more ready and willing to purchase American goods and services. The present huge trade surplus that
China has with the United States is not just because Chinese products undercut American products in the American market due to an artificially maintained low exchange rate. It is also because American companies are not selling enough to China.
From time to time, the Chinese government and its large corporations come to the United States to place orders for big-ticket items, such as jet planes, jet engines, turbines and chemical plants to lower the trade surplus. However, the question is how do the ordinary American businessmen benefit from such purchases. Admittedly, these big-ticket items will draw on suppliers of components, and these suppliers may very well be located in the United States. But still, the overall effect is small.
Now American manufacturers are building factories in the People’s Republic to produce goods for export as well as for the Chinese domestic market. If the Chinese feel that Americans have done
China a great service by facilitating the process of Chinese reunification, they may very well buy products made in the USA as well as products made by the USA in China. That will help solve the dilemma posed by China’s nationalism and consumer culture discussed briefly above.
If there was ever a golden age in which mass marketing was all companies needed to reach homogenous markets and predictable consumers, it is long gone. Traditional brand management systems, pioneered by Proctor & Gamble, were very successful in the 1950s and 1960s. Theodore
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Levitt, emeritus professor at the Harvard Business School, pushed the idea of the virtues of mass marketing to new heights in his famous 1983 article in Harvard Business Review, “The Globalization of Markets.” In it, he wrote: “Different cultural preferences, national tastes … and business institutions are vestiges of the past … Everywhere everything gets more and more like everything else as the world’s preference structure is relentlessly homogenized.” But the world has not become what
Levitt envisioned. Rather, tastes have become more fragmented. Worldwide, people are increasingly spending their money in ways that reflect their individual values, which, in turn, are embedded in their respective cultures. As such, global strategies based on uniform tastes have not lived up to their early billings.
Indeed, companies are “going native” in terms of product expansion. Ford’s Mondeo sought to be a “global car.” But the car was only successful when adapted – in name and design – for local markets in Europe, North America and Asia. Volkswagen and General Motors have both introduced small family cars, the VW Santana and the Buick Sail for China. The Sail even features jumbo-sized cup holders big enough to accommodate the thick jars the Chinese use to hold their tea.
The sweeping changes in consumer demographics, demands, and perceptions of global brands simultaneously present new opportunities and challenges for retailers and suppliers. How have firms responded to these consumer changes? With global branding under siege, firms are exploring new ways to adapt.
Serving the unique needs of different consumer groups is just one way to reach the consumer in a nonthreatening, personal way, but cracking each targeted consumer group one at a time can turn into an uphill battle as these groups become more fragmented. Another strategy is to make a broad appeal to groups that seem diverse on the surface but actually share underlying values. The key to this approach is to employ psychographics that decipher archetypes and break the cultural codes of markets. Archetypes are deeply rooted concepts and form what psychologist Carl Jung called the
“collective unconscious.” Arts, sports, business, politics, and social customs are outward manifestations – shadows, if you will – of these broad, widely shared archetypes. By using them, easily recognizable stories and images can provide emotional impact, while performing an end-run around cultural defense mechanisms. Archetypes help deepen emotional connections that underlie brand loyalty and retain consumers. It is up to five times less expensive to sell to a loyal customer than it is to create a new one. Archetypes improve retention by identifying basic human desires.
Firms do not create archetypes; they play to them.
American particularly loves “the hero” archetype, best epitomized by the cowboy. The spirit of adventure associated with taming the West is an important feature of American’s historical
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consciousness. In addition to the famous “Marlboro Man” cigarette ads, Japan’s Mitsubishi Motors effectively plays to this cowboy spirit through the deft marketing of its Montero SUV (“conquer the road less traveled”), inviting consumers to use its four-wheel drive to vanquish the West all over again.
Similarly, in China, BMW associated itself with Bao Ma , the mythological treasure house. To modern Chinese familiar with folklore, Bao Ma evokes a sense of wealth, power, and influence. This helps to explain why Chinese consumers are willing to pay for the cars, despite import duties that raise the prices to twice their level in Germany. Lueder Paysen, senior vice president at the sales division of BMW Group, estimates that there are now 1.3 million middle class Chinese consumers who can afford a BMW. “These people want to show that they are successful and buying a BMW is one way to show it,” he observes.
Unearthing archetypes or identifying unique needs of consumers is just one piece of a much larger puzzle. As big corporate brands seek to bond with consumers on a more emotional level, they are falling prey to the rising tide of consumer activism, with ordinary consumers in some places resisting what they see as corporate messages that do not show sufficient sensitivity to their way of life.
Consumers in industrialized countries already feel saturated by marketing that infiltrates every aspect of their personal lives. Consumers in Europe and Asia see U.S. brands as an assault upon their cultural identity. As Harvard Business School marketing professor John Quelch explains it, “we are witnessing the emergence of a consumer lifestyle with broad international appeal that is grounded in a rejection of American capitalism, American foreign policy and Brand America.”
Selling dreams is what every company aspires to do – for the media visibility, the customer recognition, and the potential profits. It is hardly surprising that nearly every mass-consumption company carries a “dream” line. In China, there are 1.3 billion customers and potential customers craving dreams. Connecting with the customers’ imagination is what it takes today to succeed in business. Technological miracles and the vicarious excitement of television have fed today’s customers with a craving for excitement in their everyday lives, meaning even the most common products and services must excite them or be banished. Simply satisfying needs isn’t enough. Today, customers want to indulge their dreams. Dreams are much more accessible to many more of us now, and fulfillment of them is no longer reserved for a secret society of spoiled rich people.
Every company can create a dream product or service, because dreams are not fashioned of exclusivity or luxury. There are companies operating in the mass-consumption industry that are manufacturing products that ignite their customers’ dreams. With a single dream product, they establish their brand for years to come. Dreams need not be expensive. They just require a wealth of creativity, a resource every company can grow.
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Transforming otherwise common products into dreams is the best possible way to attract the best customers. A company need not be large and rich to achieve this, since, in this business, creativity and taste are often more important than capital. This is a business that really forces a company to listen to the customers. Companies thrive here not simply because of their production capacity but because of their ability to invite their customers to spend.
In China, the ubiquity of television is bringing dreams into every household: many cannot yet afford them, but they are already longing for them. Selling dreams to the Chinese people requires a good understanding of Chinese culture and civilization.
Any company can shatter the traditional business rationale and escape into the realm of intuition, feelings, imagination, emotion, seduction, and taste. Any company can learn that patience and longterm thinking are what build attention to even the slightest detail. Making dreams fosters dream organizations in which creativity triumphs. Creativity is the most important quality for achieving business success (or any type of success, for that matter), and companies that sell dreams offer any type of industry key opportunities to learn how to enhance this most precious and scarce resource.
The future is impossible to predict. However, one thing is certain. The company that can excite its customers’ dreams is out ahead in the race to business success. Simply put, the Chinese people’s dreams are dreams of a unified, peaceful and prosperous China, in which they can enjoy ever rising standards of living and the fulfillment of their individualistic and collectivistic expectations and aspirations. Multinational corporations that can sell such dreams to the Chinese people will be able to realize their China dreams . They can triumph whereas others fail. To them, the China Dream is not a dream at all. It is a logical consequence of their tireless effort, and, what is more, their understanding of Chinese history and Chinese culture.
The period of 1979 to 1988, during which China was already undergoing the process of institutional transformation, was a crucial one for the development of China’s hi-tech industries. This period saw heavy emphasis on R&D in the fields of microelectronics, computing, laser technology, fiberoptic communications, robotics, bio-engineering and new materials. The most important government plan relating to R&D in this period was the High-tech R&D Program (also known as the
“863 Program”). The development of high technology in China virtually began to take off in 1988: major government initiatives since then have included the Torch Program, the national Plan for Long-
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term Science and Technology Development, the High-technology Development Zones, and so on.
During this period, considerable synergy has been created between the development of microelectronics, computing, automation, the integration of optics, mechanical engineering and electrical engineering, bio-engineering, aerospace technology, laser technology, new materials, medicine and marine engineering.
Following China’s accession to the World Trade Organization (WTO) in 2001, the reform of the science and technology system has deepened. Considerable efforts have been made to promote the transformation of existing industries into hi-tech industries. At the same time, China has been working hard to strengthen the legal framework for the development of the hi-tech sector, to open up its hi-tech markets to foreign companies, to encourage foreign companies to establish R&D centers in
China, and to promote technology transfer of the technology developed within China.
In 1999, China began the process of transforming 242 science and technology research institutes undertaking research in fields of metallurgy, machinery, coal mining, chemical manufacturing, petroleum, electric power, light industry and textiles from non-profit-making research institutes into business enterprises; 113 of them were merged into existing business enterprises or business groups in the same field of endeavor.
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As a percentage of GDP, R&D spending stood at 1.6 percent. In aggregate terms, China’s R&D stands behind the United States and Japan. Funding for R&D comes mainly from business enterprises and government agencies, with a small amount coming from other sources. Government funding is mainly used to support those R&D activities that are felt to be of benefit to society as a whole, or are closely tied up with the national interest, or require a large amount of investment over an extended period of time with a high level of uncertainty (including exploratory research, and major national defense, transportation and energy research projects). Among business enterprises, the main focus is on investment in R&D activities that are closely linked to production and which can produce significant economic benefits within a relatively short span of time. Independent research institutes and universities account for approximately 94 percent of all basic research performed in China, with research institutes holding a share of more than 50 percent. The corporate sector as a whole accounts for only 6 percent (Ministry of Science and Technology, January 15, 2004). One institution, the
Chinese Academy of Sciences, accounts for 53.7 percent of all expenditure on basic research by independent research institutes, and holds a 30 percent of total national basic research spending.
Elite universities such as Tsinghua University, Zhejiang University, Shanghai Jiaotong University,
Beijing University and China University of Science and Technology also carry substantial basic and applied research. In the early stages of hi-tech sector development in China, the emphasis was on
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final assembly work. Unfortunately, many hi-tech companies have remained stuck at this stage, performing assembly and other operations in which the value-added is low. For instance, BenQ’s
China operations consist mainly of final assembly work for flat panel display products and notebook
PCs, and the same is true of Samsung, BenQ’s leading competitor.
In the last few years, the share of China’s hi-tech exports accounted for by foreign-invested enterprises (FIE) has risen steadily. In 1996, state-owned enterprise, Sino-foreign joint ventures and wholly-owned subsidiaries of foreign companies each accounted for roughly one third of China’s hitech exports. By the end of 2003, the situation has changed dramatically with FIE accounting for 82.2 percent of hi-tech exports. The share held by wholly-owned subsidiaries of foreign companies had risen to 55.4 percent. This change reflects the continuous improvement of the investment environment in China following China’s accession to the WTO in 2001. Multinational corporations are adjusting their China strategy; more and more of them are shifting the production of hi-tech products to China. With the trend towards economic globalization, multinational corporations are internationalizing their R&D activities.
If China can attract more investment by MNCs and particularly investment in R&D, she can speed up her technological development. Until it was revised in late 2000, the People’s Republic of
China Law Governing the Operations of Foreign-invested Enterprises stipulated that when a FIE is established in China, it must adopt advanced technology and equipment, or else the whole (or at least the majority) of its output must be exported. MNCs investing in China are thus more or less forced to make technology inputs. During the negotiations that precede the establishment of a Sino-foreign joint venture, the Chinese partner will often insist that the foreign partner must transfer advanced technology to the joint venture, and this is one of the criteria for the granting of approval for such venture by the Chinese government. If the foreign company in question is in the hi-tech sector, it is exempt from import circulation tax when importing equipment, and the amount of income tax payable is reduced by 50 percent for three years.
WTO accession has given China a better policy environment for attracting foreign investment.
The People’s Republic of China Law Governing the Operations of FIE has been revised, and now stipulates merely that the establishment of a FIE must be beneficial to the economic development of the PRC. It notes that government will encourage the establishment of FIE that will be engaged in exportation or that will possess advanced technology.
Over the period 1987 – 2001, transnational corporations had established a total of 300 R&D centers in China. Leading multinationals such as IBM, Microsoft, General Motors, Ericsson, Alcatel and Siemens have set up 124 independent R&D centers in China, of which 16 are global R&D centers
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and 11 are important regional R&D centers. The number of customer service centers is even larger.
With leading MNCs such as Dupont, Microsoft, General Motors and Siemens all getting in on the act, this has become an important new area of investment. The R&D centers of MNCs in China have already achieved notable results in the development of new technology, and they are starting to expand the scope of their basic research activities. In the past, these R&D centers focused mainly on the development of production-related technology that was of immediate practical value whereas basic research was performed at the global headquarters of these MNCs. Now these MNCs are starting to transfer basic research to their R&D centers in China. For example, IBM is implementing its research on Chinese-language voice recognition technology in China; Lucent and Motorola have also started to conduct this type of research in China.
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Once a MNC has established itself in the China market, the desire to expand its market share and build competitive advantage will inevitably lead it to use the most advanced technology possible in its production. There are three main reasons. First, in the last few years the pace of technology development has quickened. Investment in R&D and manufacturing depreciates rapidly. After spending a great deal of money to develop new technology, companies need to get the maximum value as quickly as possible. Otherwise, they may fail to recoup their sunk cost. Second, in some key industries, there is a shift taking place away from vertical integration to horizontal integration based on the concept of focus. With vertical integration, the most important segments of the value chain are all combined within the same company. The classic example is IBM before its fall from grace of its shareholders. It did everything from the manufacture of semiconductors to the final assembly of mainframes and smaller computers and the development of systems and application software. With horizontal integration, each enterprise focuses on one or two activities within the value chain. A good example is Intel specializing in the design and manufacture of semiconductors, and Microsoft specializing in the design and development of software. Access to global markets is even more important for companies practicing horizontal integration than those practicing vertical integration.
Only operating on a truly global scale can these specialist firms recoup their sunk costs in R&D and in building a sufficiently large scale of operations. Third, the number of enterprises with a roughly similar level of technology is increasing. This, of course, leads to intense competition. In this game, victory often goes to those companies which succeed in dominating the market niche it is in within the shortest span of time. Because of these reasons, MNCs are providing the latest technology to China despite of the fact that, in compliance with WTO regulations, China would no longer compel MNCs to bring in the most advanced technology. At the same time, China’s overall technology is rapidly improving thanks to institutional reform of China’s science and technology sector and the great number of graduates in science and technology from her universities. Indeed, in some areas, China’s technology is world class. In fact, many MNCs are trying to leverage the high quality of Chinese researchers to make China an important base for their global R&D operations.
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Technology transfer by MNCs to China is particularly evident in the automotive and home appliance industries. Several of the world’s leading automakers have begun to locate the production of their latest models in China. Motorola and Nokia have invested several billion US dollars in the establishment of hi-tech facilities in Beijing. Several leading petroleum companies such as BASF, BP and Shell have located advanced petrochemical facilities in China. Almost all of Taiwan’s leading IT manufacturers have established large production facilities in China. As a result, China is now a world-class manufacturer of semiconductors.
There are, in general, six reasons why MNCs want to set up R&D centers in China. First, it is their desire to gain access to the Chinese domestic market in spite of the Chinese language barrier.
Second, the need to develop products that conform to the special requirements of the Chinese market.
Third, they try to tap the skills of inexpensive research talent in China. Fourth, there is much competition among MNCs in China, each trying to outdo the others in gaining the favor of the
Chinese government and Chinese consumers. Fifth, MNCs often face intense competition in China.
Without a technological edge, they would fall behind. Sixth, China’s hi-tech sector is rapidly developing. There are thus many opportunities for MNCs to ride on this wave of technological innovation. Now we come to the crucial question: how American multinationals can succeed in the business of technology in China? Americans have been very generous in transferring technology to other countries. Japan stands out as a particular case.
In addition to those Western corporations that have set up factories in Japan, many more have licensed their technology and brand names to Japanese competitors. They did so under duress: generally such licensing was initiated at a time when it was impossible for Western corporations to sell their products in Japan. To earn some money from their technology, they felt they had no choice but to enter into such licensing practices, even if the royalties involved were little more than a pittance.
This explains the impressive proliferation of familiar Western brand names in Japan. But the fact that these brand names are owned in Japan by Japanese companies actually precludes the original Western companies who sold the rights from selling in Japan. To add insult to injury, many writers of op-ed articles in the American press have portrayed the proliferation of Western brand names in Japan as evidence of the openness of the Japanese market.
The bottom line on American corporations’ attempts to exploit their technology in the Japanese market is that, as calculated by Senator Jay Rockefeller, American corporations transferred technology worth $500 billion to Japan in the last quarter of the twentieth century and Japan paid about $9 billion for it.
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American corporations no longer lead in many technologies. Trying to push up their earnings in the short term, they are still very willing to transfer their technologies to other countries, including
China. They are often excusing themselves for doing so by saying that they are migrating up the ladder of technological innovation. However, the technology they transfer often becomes the platform upon which other countries mount their offensives at a later time.
Professor Michael Porter of Harvard Business School is a great creative thinker and a very prolific writer. His books includes: Competitive Strategy, Competitive Advantage and The Competitive
Advantage of Nations , and On Competition . The consulting firm, Monitor Group, which he cofounded had billed AT&T more than $150 million in trying to make this giant more competitive.
AT&T said the fees were justified because there were still smaller than its advertising budget. Today,
AT&T is in deep trouble.
There are basically three ways to make superior profits: (1) when there is no competition; (2) when one is far superior to the competition; and (3) when one possesses an unfair advantage.
American corporations can gain an unfair advantage in China if the Sino-American relationship is improved. Light does not travel in straight lines. It travels according to the principle of least time or
Fermat’s principle. Out of all possible paths that it might take to get from one point to another, light takes the path which requires the shortest time. The implication is simple: if Americans see the light that better Sino-American relationship can lead to greater ease in realizing their China dreams, they can definitely have an unfair advantage.
The debate about the transition from the communist system of political economy has been intense.
Industrial reform was at the center of this debate. The approach adopted by the mainstream
“Washington Consensus” was built around the notion that large enterprises should mostly be closed down and replaced by a sea of new, small and medium-scale enterprises. Throughout the literature on the “transition” in the industrial sector, attention was focused on the privatization of individual plants.
The Washington Consensus, notably the IMF and the World Bank, gave no attention at all to the desirability of merging these plants within any given sector, in order to produce large, globally competitive multi-plant firms. The approach toward industrial reform that was adopted in the former
USSR and Eastern Europe was guided by the powerful influence of the mainstream traditions of neoclassical economic theory, which emphasized the contribution of small firms and downplayed that of larger firms.
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Since the early 1980s, large firms have, on a widespread basis, outsourced service functions.
Extensive outsourcing of component production has taken place throughout the manufacturing sector.
Increasingly, “outsourcing” has extended to R&D activities and to manufacturing large sub-units of complex products. Systems integrators are less and less involved in the direct manufacture of goods.
The reality of business history has been quite different from the neoclassical view. Instead of being an occasional deviation, oligopoly, barriers to entry and imperfect competition have been the normal path of capitalistic development. Industrial policy in China has drawn its inspiration from nonmainstream economic theory, and from empirical evidence about the policies pursued in lateindustrializing countries as well as from considerations of national pride and power.
Far from arising spontaneously through the free play of market forces, even in the West, the rise of big business was strongly influenced by the state. Having established powerful firms behind protectionist barriers, both Britain and the US became converts to free trade and the “global level playing field”, allowing their powerful business free access to the market of less developed economies with weaker business structures.
In Japan, MITI (now METI) nurtured the mergers of a number of companies in each industrial sector to from giant firms. These firms are then able to compete with firms headquartered in advanced industrialized countries. To a certain extent, the South Korean government also nurtured the growth of giant conglomerates, such as Hyundai and Samsung. China was interested in the industrial organization of Japan and South Korea since China also wanted to develop national champions able to compete on their own with giants based in advanced industrial countries.
It has been widely argued that China’s rapid economic development was primarily a result of the explosive growth of small firms, often under de facto private ownership. However, these firms are relatively weak players by global standards. China’s determination to build large national champions coincided, in timing, with a major revolution in the global business world. Large capitalist firms have downsized their employment, making themselves much leaner than before. They have also focused on core businesses and sold off large segments of assets not relevant to their core activities. These firms have become large systems integrators, outsourcing the manufacture of components and even services to a network of suppliers which are dependent on the global systems integrators for their very survival. Thus, in industry after industry, the structure has become highly oligopolistic with three or four firms competing fiercely with each other often by ferocious price cutting.
The work of the “global level playing field” is likely to result in the competitive success of those large firms already processing immense competitive advantage in the global competition. In fact, it
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has been pointed out that the “global level playing field” really amounts to the protectionism of the strong. After two decades of reform, China’s industrial firms are still relatively weak in relation to global giants. This is extremely marked in the high-technology sectors, such as aerospace, complex equipment such as power plants, pharmaceuticals, and in “mid-technology” sectors such as integrated oil and petrochemical and auto components. The gap in IT hardware and software and in financial services is huge. What we are facing is the full flowering of global oligopolistic capitalism . China’s aspiring global corporations now face a far more difficult business environment than that confronted
Japan and the Four Little Tigers during a comparable stage in their catch-up efforts.
One option is to merge the domestic “giant” companies into one or two giant firms within each sector. Japan, South Korea, France and Britain had followed his path. Because of the small size of
Chinese firms, even mergers of such Chinese firms could still produce firms relatively small by world standards. Such mergers do not solve the problems of technology and management. However, they do provide a realistic foundation for competition with the global giants than did the previously fragmented industrial structure.
There is another strategy, a strategy where some strong global giants can realize their China
Dreams. The very intensify of global competition between giant corporations offers the Chinese a way to build up the competitiveness of their own firms. In the 1990s, intense global oligopolistic competition in each sector produced firms based in the advanced economies that were technically strong and had a strong modern management system, but which fell behind in the global oligopoly race. They face the prospect of extinction through bankruptcy or merger with another giant in the global capitalist economy. Mergers can be formed between giant Chinese firms and these global companies in a way that benefit the shareholders of these foreign companies. The terms of the merger with the Chinese company could have been constructed in such a way to provide better earning prospects for foreign shareholders through access to the huge and fast-growing Chinese market. The weak multinational would have been offered a minority share in the new entity but would be ceded full management control. The Chinese partner’s equity share would come from a combination of bank loans, stockmarket flotation, asset contribution and a value placed on privileged access to the
Chinese market for a specified period of time. For example, in aerospace, a certain proportion of
Chinese airlines would be allocated to the new firm established between the Chinese and the multinational, after which point protection would be steadily reduced, and it would have to sink or swim on its own in open competition.
This is, therefore, another way to realize to China Dream. In the United States, there are powerful players that cannot maintain the pace of competition with the leading players. The automotive, oil and petrochemical, steel, aerospace, telecom services, IT hardware, media and fast-moving consumer
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goods sectors all have obvious examples that spring to mind. In the long-run interests of their shareholders, they may prefer to join forces with a major Chinese player than being merged with another large company based in the U.S. or other advanced economies. This is a way to build up the competitiveness of Chinese firms and to create opportunities for foreign firms which are falling behind in the global oligopoly race.
It has been pointed out that a small group of relatively strong domestic non-SOE firms have been doing quite well since the 1990s. These include Haier and Meidi in consumer electronics, Legend
(now Lenovo) in personal computers, Hwawei in IT hardware and Baiyunshan in pharmaceuticals.
These companies were held up as examples by popular neoclassical economists in China that Chinese firms could make it if left to compete on their own on the global level playing field, unaided by state intervention. They were held up as examples for state-owned enterprises to follow. However, a closer look at these firms reveals that they typically benefited from a protected domestic market and enjoyed state support through soft loans, state procurement, and protected marketing channels.
Without continued state support, they were unlikely to build on their considerable entrepreneurial achievements and mount a serious challenge to global giants in their respective sectors.
It was pointed out earlier in this chapter and that China was mounting offensives in higher technology areas while still holding onto its labor-intensive and intermediate technology industries.
However, China has so far has not been quite successful in making its way into the global oligopolistic industries, which are dominated by global giants that often act as highly sophisticated systems integrators with a network of suppliers dependent on them for their very survival.
In November 1999, China and the US signed the historic agreement under which China would be permitted to join the WTO. The US negotiating team was led by Charlene Barshefsky. The
Agreement was of great importance for US foreign policy and inspired intense national debate.
President Clinton was heavily involved in the campaign to persuade the US people of the benefits for the US that would flow from the Agreement. The determination of the US negotiators to push China toward rapid liberalization of its IT industry was not only motivated by economic considerations. A major explicit consideration was also the desire to overturn the Chinese Communist Party and achieve the same political result in China as US policy under Reagan helped to achieve in the former USSR.
If China strictly observes the terms of the WTO Agreement as well as the conventional structural adjustment problems, it will face large-scale psychological and political adjustment difficulties. In almost all cases, successful late-industrializing countries established a group of indigenous large corporations that could compete on the global level playing field. This was true even for small countries like Sweden, Holland and Switzerland, and latterly in economies such as Taiwan, South
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Korea and Hong Kong. If China were to continue to grow rapidly in the coming decades, then it would have to develop a unique form of capitalism among successful latecomer countries.
The global business revolution made it more and more clear to Chinese policy-makers that the neoclassical interpretation of capitalism was based on a deep misinterpretation of the real nature of the system. Chinese popular newspapers, for example, were at least as interested in the global merger and acquisition boom as the Western media. China’s agreement with the US in 1999 on entry to the WTO coincided with the value of global mergers and acquisitions considerably exceeding US$3 trillion, of which the US alone accounted for $1.9 trillion and Europe for $1.5 trillion. By comparison, mergers and acquisitions within Non-Japan Asia were just $150 billion. In Greater China, they stood at only
$41 billion, and in China they stood at a mere $15 billion.
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Professor Peter Nolan holds the Sinyi Chair in the Judge Institute of Management Studies in the
University of Cambridge. His monumental work, China and the Global Business Revolution , (2001), gives the following sobering account:
It is conceivable that China’s industrial policies might be given fresh life with a renewed focus and sense of urgency due to the impending shock of joining the WTO under the terms agreed. Despite the enormous challenges presented by the global business revolution, it is possible to imagine a strategy that might lead to the growth of competitive large firms based in China. In this case, China’s large corporations might assume an important place among the world’s giant corporations and Chinese-based firms might themselves begin to directly assume the functions of “global systems integrators”. Such a large shift in industrial policy would involve tense and complicated issues in China’s international relations, especially in relation to the US, since it would involve a de facto renegotiation of the terms under which
China enters the WTO.
Within China, there are powerful forces that are dismayed by the Agreement. They will do all they can to slow down the implementation of the Agreement. A variety of possible factors could lead to a significant shift in the leadership’s position toward foot-dragging on the
Agreement. Among the most obvious such factors might be if the impact on China’s large enterprises was greater than the leadership had anticipated.
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So far, at the end of 2005, WTO has not created much trouble between Americans and Chinese.
However, these two great nations and great peoples should try to achieve win-win solutions with the good understanding that both America and China want to have globally competitive companies in the key sectors of the global economy. Professor Michael Porter has written a book, Can Japan Compete ?
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The two coauthors are Japanese. They are Professor Hirotaka Takeuchi at Hitotsubashi University and Professor Mariko Sakakibara at UCLA. Certainly, we are concerned with the question: Can
China compete? We are confident that, in the long run, China can compete because not all global giants firms stand on a united front. Napoleon’s “divide and conquer” tactics is as applicable then as now.
Economic growth depends on three factors, namely the number of workers and the amount of hours they put in; the quality of the workforce, as measured by better education and training (human capital); and the stock of equipment, software, and buildings owned by businesses (physical capital).
After we have accounted for these three predictable factors, there is still quite a bit of growth left to explain. This residual or total factor productivity is where the effects of technology and innovation would show up.
This calculation was first done in the mid-1950s by Professor Robert Solow at Massachusetts
Institute of Technology, who later won the Nobel Prize in economics for this work. He found that the residual accounted for much more than half of long-term growth of productivity – that is, output per hour. The result was very controversial at the time because it seemed to give technological innovation – which most economists rarely studied – a much bigger role than capital investment in driving growth. Subsequent research did manage to pare down the residual to roughly one-half of long-term productivity growth.
Unfortunately, technology rarely makes an appearance either in Washington economic policy discussions or in the textbooks used to teach economics to college students. In Washington, technology-driven growth is the poor step-child, receiving a microscopic amount of time, energy, and money from politicians. Government R&D spending, outside of health care and defense, has fallen as a share of gross domestic product since the mid-1990s. The number of science and engineering PhDs received by U.S. citizens is at its lowest level in at least a decade. Meanwhile, politicians unwisely spend their time attacking things such as stock options, which were instrumental in building Silicon
Valley and the U.S. high-tech sector.
In his book, Rational Exuberance: Silencing the Enemies of Growth and Why the Future is Better than You Think , Michael Mandel, chief economist of BusinessWeek , draws a distinction between exuberant growth and cautious growth. The former refers to economic expansion driven in large part by new technologies and innovations. It tends to be significantly faster, accompanied by rising living
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standards and higher stock prices, on average. However, it also tends to be more unpredictable and more volatile. The latter, on the other hand, refers to economic expansion based mainly on the steady accumulation of physical and (sometimes) human capital, rather than technological change. It tends to be slower than exuberant growth and more predictable. The result of cautious growth would look much like the economies of European countries such as France and Germany, where social stability is valued over change, and where there is strong support for prudence and cautions in dealing with innovations such as genetically modified crops and Internet privacy regulations. Even in the United
States, for the most part, large corporations practice cautious growth. They focus on their “core competencies” – the things that they already do well. They avoid investments and projects that appear to be too risky.
Dr. Mandel comments:
We can’t simply compare exuberant and cautious growth based on economic considerations.
No matter what is taught in Economics 101 (in American colleges and universities), most people are not motivated purely by pecuniary motives or by self-interest (with the notable exception of some Gordon Gecko “greed is good” types who may be found on Wall Street or in Silicon Valley). There has to be an emotional component, to keep us going and a higher purpose, to satisfy our souls.
Moreover, innovation give a sense of purpose, that things will be better for our children and our children’s children. That’s essential – it provides a motivation for people that goes beyond the economic. It gives us a reason to wake up and go to work in the morning, if we believe that our efforts will make things better for other people.
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There are several areas which hold promise in the future. They include biotechnology, telecommunications, energy, nanotechnology, and space exploration and exploitation. Any of these technologies is still a big question mark over the next five to ten years. However, the fact that research is going on in all of these areas simultaneously raises the odds that at least one of them will become a big business. It is simple statistics.
An important question is how innovation gets financed. Simply put, it is difficult to fund the
R&D of new technologies that challenge the status quo. That is especially true in a mature economy such as the United States, where most of the economic niches have been filled with big players which are more than ready to defend their turf. Over time, the U.S. has developed a solution to the problem of how to fund and promote innovation in a mature economy. It does not happen automatically – instead, it requires what is called a high-performance financial market. Such a market includes some
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key financial instruments for financing innovative activity – notably venture capital, stock options, and high-yield or “junk” bonds – that are far better developed in the U.S. than in any other country.
No one can guarantee a new technological breakthrough will happen next year or the year after next, and so forth. Definitely, there are many promising innovations out there. However, it is difficult to tell which one is going to come to fruition. The Internet cannot be repeated on demand.
But one thing is certainly true: The chances of something good happening go up where there is enough money to explore all of the different alternatives. We can indeed think of the American financial system as a growth medium, a rich nutrient solution able to provide nourishment to innovation. However, financiers will be more ready to come up with financial support if there is a big market to spread out the sunk costs incurred in R&D. China provides certain advantages. Chinese
R&D expenditures are now the third in the world, behind only the U.S. and Japan. South Korea,
Taiwan and India are also increasing their R&D expenditures. The collective rise in R&D is beneficial to everyone, since ideas and innovations readily cross national boundaries. A U.S. company such as IBM may have research labs in Switzerland, China, India, Israel and Japan, while
Japanese companies such as NEC and Ricoh have research facilities in the U.S.
Let us take a look at the energy problem because it is of great concern to the U.S. and China.
Matthew R. Simmons has written a timely book, Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy (2005) . According to Matthew Simmons, an investment banker in the oil services industry, there is only a small probability that Saudi Arabia will ever deliver the quantities of petroleum that are assigned to it in all the major forecasts of world oil production and consumption.
Crucial to the story this book tells is a body of technical information about Saudi Arabia’s aging giant oilfields that explains the real nature of the threat to the kingdom’s oil production capability. This, in turn, exposes the risk that the world might soon witness the fading of Saudi Arabia’s oil supply, just as demand is beginning to increase substantially in many countries. Saudi Arabia, through its longstanding desire to be a responsible and reliable provider of oil, probably inadvertently caused longterm, if not irreparable, damage to its great reservoirs by trying to keep pace with soaring global demand. The price it paid was accelerated rates of gas formation and water production. It was a noble undertaking to become the world’s swing oil producer; but this title role, despite its prestige, was achieved only at a steep, long-term cost to the sustainability of its Big Five fields.
For far too long, this sustainability question was ignored because conventional wisdom was so sure that Saudi Arabia’s oil was plentiful, inexpensive, and inexhaustible. This idea all but extinguished curiosity and fortified trust. The reason Saudi Arabia matters outside of the Arab world begins and ends with its remarkable oil and gas resources – a claimed one-quarter of the world’s
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proven oil reserves and the fourth-largest proven gas reserves. Aramco, Saudi Arabia’s oil company, has exerted every effort to discover new oil fields but has not succeeded.
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For years, every important energy supply model has assumed that Saudi Arabian oil is plentiful and can be produced so inexpensively that its supply is expandable to any realistic demand level the world might need, at least through the year 2030. Many energy planners assume that Saudi Arabia will be producing as much as 20 to 30 million barrels of oil a day within the next two to three decades.
In reality, the kingdom’s demonstrated production capacity in 2004 was on the order of 10 million barrels a day – in other words, one-half of the estimate. The only sure fact is that when Saudi
Arabia’s oil production peaks and begins to decline, it will take energy forecasters and policy-makers by total surprise. Ignoring the consequences of a peaking of Saudi Arabian oil will be far more dangerous than the scorn that many experts directed at the notion that U.S. oil would peak in the
1970s.
As oil becomes a scarce resource, its use will have to be rationed in one way or another. There are ways to allocate oil use and direct it to its most valuable application. But achieving such a rational plan will require a carefully orchestrated global, country-by-country effort. Left unattended, this process could quickly evolves into genuine chaos. The global economy can function after oil supplies peak, but not in the same manner in which we live today.
Once oil supply peaks, the world will be forced to create ways to substantially conserve our oil and other energy sources. This shift should force a rapid rethinking of the notion that transporting people and products anywhere in the world is an almost incidental cost of doing business.
“Transportation” turns out to be the biggest single use of oil, and we need to begin finding ways to minimize everyone’s transportation needs and make the use of transportation fuel as efficient as possible. Today, the most wasteful use of transportation fuel is probably traffic congestion. If we do not alter our transportation systems as a matter of policy and public planning, the inexorable operation of pricing mechanisms will do it for us. At some price for gasoline, traffic congestion will diminish.
Simmons sees great dangers ahead if the world continues to ignore the twilight in the Desert.
There is no question that a world of increasingly scarce oil will foster a growing competition among energy-consuming countries. As the reality of declining oil supply becomes better understood, this country-by-country competition could evolve either into a manageable process (like the OECD countries) or an aggressive free-for-all that triggers new wars. If the problem is misunderstood or left unaddressed, war could easily prevail over peaceful competition. Securing adequate oil supplies was, after all, an important element in all the major wars of the twentieth century and in the United States’ two most recent interventions in the Middle East. If the magnitude of the problem is fully understood
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and the risks of a laissez-faire approach are appreciated, all nations should be able to recognize the necessity of working out comprehensive ways to allocate an increasingly scarce supply of oil among the world’s many deserving countries.
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In 2005, China National Offshore Oil Corporation (CNOOC) offered US$18.5 billion to acquire
U.S.-based Unocal but failed because of opposition from a number of American politicians who championed what they called America’s strategic interests. Weeks after CNOOC’s failure, China
National Petroleum Corporation (CNPC) reached an agreement to buy Canadian-based firm
PetroKazakhstan Inc. for US$4.18 billion. At $55 per share, some said CNPC over-bid, but for oilthirsty China, the move was strategic; it was willing to pay a premium for energy assets in Kazakhstan in central Asia, which is expected to become one of the world’s leading oil producers. China also beat Japan in the tug of war for the route of the trans-Siberian multi-billion-dollar oil pipeline to first go to China, then later to the Pacific coast, where the oil would be shipped to Japan. Russian
President Vladimir Putin said oil shipments would initially go to China’s oil center in Daqing though he also made clear that Russia is not putting all its eggs in the Chinese basket. “We want to sell to the whole Asia-Pacific region,” he reportedly said. With completion expected in 2008, the trans-Siberian pipeline will eventually pump up to 1 million barrels of oil to East Asia daily. CNPC signed an agreement with the Venezuela state oil company, Petroleos de Venezuela SA (PDVSA), to develop and manage Venezuela’s Zumano oilfields in the eastern part of the country. Venezuela expects to supply about 15 – 20 percent of China’s oil import by 2012, or 300,000 barrels of crude oil a day, from the current level of 68,800 barrels a day. The two companies are also studying a possible refinery project in China. In January 2006, Saudi King Abdullah made a state visit to China, the first visit by a Saudi king since the two countries renewed diplomatic relations in 1990. Abdullah’s delegation included Saudi Oil Minister Ali Naimi. Saudi Aramco is partnering Sinopec (China
Petroleum & Chemical Corporation), and ExxonMobile in a US$3.5 billion project to expand a refinery in Fujian Province in southern China.
Today, China is the world’s second largest importer of crude oil, after the United States. The supply of oil is now an urgent problem for many countries. The ultimate solution to the problems created by peaking oil supplies involves a transition to a new form or forms of energy that do not now exist. This does not mean hydrogen or solar or wind. They now work technically, if not economically. Moreover, hydrogen is a byproduct of energy use, not an energy source. An article on the outlook for automobile powered by hydrogen fuel cells in the March 2005 issue of Scientific
American highlights the many challenges still remaining before this alternative energy technology can be commercialized. Several individuals involved in the development process put the date some 25 years into the future.
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Creating a genuine new form of energy is by no means a simple task. In the twentieth century, the only new form of energy to be developed was nuclear power, and it took years to commercialize the military applications into useable consumer energy. But crises have an amazing way of jumpstarting human ingenuity, and the need for some new form of energy could soon become critical.
Since oil demand is now so heavily driven by transportation and feedstock needs, it seems reasonable to focus efforts first on energy sources and products that can replace oil in these uses, while also seeking ways to conserve oil in these uses. Since it will take decades to replace the world’s current fleet of automobiles, airplanes, trains, and marine vessels that consume oil, perhaps the highest-value energy source needs to be usable by the world’s existing transportation fleet and in all new transportation units. It is critical, too, that any new form of energy not require processes or substances that end up being energy-intensive to operate or produce. This could aggravate the problem instead of becoming part of the solution. History has shown, time and time again, that out of great crises comes man’s greatest ingenuity. We will soon witness twilight in the desert for Saudi
Arabia’s oil production. But it need not create twilight for the global economy. The Great Age of
Cheap Oil may be coming into an end. However, by undertaking proper urbanization and regional development, China may see a solution to its heavy dependence on oil.
Both America and China have plenty of coal. Both America and China have limited supplies of oil and gas. Both America and China have reasonable sophistication in nuclear engineering. As implied by Matthew Simmons, American and Chinese scientists and engineers can collaborate on solving the challenges of inventing a series of new energy forms that will create even greater security and prosperity for the world.
Rolf Jensen is Director of The Copenhagen Institute for Future Studies, one of the world’s largest future-oriented think tanks. He wrote a book, The Dream Society: How the Coming Shift From
Information to Imagination Will Transform Your Business . In it, he describes how the hunter society gave way to the agrarian society, which gave way to the industrial society, which, in turn, gave way to the information society. The information society in now giving way to what Dr. Jensen called the dream society.
We can thank the industrial revolution – which gave birth to the third type of society, emerging around 1750 in Great Britain – for our cities, infrastructure, and wealth. More than anything else, the industrial revolution established Europe’s position of material predominance in the world. The unequal distribution of global wealth in the modern age is due to the fact that the Atlantic societies were the first to establish industry-based economies. Most people will say that the fourth type of society – the Information Society – began in the 1960s. Knowledge becomes more important than
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capital, and as the British scholar Charles Handy has pointed out, Marx and communism were proved right at last – by the Information Society. The workers have taken over capital because it is intellectual, not physical. It resides in our heads, not in bank accounts or in machines. The worker can bring it with her when she switches jobs.
The Information Society assigns great value to academic learning. Never before has so high a premium been put on the ability to sit for long hours, the ability to plan and control emotions.
Spontaneity, the joy of the moment, is not permitted. The rational Western world has won the global materialistic contest thanks to a Zeitgeist that valued change, and thanks to the ability to suppress emotions. The struggle against poverty and disease seems closer to being won than ever before. On top of this, rich countries are the absolute leaders in military might. After all, mastery of information technology today means military supremacy as well.
Within twenty years, this type of society will be rejected as being anachronistic and cheerless – precisely the way many people today view the industrial society with its smoking chimneys and relentless, monotonous drudgery as negative. Years later, we may come to see the Information
Society in a romantic light – exactly the way some people today feel a sense of nostalgia for the agrarian society.
The very concept of the Dream Society as the successor to the Information Society is built on the assumption that the scientific, rational way of thinking will be less revered in the future. The best indication that this, indeed, is the case is the success of the Internet, itself perhaps as much as anything a product of the Information Society. In the fall of 1996, Time magazine, using the Internet search engine Alta Vista, found an impressive 46,000 references to Microsoft founder Bill Gates. However, a search for “God” yields 410,000 references; “Jesus” earned 146,000 “hits.” On the Internet,
Christian sects across the world will meet one another, keyboard to keyboard – and Jews will meet
Islamic Fundamentalists, modem to modem. Let us hope that the communion will lead to deeper mutual understanding among the world’s great religions – to a sense of shared spiritual values, regardless of the different molds into which they have been cast in different corners of the world.
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In the Information Society, our work has been driven by information technology; in the Dream
Society, our work will be driven by stories and emotions, not just by data. Even the car is an emotional thing. Only within the closed confines of the car are we inhabiting our own space, almost like a home. That is why an individualistic society, such as America, the car will not become a masterpiece displayed in the museums as the slide rule did thirty years ago and as the scientific calculator did twenty years ago.
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Emotional factors play a conspicuous role at work these days, and the same is true at home.
Emotional elements are also predominant in the public sphere. In 1998, President Clinton’s private life created greater interest than tax issues – some change indeed. Emotions are now permitted – publicly as well as privately. The Dream Society theory has general validity.
In Dr. Jensen’s terminology, America is entering the Dream Society. However, China is still in the stage of rapid industrialization and is, at the same time, entering the Information Society. Thus
China has much to learn from America’s valuable experiences since both countries are, in reality, continental in size and have huge populations. American companies can benefit much from the rapid economic growth of China. In China, about 70 percent of her people still live in the countryside.
Urbanization will offer many opportunities to those companies which understand how urbanization in
China should proceed given the many constraints that China faces such as the shortage of oil. It comes back to the question of how much oil and gas we really have remaining. A world that learns to live with a dwindling oil supply will also be forced to control the emissions that energy use creates because of global warming effects. A continuation of urban sprawl would become an intolerable trend as the transportation that supports it becomes too costly. Fortunately, the world has already created the necessary tools to allow many highly productive people to stay and work at or closer to home. How odd it would be if the Internet became best known as a great tool to help pave the way for a world that uses oil.
In short, if Sino-American relationship can be improved, Americans and Chinese can cooperate on a broad front and can benefit and profit immensely from such joint undertakings. For the first time, the Chinese economy has plenty of opportunities to offer to American business, big or small. Chinese reunification is deeply embedded in the collective psyche of the Chinese people just as the sense of fair play has been deeply embedded in the collective psyche of the American people. Reciprocity is at heart of the Chinese culture and civilization. If Americans address what is inside the collective psyche of the Chinese people, the Chinese will, in reciprocity, address what is inside the collective psyche of the American people. The China Dream can be realized not just by Boeing, GE, GM, or
Intel, but it can be realized by many American businesspeople pushing into what may be called one of the last frontiers on earth. The China Dream may not be a dream after all.
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Taiwan’s trade with China began in the mid-1980s and the volume of trade and investment has increased ever since. The movement of goods is predominantly westward from Taiwan to China.
Taiwan enjoys a trade surplus with China, which balances off the trade deficit she has with other countries, such as Japan.
Initially, Taiwanese businessmen ( Taishang ) were predominantly from small- and medium-sized enterprises (SMEs) in labor-intensive industries, such as garments, shoe-making, and low-end consumer electronics, seeking lower labor costs to defend their export market share in the West.
China’s pariah Deng Xiaoping’s tour to southern China to outmaneuver the conservatives in Beijing and to re-ignite reform as well as the first cross-Strait talk of the spring of 1993 ushered in the second wave of Taiwan’s investment. While the rush of SMEs continued, larger and mostly publicly listed companies joined the wagon as well. Most large firms, especially those in the petrochemical industry, went to China in order to supply intermediate goods to SMEs in proximity and look for cheap and accessible land for expansion.
Firms in the information technology sector spearheaded the big third wave of investment beginning in the late 1990s. Some firms went to China to tap the domestic market, but most firms migrated for lower labor costs, as Western firms began to request their Taiwanese subcontractors to use China’s production costs as the base to quote prices.
In the post-1997 era, the development of high technology sectors became a leadership project for newly appointed premier Zhu Rongji, and Taiwanese firms in the information technology sector have been on the priority list for invitation. In her pathbreaking visit to Taiwan’s Hsinchu Science and
Industrial Park in 1998, Zhu Lilan, China’s Minister of Science and Technology, called for the synergy of systems engineers and computer scientists across the Strait.
Chinese leadership has publicly stated its intention to use economic linkage across the Strait for political purposes, and to use the private sector to “compel” the Taiwan government to yield to the
Beijing regime’s plan for reunification. Taiwan’s Vice President Annette Lu has warned that China is deepening Taiwan’s dependence on the Chinese economy, while preparing for a military showdown in 2010.
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As of today, there are about 50,000 (20,000 according to Taiwan’s official statistics) Taiwanese enterprises and half a million Taiwanese businessmen (including owners, their managers and service providers) on the mainland, roughly 2 percent of the total population of Taiwan. Some estimates put the number at 800,000. Some Taishang may decide to settle down in China and may even retire there.
The Taiwan government has introduced a “Go Slow” policy since August 1990. The “Go Slow” policy forbade the Taishang ’s participation in any infrastructure project on the mainland, restricted investment in the high-tech sector there and subjected mainland-bound projects of any type exceeding
US$50 million to approval on a case-by-case basis.
China defied Taiwan’s “Go Slow” policy and the Taishang lamented it. At the end of 1990s, two prominent businessmen, Wang Yung-ching and Chang Jong-fa, joined the chorus of criticism. As the head of Formosa Plastics, the largest petrochemical firm in Taiwan, Wang was the captain of traditional industry. Chang – head of the Evergreen Corporation, the world’s largest container shipping company – was the voice of the service sector. The fate of this policy was almost sealed when Morris Chang – the chairman of Taiwan’s Semiconductor Manufacturing Corporation (the world’s largest IC foundry) and spokesman for the high-tech sector – also registered his disapproval in 2000. Within a year, the Democratic Progressive Party, led by Chen Shui-bian, replaced the
Kuomintang as the ruling party. President Chen promised to replace the “Go Slow” policy with a managed liberalization policy in a blue-ribbon national economic conference in 2001. Business intensified its campaigns to seek an end to the ban on investment in China’s high-tech sector.
The most protracted policy conflict between Taishang and the Taiwan government revolves around the issue of three direct links across the Strait. In its initial formulation, the three direct links – proposed by China in the early 1980s – were for direct mail exchange, telephone contact, and transportation. In due course, the trio was re-constituted, now referring to direct communication, trade, and transportation. The American Chamber of Commerce in Taiwan has long been advocating the free flow of goods, services, and personnel across the Strait, and the head of the American
Institute in Taiwan has also urged the Taiwan government to let cross Strait economic interaction unfold in “natural progression.”
Beyond lowering prices, in many industries there is a strong demand to locate near the final producer, and with large swathes of industry moving to China, the Taiwanese OEM (Original
Equipment manufacturer) and ODM (Original Design Manufacturer) firms feel they have to follow, and they in turn pressure their suppliers to follow them. In industries where co-location of component
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producers and contract manufacturers is critical for rapid response, the whole cluster needs to move in order to maintain the advantage. When Taiwanese notebook computer makers shifted production to
China, the entire supply base moved along with them. By 2001, ODM production of most notebook computers had left Taiwan.
In Taiwan, the public research institutions do most of the R&D up to the level of a working prototype, and then they diffuse the results to industry, which concentrates on final development and integrated design. The specificity of this division of labor, in contrast with that found in other countries, stems from the deep level of intervention the state has in the technological capabilities of the industry. Public research institutions not only make decisions about which technologies industry should acquire, but also develop them up to the level of working and almost sellable prototypes before handing them over to industry. It is this division of labor that is considered responsible for Taiwan’s leading role in the global IT industry. In this way, Taiwan is learning from the Japanese example where MITI (now METI) has research laboratories to explore the frontiers of technology in a number of crucial industries. Based on this knowledge, MITI was able to play an instrumental role in guiding the strategic thrusts of major Japanese companies. The Fifth Generation Computer Project was an example. Although it failed, it was a valiant effort on the part of MITI and the Japanese computer industry.
This division of labor may, however, limit Taiwan’s ability to excel in cutting-edge innovation activities. It creates a system that supports technological absorption and excels in second-generation innovation that seeks to improve the production and reliability of products based on novel technologies developed elsewhere. It is not certain whether this system can assist Taiwanese companies in developing their own innovative, original IT products. For example, in the case of chip design, although the Taiwanese semiconductor industry is the third- or fourth-largest in the world, with skills and technological capabilities as competitive as any other country, the Taiwanese IC firm has yet managed to produce any cutting-edge innovative IC design. Most are not even trying.
Because Taiwanese companies are not exactly at the cutting-edge of technology, they have to come up with new business strategies to make themselves competitive in the highly competitive global IT sector.
A major difference between Taiwan and other Asian NIEs, especially Korea and Japan, was that the state under the Kuomintang (KMT) intentionally built a financial system with a severe scarcity of patient capital, a system that eventually limited the ability of Taiwanese companies to compete in many IT manufacturing sectors. Taiwanese companies’ average equity/debt ratio has been as low as in the United State and sometimes lower. This helped the Taiwanese economy as a whole to pass through the East Asian financial crisis relatively unscathed. It has, however, also hampered Taiwan’s
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ability to innovate in IT manufacturing. Generally speaking, in the last decade, Taiwanese IC fabrication companies excelled only as pure-play foundries. With the integrated device manufacturer
(IDM) companies losing ground both internationally and domestically without a full range of capabilities, Taiwan’s IT sector may be weakened eventually.
The main impetus for the rapid growth of the design, or fabless, sector after 1996, was the pureplay foundries. Both major foundries, TSMC (Taiwan Semiconductor Manufacturing Corporation) and UMC (United Microelectronics Corporation), have encouraged the development of the design sector, establishing exclusive foundry – IC design house relationships with firms they refer to as “club members,” and helping them financially. Most of the Taiwanese IC design houses supply the
Taiwanese and, more recently, the Chinese system houses with the chips they need in order to provide finished products at competitive prices and of sufficient quality to OBM (Original Brand
Manufacturer) MNCs. The Taiwanese fabless companies rely on the proximity of the world’s biggest pure-play foundries. This geographical proximity enables them to produce cheaply and speedily large quantities of newly designed chips and to inspect and assure quality in almost real time at a relatively low cost. The Taiwanese IC design houses include those focusing on telecommunications and image processing. Basically, they specialize in chips based on second-generation technologies with the aim of lowering costs and increasing reliability. They also do some process innovation. For Taiwanese
IC design houses to become truly innovative, major changes in the Taiwanese industrial and financial system may be required. Hitherto, the Taiwan government has made no effort to introduce a financial system with venture capital and “angel” financing.
By the early 1990s, Taiwan had emerged as the third largest computer hardware-producing country, next to the United States and Japan, and the largest foundry (i.e. chip-maker) in the world.
The semiconductor sector – the core of the broadly defined information technology sector – used to be dominated by integrated device manufacturers, such as Intel and Samsung (a rather distant second), which not only design and develop chips but also manufacture them in their own facilities. TSMC and UMC pioneered the foundry model. A foundry maintains expensive manufacturing facilities (or fab) and produces on order chips specified in great detail by chip-designing and developing fabless companies. TSMC and UMC changed the structure of the world’s semiconductor industry, captured around 7 percent of the foundry market, and spawned a significant number of Taiwanese chip designers and developers as well as IC testing and packaging companies. Most semiconductor firms in Taiwan were founded by returnees from U.S. high-tech firms, and clustered in Hsinchu Science
Industrial Park, not far from two premier research universities, weaving a dense social and production network in the Hsinchu-San Jose community. This community is very important in sharing the latest technological advances in the IT sector and cultivates a sense of togetherness among Taiwanese entrepreneurs and scientists and engineers. Thus, the movement to Shanghai and Beijing can be seen
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as a wagon effect as in the case when Americans spread to the West in wagons loaded with little food but with a fierce determination to tame the West.
For Taiwan, wafer fabrication symbolizes national pride, epitomizing the success of its information technology industry. Crowned by the two leading foundries, TSMC and UMC, this industry accounts for one-third of total manufacturing outputs, and 50 percent of exports (and exports are 30 percent of GDP). Long before the DPP government took power from the KMT in May 2000, low-end and labor-intensive manufacturers had already found their way to the mainland, including firms producing the PC 486 model, motherboards, monitors, and PC peripherals. However, the government had been wary of the direct investment by Taiwanese firms in any kind of wafer fabrication in China.
A new reality in the world semiconductor markets set in right after the turn of the new century.
The burst of the IT bubble exposed the problem of overcapacity in global IT production that the exuberant Internet revolution boom helped to create. In 2001 – 2002, leading foundries had only a 70 percent utilization rate. The only market that was not contracting was China, where the demand for
IC was expected to grow from $25 billion to $41 billion in 2005. Many facilities for 8-inch wafer fabrication were idle in Taiwan, equipment was costly, and failing to move to China would hurt the chance to develop and expand 12-inch wafer fabs in Taiwan. TSMC planned to transfer $371 million from its headquarters and raise $418 million from Chinese banks, and expected to draw $109 million from the revenue of the proposed plan to finance its $898 million factory in Shanghai.
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During the 2000 – 2003 period, many firms came into being in China to the dismay of TSMC.
Local governments in Shanghai, Beijing, Shenzhen, Xian, and Chengdu dived into wafer production, while Shenyang and Harbin also tried to join the fray. Some $8.5 billion were invested. In Shanghai alone, eleven firms were formed. Notable ones are Zhongxin (Semiconductor International
Corporation) and Hungli (Grace Semiconductor Corporation), both located in Shanghai, and established (in the case of the former) or assisted (in the case of the latter) by former cadres of TSMC and with PRC’s capital input. In particular, Grace Semiconductor Corporation was co-founded by
Wen-yang Wang (son of Yung-ching Wang, CEO of the Formosa Plastic Group) and Jiang Man-heng
(son of Jiang Zemin, former president of the PRC), but many of their deputies are former employees of TSMC. In a way, this demonstrates the weakness as well as the strength of Taiwanese enterprises.
Loyalty of employees is still weak. People with strong technical skills want to make it on their own.
When Zhongxin and Hungli began to invest, they expected to use 0.25 micron for medium- and low-price end products. And yet, due to the 2001 recession, Western integrated device manufacturers slowed construction of their own fabs and transferred know-how to the two firms. Zhongxin, in
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particular, was able to sign many technology licensing agreements with major foreign IC manufacturers. Currently building its first 12-inch fab in Beijing, Zhongxin vows to use 0.13 micron technology soon. Notice that the plant in which TSMC is going to invest will use 0.25 and 0.35 micron technology to produce 8-inch wafers for the China market. Furthermore, SMIC declares that it is not just catering to the China market; it is producing for foreign markets as well.
If the story of the semiconductor and IC design / fabless sector is one of impressive growth and successful policies, the software industry offers a less sanguine tale. The Institute for Information
Industry (III) was given the task of promoting the use of IT and software throughout Taiwan and asked to help the government with its own computerization. In effect, III transformed itself into one of Taiwan’s biggest IT consultancies and software houses, and has been competing directly with private software firms.
Because III, a government research institution, had captured the big governmental contracts and the big global IT companies were competing directly on big projects, the industry was unable to develop big software houses specializing in customized development. Today, many of private firms realize that their future lies with Mainland China. Some of them have migrated to the Shenzhen
Special Economic Zone and Beijing as these two places have very strong software talent.
In a world in which it is possible to buy high-quality manufacturing in the market from global suppliers or OEM (Original Equipment Manufacturer) or ODM (Original Design Manufacturer) and it is no longer necessary to possess such capabilities in-house, new companies can enter the world market far more easily, since they need not spring forth capable of undertaking all the operations required to transform their innovations into goods and services in the hands of consumers.
At the end of 1980s, Japanese companies offered many lessons to the world. The lessons learned were that close interaction between a firm’s core activities and those of lead customers and suppliers were essential to efficient, high-quality manufacturing, just-in-time delivery, rapid learning, and the commercialization of innovation. The most successful firms were those, big or small, that integrated their core functions, either by locating in physical proximity, or by tight coordination under common direction. Bringing research, development, design, manufacturing, and marketing close enough together so that people involved in these activities could interact with each other daily – on crossfunctional teams or otherwise – appeared to make a difference for developing new things, designing them for quality and manufacturing, and getting them to market quickly. In such an environment,
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vertically integrated companies have enormous advantages, since they were able to extend their range of control over all the steps between innovation and the final customer, and because owning the steps was usually the only way to ensure that there was a tight enough degree of integration between them for quality, efficiency and just-in-time delivery.
An economy that once largely organized within the brick-and-mortar walls of vertically integrated companies today looks more and more like a network of supply chains linking firms that each performs a few core functions. Some of the world’s most successful firms today, like Dell, have radically separated product definition, design, and marketing from manufacturing. Today, Dell does little manufacturing. Its market power rests on its control of distribution and its delivery of low-cost items. Dell even bought large quantities of components from IBM, a rival in personal computers before IBM eventually sold off its PC unit to Lenovo. Quanta, a Taiwanese ODM notebook manufacturer, succeeds with no links to final customers, no brand, and little involvement with product definition. However, there is a limit to this approach. Other mainland manufacturers would soon adopt this approach once they have mastered quality control and have built up their market power in the supply chains leading to final assembly.
In its own economic ascent over the past thirty years, Taiwan has positioned itself as a world manufacturer, fostering generations of firms focused not on branding, design, or marketing, but rather on high-end, high-value manufacturing, usually for better-known global firms that then sell the
Taiwanese-manufactured products under their own brands. Mainland China, as it emerges as a global manufacturing center, appears to directly challenge Taiwan’s core area of specialization, its fundamental source of competitiveness. Taishang are not just transferring capital to China but key capabilities as well.
Today, a profound, essentially technologically driven transformation has occurred in the organization of production worldwide. China’s emergence as a manufacturing hub is only one element of this shift. Quantum advances in the management of information, through digitization, permit vast amounts of data to be specified, manipulated, and transferred cheaply and instantaneously.
Such changes allow complex production processes to be codified, disaggregated, and modularized.
Tasks that once had to be performed under the roof of a single firm, or within the confines of a single nationally coordinated economy, can now in many cases be outsourced to a multitude of highly specialized, often geographically dispersed players arrayed across complex production networks.
Production steps in the past were subsumed within self-contained, internally integrated production processes. These processes had to be mastered over time through the accumulation of vast amounts of tacit knowledge. They now can often be separated into distinct, codified, modularized activities.
Some of those activities, even in highly sophisticated manufacturing, have become commodified,
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open to entry by aggressive bidders. For other activities, however, tacit knowledge remains important.
It is uncodifiable and embedded in the production process. It is this knowledge that is heavily guarded by global systems integrators and indispensable component manufacturers, such as Intel.
Chinese enterprises have skillfully exploited the opportunities of modularization, aggressively upgrading their manufacturing skills so as to meet the outsourcing demands of leading global players.
While modularization affords new opportunities, it also creates major vulnerabilities, both for Chinese producers and other entrants. Fully modularized, codified, open production architectures entail the manufacturing of standardized, non-differentiated products. Firms focusing on such activities have little choice but to compete on the basis of low cost and high volume. That Chinese firms have mastered modularized production accounts for China’s emergence as the globe’s shop floor. It also accounts for the fact that Chinese firms across a variety of sectors today find themselves locked in mutually destructive price competition 2 .
An example is Lenovo, which acquired the PC unit from IBM.. Previously, it was known as
Legend. From its initial base in add-on card and motherboard manufacturing, Lenovo moved forward into PCs and routers and backward into printed circuit boards and semiconductors. Lenovo may choose to integrate, but it is far from clear how vertical integration could lead to any advantage over competitors specializing in any single piece of the modularized chain. The fact that Lenovo products still have “Intel Inside,” “Microsoft Inside,” and “IBM Inside” suggests that the overseas firms still control the rules of connectivity, while Lenovo has been left with a focus on low-value, commodified hardware.
Taiwan’s high-tech sector still remains relatively weak when compared with those in the U.S.,
Japan or even South Korea. By combining the strengths of mainland China and Taiwan, the Chinese may be able to move into a more competitive position. Currently, Chinese operations have been incorporated into the global strategies of many Taiwanese companies. These companies have, in many cases, remained deeply embedded in networks – both commercial and social – involving some of the most dynamic regions of the world, particularly Silicon Valley. Thus, they are exposed to the latest technological developments in the West. By tapping the resources in China and the U.S.,
Taiwanese companies can develop into world-class hi-tech firms. It is a win-win situation. What the
Taishang is doing is not just economic integration between China and Taiwan, they are trying to remain competitive and, thereby, profitable in a highly competitive and yet uncertain world.
It is important to realize that, although Switzerland is a small country high up in the Alps with a highly educated population of only six million, she has achieved dominance or, at least, significant market shares in quite a few global industries. Swiss firms do not compete on the basis of utilizing
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cheap labor in other countries. Swiss firms are able to compete because of people, technology, market access and low costs of capital. If Taiwanese firms abandon their traditional ways of thinking about global competition, they can work closer with Chinese firms to become more like Swiss firms than like other Asian firms whose strengths are basically their execution of certain functions in global supply chains. If we look at it this way, economic integration provides many opportunities to enhance the competitiveness of both Taiwanese and Chinese firms.
Some Americans believe that the U.S. should drop its neutrality on “reunification of China” and press for something like a semi-permanent status quo , while actively promoting greater international space for Taiwan. Moreover, the US should be unambiguous about coming to Taiwan’s aid in the event of an unprovoked PRC attack.
Others have a very different view, believing that the current policy on Taiwan is profoundly dangerous. They see the efforts to bury Chinese identity deeper and deeper and to elevate
“Taiwanese” identity to pervade all forms of social, political and economic life, as a challenge to one of the most fundamental political principles for Beijing and thus as risking ultimate war, perhaps even nuclear war between the United States and the PRC.
For both sides, the current approach has the drawback of leaving the initiative – and America’s own fate – in the hands of others. But if the US seeks to adopt a more active stance in support of cross-Strait peace and stability, some see a contradiction between the American role as Taiwan’s ultimate protector and any desire to play “honest broker” or peacemaker between the two sides.
Going back in history, in the February 1972 Shanghai Communiqué, Beijing laid out all the formulations that it found unacceptable: “two Chinas”, “one China, one Taiwan”, “one China, two governments”, an “independent Taiwan,” and “the status of Taiwan remains to be determined.” For its part, the US adopted the now-famous formula:
The United States acknowledges that all Chinese on either side of the Taiwan Strait maintain there is but one China and that Taiwan is a part of China. The United States government does not challenge that position. It reaffirms its interest in a peaceful settlement of the Taiwan question by the Chinese themselves.
In his paper, The Role of the United States in Seeking a Peaceful Solution in the book, Peace and
Security Across the Taiwan Strait , Alan Romberg writes:
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At the time this position was formalized in the various US – PRC joint communiqués, Taiwan was not a democracy but an authoritarian and (even at that late date often repressive society).
Nevertheless, the US position reflected not only an enduring sense of concern for the wellbeing of the people in Taiwan, but also a belief that allowing a forceful take-over by the
Mainland would have created a political firestorm in the United States. Perhaps equally important was (and is) the conviction that allowing the use of force to settle the issue would undermine regional stability as well as the credibility of the US strategic posture in Asia and beyond.
Taiwan’s democracy has blossomed over the past decade and a half, however, and in
American minds stands in sharp contrast to the repressive nature of the PRC political system and the still-vivid mental picture of Tiananmen. Indeed, the opening of the Taiwan political system in tandem with the tragedy of Tiananmen etched a new, contrasting image of “good
Taiwan” and “bad PRC” in American minds 3 .
In June 1995, Lee Teng-hui, then president of the Republic of China attended a ceremony at his
Alma Mater, Cornell University, to receive a doctorate degree. In his address, he frequently referred to the Republic of China on Taiwan at least nine times. This was taken by Beijing as a watershed in
Lee’s separatist activities and US involvement with them. The consequence was a crisis in US – PRC relations as well as in cross-Strait relations that climaxed in the military tensions in spring 1996.
In the wake of those tensions and military moves of both sides in March 1996, Washington recognized that a course correction was necessary. Within two months, Secretary of State Warren
Christopher not only called on both sides of the Strait to avoid unilateral efforts to change the status quo , but he also advocated periodic US – PRC cabinet-level meetings in the two capitals as well as regular summit meetings.
President Clinton traveled to Beijing in June 1998. Clinton publicly articulated the controversial
“three no” – no US support for “one China, one Taiwan” or “two Chinas”, no support for “Taiwan independence”, and no support for Taiwan’s membership in international organizations made up of states. None of these positions was new either to the Clinton Administration or to previous American administrations. Indeed, the first two were positions tabled by Kissinger in his very first trip to China in July 1971, and the third has been the American position since US – PRC normalization in 1979.
On July 9, 1999, Lee, in an interview with Radio Deutsche Welle, put forward the formula that he thought should apply to cross-Strait relations. He said that they should be treated as a “state-to-state”
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relationship or at least a special state-to-state relationship. In response, the United States dispatched officials to both Taipei and Beijing to ensure that everyone knew that the US did not support this “two states theory” as it became known. In the APEC meeting in Auckland, New Zealand that autumn,
President Clinton told Jiang Zemin that Lee had been a troublemaker and had made things more difficult for both China and the United States.
Chen Shui-bian won the presidential election in March 2000. Beijing came to see many of
Chen’s statements and actions as playing to – and expanding the limits of – American tolerance rather than moving cross-Strait relations ahead. Indeed, Beijing perceived a tendency toward “creeping separatism” that, while less dramatic than what it had foreseen under Lee or feared under Chen, was nonetheless potentially more dangerous. This was because the rationale for threatening to use force to deter a dramatic “declaration of independence” was clear-cut, but doing so in reaction to any one small, seemingly “reasonable” yet insidious step would be far more difficult to justify.
Chen declined to head the National Unification Council (which even Lee had chaired), refused to call himself a “Chinese”, and noted that unification was “not the only option”. In late February 2006,
Chen let it be known that the National Unification Council had ceased to function. Initially, he wanted to use the word “abolition”, but was advised by Americans stationed at the American Institute in Taiwan not to do so. Each of Chen’s positions seemed to have a plausible explanation and, in any event, none seemed so confrontational as to warrant a crisis.
In important ways, however, the picture changed with the advent of the George W. Bush
Administration in January 2001. After taking what seemed to be an initially hostile position toward the PRC in the Republican primary campaign, one time even labeling it a “strategic competitor”
(presumably to draw a sharp contrast with Clinton’s vision of China as a future “strategic partner”,
Bush eventually adopted a stance of favoring good US – PRC relations). But he also made clear that he thought Clinton had been insufficiently attentive to Taiwan’s security concerns and had not given the island the dignity it merited based on its democratic evolution and economic achievements. Once in office, President Bush sought to remedy these perceived shortcomings.
In a meeting with Jiang Zemin in Shanghai following his election, President Bush said:
Both the United States and China must make a determined choice to have a productive relationship that will contribute to a more secure, more prosperous and more peaceful world.
Despite the almost yearlong, generally positive trend in US – PRC relations and the success of
Bush’s two visits to China, the climate deteriorated again shortly after the president left Beijing. The
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PRC had already identified an increasingly aggressive pattern of “creeping Taiwan independence,” for example, in what they labeled Taipei’s “de-Sinicization” and the “rectification of names” campaigns.
But, now, certain events suggested more strongly than ever to Beijing that this trend was proceeding with US connivance. Beijing also got angry with Pentagon’s “Nuclear Posture Review” (NPR) which considered the possible use of US nuclear weapons in a Taiwan contingency.
A new Taiwan Caucus was formed in Congress in 2002 that wants to be seen to be doing something active on Taiwan’s behalf. Not only has a co-chairman of the Caucus proposed abolishing the US’s one China policy, which is not likely to gain much support, but shortly after its formation, the caucus was reportedly promoting an invitation to Chen Shui-bian to visit Washington. However,
Washington was still mindful of the earlier visit by President Lee Teng-hui to the United States to receive an honorary doctoral degree from Cornell University.
It has long been a premise of American policy that, without a sufficient sense of confidence,
Taipei would instinctively refuse to engage with Beijing for fear of being bullied into submission, and the situation would remain fragile. Indeed, the US has argued that bolstering Taiwan’s defensive capability provides a level of assurance on the island that can facilitate cross-Strait dialogue.
Beijing strongly challenges the US view that arms sales promote dialogue. Rather, it believes, those sales and other security ties to the US reinforce Chen Shui-bian’s resistance to “one China” and his determined pursuit of “creeping independence”, contributing not to dialogue, but to a distancing between the two sides and an increased likelihood of eventual military confrontation.
In Alan Romberg’s view, the PRC does not seek Taipei’s surrender and its acceptance of a role as a “province of the PRC.” Beijing clearly prefers not to use force. However, it certainly insists that
Taiwan abjure any goal of permanent independent status outside of China and any policies that lead in that direction, and that Taipei re-embrace the principle of one China and the goal of reunification.
The PRC’s foremost objective in adopting these positions is to block Taiwan from moving toward ever more formalized separate status, leaving the unification process, including agreement on how one defines “one China,” to be addressed in the future.
In insisting on hard-line positions, both sides have a certain logic on their side. The PRC cannot be faulted for assuming that, without at least a potent threat of real consequences, Taiwan would go its merry way toward formal separate status or independence. There is little question that the high level of support for maintaining the “ status quo ” and the very low support for “independence” registered in
Taiwan public opinion polls reflects not the heart-felt ambitions but the well-honed pragmatism of the
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island’s people, who understand that the likelihood of severe consequences if they indulge their preferences on this issue.
From an American perspective, a continuing policy of providing carefully selective defensive weapons to Taiwan is justified. However, such US policy could only confirm Beijing’s view that the
United States seeks to block Chinese reunification. It could, therefore, have unpredictable effects on the internal debate in China on Taiwan policy, not to mention effects on Beijing’s policy toward the
Untied States.
There is no question that the US relationship with Taiwan has its peculiarities and its unsatisfactory elements. Perhaps some of what has been achieved since the advent of the Bush
Administration has helped put that relationship on a somewhat acceptable basis for conservative
Americans. What is disturbing about it to many in China, however, is that, taken as a whole, and notwithstanding fine words during summit meetings, it appears to treat PRC concerns about Taiwan lightly as well, for some, as casting China in the role of strategic challenger to the United States.
Thus, not only are certain American gestures toward Taiwan potentially problematic in terms of cross-
Strait relations, but they appear to many in China as fitting into a larger US strategic posture of preparing for an inevitable Sino-American confrontation, with Taiwan as a tool in that process.
Alan Romberg makes the following suggestions to his fellow American citizens:
The United States should obviously not be Beijing’s instrument in dealing with Taipei. But neither should it be Taiwan’s in dealing with the PRC. As they have historically, both will continue to seek to have Washington do their bidding, and because Taiwan’s case is now especially appealing in terms of American values, there is strong temptation to move in that direction. Supporting American values abroad is very much in the US national interest and is an important reason the sense of commitment to Taiwan’s future is as strong as it is. But promoting democracy is not the totality of that interest, and the US needs to keep its overall interests in clear perspective 4 .
However, it is much more than just discomfort to Americans or to the Chinese on both sides of the Strait. It amounts to no less than a strategic dilemma. Basically, it translates into “no war, no peace, no unification, no independence.” There is real danger in this baffling strategic dilemma. It can lead to a war not just between the Chinese on mainland China and the Chinese in Taiwan; it can lead to a war, even a nuclear war, between America and China. Simply put, we cannot and should not leave everything to chances.
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Below, we shall briefly go over some of the recent developments across the Strait, and propose a way to resolving the strategic dilemma that we are so familiar with.
On June 26, 1983, Deng Xiaoping proposed to have talks on an equal footing and the third cooperation between the two parties (Chinese Communist Party or CCP and KMT) in history. “We will not raise it as talks between the central government and a local government.” He noted that after reunification, the two different systems could be practiced on the mainland China and Taiwan. On
February 22, 1984, Deng officially announced the “one country, two systems” formula for reunification.
Beijing pushed vigorously for formal political contacts and earlier talks on reunification. Taiwan set up a semi-official organization, the Strait Exchange Foundation (SEF), in February 1991. Beijing accepted this informal arrangement and set up his own counterpart, the Association for Relations
Across the Taiwan Strait (ARATS). In September 1990, Taiwan set up the National Unification
Council as an advisory body to the President.
The ARATS and SEF had several informal meetings in 1992. As a matter of fact, on November
16, 1992, Taipei and Beijing did reach a verbal consensus on the “one China” principle in a discussion between the ARATS and the SEF. China’s ARATS said: “Both sides of the Taiwan Strait adhere to the one China principle, seeking national reunification. But the political content of the one China will not be involved in their talks on practical matters.” Taiwan’s SEF said: “In the process of both sides of the Strait making common efforts to seek national unification, although both sides adhere to the one China principle, they have different understanding of what is this one China.”
Obviously, both sides did reach a consensus on one China, though each side had a different interpretation of this “one China”. KMT chairman Lien Chan, Taipei mayor Ma Ying-jeou and other officials in the previous KMT government involved in the ARATS – SEF meetings have also publicly acknowledged that the “one China” consensus is a fact. To the ruling DPP, acknowledging “one
China” means, as Vice President Lu Hsiu-lien describes, “capitulation”. Hence, the new government has tried hard to keep away from this “one China” issue while trying to avoid unnecessary tension in the Strait.
In April 1993, a groundbreaking meeting took place in Singapore between Koo Chen-fu, chairman of Taiwan’s SEF and his mainland counterpart, Wang Daohan of ARATS. By 1995, the
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two sides have conducted fifteen rounds of negotiations. On May 22, 1995, the United States, reversing a sixteen-year ban on U.S. visits by high-ranking ROC officials, suddenly granted a visa to
President Lee Teng-hui for a six-day “private” visit to his Alma Mater, Cornell University. China suspended the Wang-Koo meeting and held military exercises and conducted “missile tests” from July
1995 to March 1996, near Taiwan island, as a strong warning.
The tension across the Taiwan Strait began to decline. In October 1998, Koo Chen-fu finally made his tour of China. It was agreed that Wang Daohan would make a visit to Taiwan during the following year. In an interview with a German radio station, Deutche Welle, on July 9, 1999, Lee
Teng-hui openly defined the relations between mainland China and Taiwan as “between two countries
( goujia ), at least special relations between the two countries. He also noted that there was no need for
Taiwan to declare independence again since it (ROC) had always been an independent country since
1912.
Koo changed his previous position (that he had held in his meeting with Wang Daohan in October
1998) and publicly called cross-strait ties country-to-country relations. Under pressure, the Taiwan government changed the English wording as “special state-to-state” relations. Taipei would now ask for permission to join the United Nations as a new and separate state, using the German model to support its motion. It would also instruct all its foreign representative offices to explain to their host governments the applicability of the German model, which was embodied in the “Grundlagenuertrag”, or Fundamental Treaty of 1972, between the Germanies. Taiwan’s new initiative provoked China’s fury. Wang Daohan warned that the “two states” policy had removed the basis for further dialogue between the ARATS and the SEF. Beijing warned Taiwan not to underestimate Beijing’s determination and capability to uphold the nation’s sovereignty, dignity, and territorial integrity. It warned that Lee had taken “the people of Taiwan, as well as his foreign patrons, hostage down the road of destruction and into his suicidal, separatist adventures. Lee pressed on. To some observers, it seems that Lee Teng-hui and Chen Shui-bian were in a race to gain a recognition in history that he is the father of an independent Taiwan.
China and Taiwan differed in their usage of the term “independence.” When Lee said that he would not declare Taiwan’s independence, in essence, he meant that he would not declare a Republic of Taiwan (ROT). However, to China, the term “independence” meant a split with China, whether in the name of the ROT or ROC. To declare the ROC and the PRC as two separate and independent sovereignty states was to split China. To declare Taiwan’s independence, especially as the DPP had declared Taiwan’s independence in the name of the ROC, instead of the ROT, was to split China as well.
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As pointed out previously, Beijing and Taipei had reached a vocal consensus regarding the “one
China” policy in a meeting between the ARATS and the SEF in March 1992, and reaffirmed it in the first round of the Wang-Koo meeting in 1993, namely that the two sides should adhere to the “one
China” principle. This principle was then explained in three sentences: (1) There is only one China in this world; (2) Taiwan is part of China. However, the two sides had different versions for the third sentence. For Beijing, it read that “the PRC is the sole legitimate government of China,” while for
Taipei it was the ROC. Taipei later claimed that the two sides agreed to disagree on one China and there was one China but free interpretations. Beijing denied that it had allowed any “free interpretations” of the “one China” principle and that it had never “agreed to disagree.” It said that in
1992, the ARATS had made clear its position to the SEF: “The one China principle should be adhered to. So long as this position is claimed in talks on practical matters, we may not discuss the political content of this one China.”
Lee insisted that Taiwan and China must deal with each other on a “state-to-state” basis. Though this theory had not been codified into the state Constitution, it had, by the end of August, 1999, been enshrined, by way of a KMT resolution, in the party charter. Thus, it has become a formal document.
At the same time, as another “concession”, the KMT reaffirmed Lee’s assurance that Taiwan had no plan to codify it into the Constitution. In early September, Taiwan’s National Assembly voted to extend its four-year term by another 25 months, in order to “suspend” or “temporarily freeze” the present Constitution and would draft a “basic law” to reflect its current constitutional reality, that is,
“special state-to-state” relations with China.
The next generation of KMT leaders consist of Soong Chu-yu, Lien Chan, and Ma Yin-jeou.
These younger leaders had some policy differences with Lee. For their own political interests, these younger leaders generally did not encourage the “natives of Taiwan” to marginalize the “mainlanders in Taiwan,” China, of course, liked to see more “mainlanders in Taiwan” and those who had strong feelings toward China to remain in power. It once had a preference for a coalition between Lien,
Soong, and Ma, and those KMT leaders who had been marginalized by Lee on the reunification issue.
To meet the DPP challenge, this KMT younger generation would like to “play the China card” to seek tactical political cooperation from China in order to demonstrate to the voters in Taiwan their capability to maintain cross-strait stability. This was where Beijing could exert its influence.
Taiwan’s presidential election, held on March 18, 2000, saw the defeat of the Kuomintang (KMT) government, for the first time after fifty-five years in power, by the pro-independence Democratic
Progressive Party (DPP). Though once a vocal advocate of Taiwan’s independence, Chen Shui-bian was far less fervent in public about independence. Nevertheless, his “Long Live Taiwan
Independence!” cheer during the campaign made people suspect that his new stance was merely for
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political expedience. His remarks often appeared ambiguous, evasive, and self-contradictory. While vowing not to promote a referendum on Taiwan’s independence, he also supported the concept of having the Taiwan people determine their own destiny. While on one occasion he promised not to write Lee’s “two states” theory into the Constitution, on other occasions, he advocated amending the
Constitution to give legal effect to the theory. He also did not make clear any commitment to change the pro-independence clause in his Party Charter.
Chen at first refused to acknowledge the 1992 consensus (reached between Beijing’s ARATS and
Taipei’s SEF) on “one China”. Later, he said that there was no “1992 consensus on one China”, but only a “1992 spirit”, which, he explained, “means dialogues, exchanges and shelving disputes.” He called on Beijing to resume cross-strait talks based on such a “spirit”, instead of the “1992 consensus on one China” as Beijing demands 5 .
For the New Year of 2001, Chen Shui-bian made a speech. He proposed: “The two sides should start from economic, trade and cultural integration, and build mutual trust on a gradual basis so as to seek lasting peace and build a new mechanism for political integration.”
Here, the word “integration” is subject to wide interpretations. It could mean a federation, confederation, or even commonwealth. Chen later added that the European Union was the best model for Taiwan and China. Obviously, Chen was asking for Beijing’s recognition of Taiwan as nothing less than a separate sovereign state, and not Taiwan’s reunification. DPP Chairman Hsieh Chang-ting explained that the word “integration” was to indicate that the political entity of Taiwan would not disappear. “Integration does not necessarily mean unification while unification must mean integration.” The DPP Party refused to spell out exactly what the government meant by the phrase
“political integration.” Chen Shui-bian said that any form of political integration should be subject to the ROC Constitution, and Taiwan’s national sovereignty, safety and dignity should not be compromised. As one Taiwanese strategist suggested: “Once the integration process kicks off, China will in fact have admitted that Taiwan has a certain form of sovereignty or autonomy. Taiwan will therefore naturally have the right to drop out of the integration process at any time.
In the same speeches, Chen also rejected, as Lee Teng-hui had done, Beijing’s demand to start political talks and dialogues, saying, “The two sides should start from economic, trade and cultural integration” first, in order to build mutual trust on a gradual basis before “seeking lasting peace and building a new mechanism for political integration”. Taiwan’s independence and democracy were life-long pursuits for only some DPP leaders. To the rest, they were only political means to obtain state power. In other words, while they were the ends for some leaders, they were the means for others. The pursuit of state power was the only aim that all the factions shared, which accounted
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largely for their previous unity. Once in power, factional differences and tension developed rapidly.
The presidential election in 2000 marked the first turnover of power from the KMT to the opposition.
In that same year, Taiwan entered a period of severe economic difficulty. Although the economy began to improve somewhat in 2002 and 2003, growth was weak, and unemployment remained high.
Many factors contributed to Taiwan’s recession, and the most important of these was probably the world-wide economic downturn that accompanied the bursting of the high-tech bubble. Nonetheless, the recession coincided with President Chen’s election, which left many Taiwanese convinced that
Chen’s election was a significant factor. People’s faith in the government became shaky, and their suffering index hit the roof. Taiwan is experiencing a political, economic, social and cultural crisis that is essentially a complication from a transfer of power. If the post-transition regime’s economic policy performance is perceived as poor, its political performance is not viewed much more favorably.
Taiwanese hold the legislature – and politicians in general – in very low regard.
Despite its shortcomings, there is little evidence that Taiwanese are about to give up on their democracy and bring back authoritarian institutions. Nonetheless, there is deep frustration with the poor performance of politicians and political institutions, and many Taiwanese believe additional reforms are necessary to complete and consolidate the island’s democratic transition. Briefly, for years, the DPP has been an opposition party without experience in running government affairs. Once in power, DPP members found too many challenges to deal with. As a result, Taiwan’s economy declined. In March 2005, China’s National People’s Congress (NPC) passed the Anti-Secession Law, which is included as an appendix to this chapter. In mid-2005, Lian Chan, then chairman of KMT and
James Soong Chu-yan, chairman of the People First Party (PFP) paid visits to Beijing to meet Hu
Jintao, president of the PRC and Secretary General of the Chinese Communist Party. The KMT and
CCP reached consensus on a wide-range of issues regarding promotion of an early resumption of cross-strait dialogue, the signing of a peace accord, the building of a mechanism for military mutual trust and a common market between the two economies.
Chen Shui-bian does not accept the “one China” principle. However, it should be recognized that conflicts at one level can often be resolved at a higher level. Consider the arithmetic mean (AM) and the geometric mean (GM). It can be shown that the GM is always smaller than, or equal to, the AM.
Taking an excursion,
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ab
GM ≤ AM
a + b
2
ab
≤ a + b
2
2
ab ≤ a 2 + 2ab +b
4
2 or
0 ≤ (a – b) 2
To make things concrete, let there be two numbers, 2 and 8. The GM is 4 whereas the AM is 5.
2 4 5
2
8
If 2 represents Taiwan and 8 represents the PRC, compromising will lead to the AM or number 5.
However, if the “one China” principle is accepted by both sides as the groundwork for cross-strait talks, such an acceptance amounts to the resolution of conflicts at a higher level and the resulting agreement will be represented by the GM, which actually lies closer to the smaller number, 2. The implication is simple: once the “one China” principle has been adopted, Taiwan can get more favorable terms and can preserve its political, economic and social institutions and can even advance its economic interests as risks are reduced and there can be investment from China to Taiwan.
Furthermore, by tapping China’s vast resources, the Taiwan people can enjoy greater peace and prosperity. It is a win-win situation, in favor of Taiwan.
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There are various models put forward for Chinese reunification. Deng Xiaoping proposed the
“One Country, Two Systems,” which was later used as a model for the return of Hong Kong to China.
Other models include: (1) The China Commonwealth Model and (2) The China Union Model.
These are found in the book, Peace and Security Across the Taiwan Strait (2004). Apparently, the people who made such proposals have in mind the British Commonwealth and the European Union.
Indeed, there are also proposals to establish a common market in Greater China first, followed by free flow of people and goods. Such economic integration would hopefully pave the way to political integration. However, in our personal views, such a process is more appropriate for Asian integration than for Chinese reunification.
In his book, The Great European Illusion: Business in the Wider Community (1992), Alain Minc wrote:
The first circle, strategic, encompasses Europe. The second circle, economic, traces the frontiers of the twelve member states with a dotted line. A third circle, cultural and sociological, follows the fluctuating, rather less distinct contours of the West. Between these circles a hypothetical European identity is at play. The dream of a political Europe loses conviction in those surroundings. It would come about of its own accord if these three circles were convergent, or at least concentric, but is out of reach for as long as Europe is torn between such contradictory positions. In this matter, the third circle is essential since it marks the frontiers of society. If there were a civil European society, Europe would really exist, eventually managing to assert its dynamism and its aspirations. When the champions of 1992 wish to give some depth to their myth, they fuel pipe-dreams: the single European market will unify society which will unify Europe. What a charming tautology! In reality, the third circle is more elusive. A European society does not truly exist; it merges into a generalized Western community whose way of life and traditions are expressed equally well in Paris as in Toronto, in Frankfurt as in Dallas, and even, in terms of desires, in Warsaw as in Mexico. A Homo
Occidentalus does exist, but not a Homo Europeanus.
Europe has none of the features of a real civil society; no institutions nor citizenship, with public loyalties which are ambiguous and an elite which is doing nothing to improve the situation 6 .
In a similar vein, Chinese economic integration does not, by itself, lead to political integration.
We must face the political problem first because political idealism gives birth to both economic integration and political integration.
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When I was an undergraduate at Caltech, I took a graduate course in numerical analysis, a branch of applied mathematics, which tries to solve complex mathematical problems on the computer. The last assignment was the most difficult assignment: it was the three-body problem. In other words, we were trying to plot the orbits of a planet going around two suns. There are two possible orbits for such a planet. Both of these two orbits are stable. Without going too far, we can say that the Taiwan problem is somewhat akin to the three-body problem. If the planet in question is replaced with a manmade satellite, the satellite can be ordered by modern techniques in aerospace engineering to go from one orbit to another.
Drawing on such an analogy, China and Taiwan may first form a confederation based on the principle of “one country, several systems.” After some time, the configuration can change to a democratic federation with Chinese characteristics. The Chinese federation may be depicted as a
“Solar System,” in which Beijing acts as the Sun with all the planets going around her according to inverse square laws:
F = G mm’ r 2
G turns out to be 6.670 x 10 -11 Newton · m 2 / kg 2
It is hard to exaggerate the importance of the effect on the history of science produced by this great success of the theory of gravitation. Compare the confusion, the lack of confidence, the incomplete knowledge that prevailed in the earlier ages, when there were endless debates and paradoxes, with the clarity and simplicity of this law – this fact that all the moons and planets and stars have such a simple rule to govern them, and further that man could understand it and deduce how the planets should move. This is the reason for the success of the sciences in following years, for it gave hope that the other phenomena of the world might also have such beautifully simple laws.
In such a solar system, Taiwan may very well be a Jupiter or Saturn. Because the gravitation force drops off rapidly as the square of the distance from the sun (that is why it is called the inverse square law), the Jupiter or Saturn has much “autonomy.”
Hence, in mathematical terms, it is going from Orbit 1 into Orbit 2. In political terms, it can be depicted as follows:
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Chineses confederation based on the principle of
“one country, several systems”
Chinese democratic federation with
Chinese characteristics
In electronics, we frequently encounter the term, Very Large Scale Integration (VLSI). Chinese reunification can also pave the way to Asian integration. Asian integration is not necessarily a mirror image of European integration. Asia is still mostly a geographical expression rather than a region with common cultural heritage as in the case of Europe. However, we can draw a few lessons from
European history.
The Holy Alliance was a coalition of Russia, Austria and Prussia created in 1815 at the behest of
Tsar Alexander I of Russia, ostensibly to uphold Christianity in European political life but in practice as a bastion against revolution. In time other European nations joined as well. The Holy Alliance was, in a manner of speaking, the first modern international peacekeeping organization, though it was rooted in antiquated models of politics. The Alliance is usually associated with the Quadruple and
Quintuple Alliance, which included Great Britain and (from 1818) France with the aim of upholding the European peace settlement concluded at the Congress of Vienna, which saw the end of the
Napoleonic Era. The Holy Alliance was conventionally taken to have become defunct with
Alexander’s death in 1825.
Presently, there is ASEAN + 3. The “3” means China, Japan and South Korea; and ASEAN means the Association of Southeast Asian Nations. In time, this loosely formed organization can be upgraded into a “Holy Alliance” for political stability, economic growth and technological innovation in Asia. What we then have is a Concert of the Pacific with the participation of the United States in one way or another. In comparison, the Concert of Europe was formulated in 1815 as a mechanism to enforce the decisions of the Congress of Vienna. Composed of the Quadruple Alliance: Russia,
Prussia, Austria, and Great Britain, its main priorities were to establish a balance of power, thereby preserving what was honored in the Congress. Headed by Prince Metternich of Austria, the Concert of Europe was one of the first serious attempts in modern times to establish an international society to maintain the peace. This made it a significant event in world history, even though it only lased for a few decades. Just as the United States had been instrumental in solving the German problem in
Europe, the United States can help solve the Taiwan problem in Chinese reunification and the
Japanese problem in Asia. We may then have a Pacific Century.
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A senior Japanese official told us that Singapore was the most socialist country in the world and that Japan was the second. In Japan, it was the visible hand that ran the country’s economy. It was administrative coordination or what the Japanese called administrative guidance. Because the
Japanese do not believe in the invisible hand first advanced by Adam Smith in his book, Wealth of
Nations , in 1776, the year when America proclaimed its independence, they have an economic system which may be described as strategic capitalism and collective capitalism. Despite its poor performance in recent years, Japanese economy is still the second largest in the world with a manufacturing output that is greater than that of the United States, and much of that manufacturing output is in the high-tech sector and heavy industries. Just Mitsubishi Heavy Industries alone sprawl over many industries, building the most sophisticated ships and the most advanced jet fighters and the most efficient power plants.
One of the great intellectual achievements of the mid-twentieth century (by Gerard Debreu of the
University of California at Berkeley and Kenneth Arrow of Stanford, both of whom received Nobel
Prizes for this achievement) was to establish the conditions under which Adam Smith’s “invisible hand” worked. These included a large number of unrealistic conditions, such as that information was either perfect, or at least not affected by anything going on in the economy, and that whatever information anybody had, others had the same information; that competition was perfect; and that one could buy insurance against any possible risk. Though everyone recognized that these assumptions were unrealistic, there was a hope that if the real world did not depart too much from such assumptions – if information were not too imperfect, or firms did not have too much market power – then Adam Smith’s invisible hand theory would still provide a good description of the economy. This was a hope based more on faith – especially by those whom it served well – than on science.
Research on the consequences of imperfect and asymmetric information (where different individuals know different things) over the last quarter of the twentieth century has shown that one of the reasons that the invisible hand may be invisible is that it is simply not there. Even in very developed countries, markets worked significantly differently from the way envisaged by the “perfect markets” theorists. They do bring enormous benefits; they are largely responsible for the enormous increases of standards of living over the past century, but they have their limitations, and sometimes these limitations simply cannot, and should not, be ignored.
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In his book, The Roaring Nineties: A New History of the World’s Most Prosperous Decade , Nobel
Prize winner Joseph E. Stiglitz wrote:
In the seventies and eighties, economic research revealed a wide range of market failures, instances in which markets fail to perform well, and in which they fail to deliver even the promise of efficiency … The research for which I received the Nobel Prize focused on one set of problems, one such set of pervasive market failures , those arising from imperfect and asymmetric information. But well before economic theorists “explained” why markets could not be relied on, the public had recognized that there were important instances of market failure, where government could make a difference 7 .
Dr. Stiglitz gave the following example. Accountants are required in part because shareholders know they can’t trust firms – there is simply too strong an incentive, even in the presence of fraud laws, to provide misleading information. There are natural asymmetries of information – managers know information which shareholders don’t. The accountants are supposed to make sure that the numbers reported accord with certain standards. Good accounting standards and practices reduce asymmetries of information, and help make capital markets work better. In the last two decades, unfortunately, the forces working in favor of accurate information have been systematically undermined.
On a broader scale, rational expectations theorists portrayed the American economy itself as a rational mechanism – one in which, miraculously, prices reflect instantaneously everything that is known today, and price today reflect a consistent set of expectations about what prices will be infinitely far into the future. The conclusions of the rational expectations theorists – most importantly, those relating to the efficiency of markets – fall apart if different people know or believe different things, as they plainly do. Dr. Stiglitz gives the following sobering comments:
Market economies have enormous powers, but they also have their limitations. My own research focused on problems associated with asymmetries of information, problems which have been increasingly important in our information-based economy. Our struggle is to understand the limitations, so that we can make our economy work better. Economies can suffer from an overintrusive government, but so too can they suffer from a government that does not do what needs to be done – that does not regulate the financial sector adequately, that does not promote competition, that does not protect the environment, that does not provide a basic safety net …
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There is an alternative vision, one based on global social justice and a balanced role for the government and the market. It is for that vision we should be striving 8 .
Let us now turn back to China.
They are great problems inherent in China’s present political economy. Chinese leaders are fully aware of the problems that arose during the rapid transition of the command economy of the
Soviet Union to a market economy. Perhaps Russian leaders have been somewhat naive in listening to, and putting into practice, the advice offered by American economists who advocated a “Big Bang” approach to economic reform. However, Chinese leaders are still determined to proceed with privatization in China albeit at a slower pace. The privatization in China to date has been characterized by widespread insider dealing and corruption. As in Russia, powerful Chinese parties had made use of the law or at least loopholes in the law to avail themselves of the opportunity in each deal. They are also showing off their wealth in highly conspicuous ways. Perhaps, Westerners would smile at such display of wealth as the expected behavior of nouveau riche . Overseas Chinese in Hong
Kong and Taiwan have done the same. However, Hong Kong is a capitalist enclave where the great unevenness of wealth does not lead to great jealousy and social unrest but to the blind pursuit of wealth almost at any costs. At a matter of fact, it is more acceptable and, indeed, more respectable to be a prostitute than to be someone working at poorly paid clerical jobs at convenience stores, such as
7-Eleven or Circle K. Wealthy Chinese in the mainland are emulating Hong Kong nouveau riche in lavish spending and keeping young mistresses.
In the years ahead, there is a prospect that as much as RMB 10 trillion (around US$ 1.2 trillion) in government assets will be privatized. Needless to say, how much privatization take place will have significant implications for the distribution of wealth among the Chinese people. A senior Chinese official told us: “Privatization will benefit everyone, but the privileged classes are most likely to find ways of enriching themselves.” In 2005, when the People’s Bank of China, adjusted the exchange rate of the renminbi to the U.S. dollar by 2 percent, some princelings with the right connections reportedly made hundreds of millions in the foreign exchange market. In a way, the top Chinese leaders are trying to be clean beyond reproach; however, certain elements find it expedient to grab whatever opportunities that may arise.
The obvious question is that if there is so much corruption in a centralized China, what will become of a decentralized China? That is why a democratic Chinese federation can come into existence only after some time into the twenty-first century.
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What then should be the role of the state in China? The most powerful influence on the thinking of China’s policy makers was probably the Japanese experience since the Meiji restoration. During a similar period in Japan’s economic development, from the 1950s to the 1970s, Japan’s industrial planners in the Ministry of Finance and the Ministry of International Trade and Industry support the growth of a cluster of giant firms that developed into global giants with technology that can challenge
Western giants in global markets. In many sectors, the state nurtured just two or three dominant firms there were in an oligopolistic position in the domestic market. Due to American inference in the immediate post-war period, Japan did have legislation against anti-competitive behavior that might arise from oligopolistic structures in her industries. However, the Japanese anti-trust body looked askew when the state consolidated her major industries into powerful giants. There were sporadic circumstances when industrial firms challenged the wisdom of the state. A noticeable example is
Japan’s automotive industry. Against the decree of the MITI, Mitsubishi Motors came into being as a full member of Japan’s elite club of automotive manufacturers. However, even today, Mitsubishi
Motors is a weak competitor against Toyota, Nissan and Honda.
Anyway, after two decades of industrial policy, there were a whole corps of globally competitive
Japanese companies. But the late 1980s, Japan had twenty of the largest one hundred corporations in the Fortune 500 list. These companies developed through extensive support from state industrial policies, which were coordinated in action by the Ministry of Finance.
During that 1970s to 1980s, Japan received scant attention from the West. When Western firms became fully aware of the competitiveness of Japanese firms, Japan had already many global giants to boast of. In the book,
Inside Japan’s Power Houses: The Culture, Mystique and Future of Japan’s
Greatest Corporations (1995) Kevin Rafferty listed the world’s twenty largest industrial companies by revenues in 1995. They were Itochu Corporation, Sumitomo, Mitsubishi Corporation, Marubeni
Corporation, Mitsui, General Motors, Exxon, Ford Motor, Toyota Motor, Royal Dutch/Shell, Nissho
Iwai, British Petroleum, AT&T, Tomen Corporation, Hitachi, IBM, Mobil, Philip Morris, General
Electric and Matsushita Electric. Despite Japan’s recent poor performance, Japanese industrial concerns and banks are able to hold on global markets. However, Japanese firms built up their strengths at a time when global giants were more concerned with profitability than with market shares.
A case in point is Xerox Corporation. After Xerox introduced its wildly successful 914 copiers, it rest on its laurels and sought protection and monopolistic profits from its patents. This allowed Japanese manufacturers, such as Canon and Minolta, to seek entry into the market of smaller machines.
Ironically, Xerox had to learn a few lessons from its joint venture in Japan, Fuji-Xerox, in order to survive in an industry that had become fiercely competitive.
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Now, developing countries are massively disadvantaged in the race to compete on the “global level playing field” of international big business. The starting points in the race to dominate global markets could not be more uneven. The whole of the developing world, containing 84 percent of the world’s population, contains just twenty-six Fortune 500 companies, sixteen FT ( Financial Times )
500 companies, fifteen of Morgan Stanley Dean Witter’s list of the 250 leading “competitive edge” companies, one of the world’s top 100 brands and none of the world’s top 300 companies by R&D expenditure.
Given the dramatic inequality power between its own firms and the global leaders, China has to find a different strategy from that adopted by other late-comer countries. New victories are not achieved by putting on old plays. China simply cannot follow the footsteps of Japan or even South
Korea. Fortunately, the Chinese have repeatedly proved themselves as a creative and determined people. Instead of taking a few lessons from the popular works of Professor Michael Porter of
Harvard Business School, the Chinese have a bountiful history of military strategy and tactics to draw on. The variations of the military tactics in accordance with the changing circumstances know no end.
There are no fixed forms or inflexible rules in military tactics. Only those who are unable to vary their tactics according to the changing maneuver of the enemy and win victories have really miraculous skill. It is important for the Chinese businesses not only to develop winning strategies but also to vary their tactics in accordance with circumstances. Chinese history provides many sources of inspiration.
Furthermore, the modern global corporation may actually be weaker than it appears. Despite their massive marketing and technological capabilities, the global giants are encountering a period of great turbulence. At Caltech, we were told by a professor of aerodynamics who was a student of the great
Von Karman that turbulence was one of the most difficult problems in aerodynamics. Likewise, turbulence in the business world created many problems for global giants. They are mired in deep difficulties in terms of corporate governance and face huge cumulative difficulties arising from the collapse of the stock market. This drastically limits their ability to undertake mergers and acquisitions.
It has placed enormous burdens upon their balance sheets due to the collapse in the value of their pension funds, and the massive increase in pension fund contributions that they are being forced to make. This undoubtedly eats into their funds available for expansion. Without mergers and acquisitions and without sufficient funds to modernize their production equipment and to maintain certain levels of R&D expenditure, global giants may find it difficult to grow in an organic way.
Without sustained growth in revenues, global giants and smaller companies may find it difficult to report impressive earnings. The behavior of the Wall Street is predictable.
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While the economists of the high-income countries ridiculed the “cross-investments” among
Japanese keiretsu (a typical keiretsu includes a large trading company known as sogo shosha , a bank and many manufacturers covering a whole range of industries), they had ignored the vast “crossinvestments” among themselves which arose as a consequences of the pension funds. The US economy is able to grow substantially mainly due to the support given to the US consumer through the massive flow of capital into the country, principally from East Asia, China and Japan in particular.
Hawks in the Congress and think-tanks around Washington, D.C. have looked askance at China’s modernization efforts and belittled China’s role in the US economy. If the massive flow of capital were to be reversed, the prospects for the US economy and the US business would be even further impaired.
China is now the world’s fourth largest economy with an annual output of US$ 2.24 trillion.
Right now, she is behind the United States, Japan and Germany. In a not-too-distant future, she will bypass Japan and Germany to become the world’s second largest economy. As a matter of fact, every society depends for its social cohesion, for the happiness of its people and the provision of meaning to life, upon codes of moral conduct conveyed through the family, school, religion or quasi-religious beliefs. Sociologists and social psychologists have devoted much attention to the psychological challenge that faces all fast-modernizing societies as old values are being eroded. Even a mature economy, such as the United States, faces formidable problems as family values are being eroded.
One-parent families have become the norm. Old people find themselves increasingly isolated in a society that treasures youth or at least, youthfulness. Social Security is more important than national security.
China, too, confronts unprecedented challenges. Few countries have undergone such sustained high-speed modernization. The Chinese are wholeheartedly trying to combat the many social ills that arise. Furthermore, the process of modernization is taking place alongside a sustained role for a massive rural population that will continue to exist for many decades ahead.
China’s diverse social groups confront numerous sharply different psychological challenges. At the top is a relatively sizeable middle class, estimated at 250 million, which is experiencing increasing affluence. They can talk about private housing and car ownership as well as overseas education for their children. A favorite destination would be the United States. Below them are over 40 million people who have been cast out of the secure world of employment in the state sector and had new, immensely threatening insecurities thrust upon them. Below them are the 150 million or so emigrants who have moved from secure poverty in a rural setting to a harsh world of subsistence income in urban centers with little social protection, feeling helplessly the full force of the market economy at its most brutal point. Men became construction works, building the high-rise buildings in Shanghai and
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elsewhere. They also built the highways linking Chinese cities in China’s ambitious program of regional development. Women became semi-skilled workers sitting obediently behind production or assembly lines. Some women simply became prostitutes and were often afflicted with venereal disease and even with AIDS as Chinese men generally preferred not to use safety measure. China’s farmers also are feeling great insecurity from the impact of environmental deterioration, which is simply beyond the scope of any individual or group of people to resolve. The rural society is also disrupted as a large fraction of the most able young people took departure from their rural environments to seek employment in urban centers. Anyway, they were determined to bear the hardship in their work environment and dispatch much of their hard-earned income to relatives living in the rural areas. It is under these circumstances that the Chinese government and the Chinese
Communist Party are trying to rule this vast country, determined to restore China to its former glory.
The hawks in the US foreign policy establishment regard China as a “morally flawed inevitable adversary” and believe that the US should treat Communist China as it treated the Soviet Union during the Cold War, as a rival and as a challenge. At international conferences and in its publications, leading US government advisers on China policy under President George W. Bush advocate a “regime change” in China. What is more? They believed that it is their sacred duty to bring it about. Consequently, there is an explicit commitment from the US Congress to promote activities within the country that would contribute to its increased social and political instability at a critical stage in its system evolution. To these hawks, the “good work” accomplished in helping to topple communism in the former USSR should be completed in China. However, they forgot one important lesson. The Soviet Union collapsed not because of Mikhail Gorbachev but because of
Leonid Brezhnev. Brezhnev had followed a MAD (Mutual Assured Destruction) policy with achieving parity in nuclear warheads and their delivery systems with the United States. The Soviet economy was weakened because resources had been allocated to an inefficient production system that produced advanced weapons and little else. Gorbachev made the fundamental mistake of bringing about political reforms before economic reforms. Definitely, there would be a better life for most
Russians with political reforms but not a higher standard of living. China did not try to match the
American firepower in nuclear forces: Enough is enough. With asymmetric warfare, the Chinese military could still inflict heavy damages to selected American cities. The Russian economy went under not because of Reagan or his Reaganomics but because of American economists who advocated a “Big Bang” approach to economic reform.
Mao once told reporters that he was not afraid of nuclear warfare. He was a supreme master in the art of war. If Americans or, for that matter, Russians launched a nuclear attack at China, half of the Chinese population might perish, but there would still be 500 million Chinese people alive to fight back and reconstruct the awfully devastated country. Thus, both the Soviet Union and the United
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States would have to think twice before they launched a full-blown attack. In war, psychology played a part. Chairman Mao may be mad. But he was not to be intimidated. Chairman Mao once told Edgar
Snow, the American journalist who wrote the book, Red Star Over China , that he was a monk carrying an umbrella overhead. Edgar Snow might understand this message but many Americans felt that Mao was a great poet. His statement was a poetic expression. But what Chairman Mao really meant was that he respected no law and no heaven. He put aside Karl Marx. During the historical meeting in Beijing in 1972, Mao told Richard Nixon and Henry Kissinger that he was about to see
God. What about Karl Marx? Mao couldn’t care less. Marx might be in heaven or he might be in hell.
Chairman Mao’s favorite novels were The Dream of the Red Chamber and The Romance of the Three
Kingdoms . If he spoke German, he might have found great inspiration from Johann Wolfgang von
Goethe’s Faust . According to the Goethe’s immortal work, Dr. Faust wanted the glory of Alexander the Great and the love of Helen of Troy. By making a deal with the Devil, he came to believe that his dream could become true. Because he was willing and even determined to break orders in the society or even in the universe, he was carried by angels to Heaven. In contrast, Faust was damned and sent to hell to experience everlasting hell fire in the famous work of Christopher Marlowe, an English writer. Mao broke orders in the Chinese society and even in the Chinese Civilization. He has achieved immortality in Chinese history just as Alexander the Great had achieved immortality in world history.
Returning from our brief excursion, we notice that some Americans believe that it is their sacred mission to overturn the existing Chinese regime. Human rights activists also challenge China’s “One-
Child Policy” and the violation of the freedom of religion. Many religious leaders, including His
Holiness Dalai Lama, take exile in foreign lands. The question is if Peter and Paul had stayed away from Rome, would they and their followers bring Christianity to the very heart of the Roman Empire.
In this connection, Jesuits such as Matthew Ricci stayed in Beijing during the Ming Dynasty and the
Qing Dynasty and struggled to convert the Chinese mandarins and the court to Christianity. They expected martyrdom, but martyrdom did not come. They expected expulsion, but expulsion did not come.
Seen through the eyes of faith, religion’s future in China is secure. As long as there are human beings, there will be religion for the sufficient reason that the self is a theomorphic creature – one whose morphe (form) is theos – God encased within it. Having been created in the imago Dei , the image of God, all human beings have a God-shaped vacuum built into their hearts. Since nature abhors a vacuum, people keep trying to fill the one inside them. Searching for an image of the divine that will fit, they paw over various options as if they were pieces of a jigsaw puzzle, matching them successfully to the gaping hole at the puzzle center. They keep doing this until the right “piece” is found. When it slips into place, life’s jigsaw puzzle is solved.
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How so? Because the sight the picture that then emerges is so commanding that it swings attention from the self who is viewing the picture to the picture itself. This epiphany, with its attendant ego-reduction, is salvation in the West and enlightenment in the East. The divine selfforgetfulness it accomplishes amounts to graduating from the human condition.
When life’s jigsaw puzzle is solved, the energies of the cosmos pour into the believer and empower her to a startling degree. She knows that she belongs. The ultimate supports her, and the knowledge that it does that produces a wholeness that is solid for fitting as a piece of a jigsaw puzzle into the wholeness of the All. Signs of a poor fit are the sense of meaninglessness, alienation, and anxiety that the twentieth century knew so well. Despite China’s officially proclaimed dialectical materialism, we believe that religion will revive as it has already had and will thrive in the years to come.
Anyway, there is a “Holly Alliance” of hawks and human rights activities in the United States.
We also suggest a “Holly Alliance” between the peoples living in the countries bordering the Pacific
Ocean. But that will be a “Holly Alliance” for political stability, economic growth, social cohesion, and technological innovation.
Furthermore, “Communist China” is socialist as well as capitalist. It is a mixed economy now.
Let us, for the sake of illustration, take a look at recent American history. Under Franklin Roosevelt’s leadership, the Democratic Party led the country toward large scale intervention to reconstruct the
American economy and provides citizens with the social security. The Depression discredited the idea that social progress rested on the unrestrained pursuit of wealth by individuals in lawful and notso-lawful ways. It transformed expectations of government and reinvigorated the Progressive conviction that the nation-state must protect Americans from the vicissitudes of the marketplace. It placed “social citizenship” with a broad public guarantee of economic security, at the forefront of
American discussion of freedom. These ideas remained at the mainstream of US political thought for long into the post-war world, reinforced by the massive tasks of economic and social reconstruction in war-ravaged Europe.
In the 1950s, a group of conservative thinkers set out to reclaim the idea of freedom. For them, freedom meant limited government, little state planning and a free-market economy. This movement can be traced back to the publication in 1944 of Friedrich Hayek’s book, The Road to Serfdom .
Milton Friedman became the most famous intellectual leader of the conservative resurgence. He argued that the free market was the “truest expression of freedom” since competition “gives people what they want” rather than what government planners think they ought to have.
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By the 1980s and even more forcefully in the 1990s, the dominant view of “freedom” in the USA came to the equation of “freedom” with individual choice in the marketplace and with minimal interference from the state. As the US business system became increasingly powerful globally, the idea gained force that the US should lead the world toward a single universal free market.
Free market became a moral concept. In his speech to West Point Military Academy in 2002,
President Bush said: “Moral truth is the same in every culture, in every time, in every place.” In his
State of the Union Address to Congress in 2003, he said: “The liberty we prize is not America’s gift to the world; it is God’s gift to humanity.” The
Financial Times commented: “Put another way,
America’s unparalleled might is to be deployed on the side of indisputable right. You have to go back a while to find such a stark assertion of moral certitude and strategic power” (February 7, 2003).
Undoubtedly, advanced oligopolistic capitalism has provided abundant goods and services at reasonable costs and with good quality. Technical progress has advanced as never before. However, the virtually untrammeled free market in the USA which re-emerged in the late twentieth century is unable to satisfy fundamental human needs for self-fulfillment and security. It accentuates individual insecurity and social disintegration. In his book, The American Paradox , published in 2000, social psychologist David Myers wrote: “We excel at making a living but often fail at making a life. We celebrate our prosperity but yearn for purpose. We cherish our freedoms but long for connection. In an age of plenty, we feel spiritual hunger.”
When China tries to “learn from the USA, which tradition should she try to learn from: that which argues for a powerful role for the state to ensure positive freedom for all citizens, or “free market fundamentalism”, whose current intellectual and political ascendancy may very well turn out to be a relatively brief intermission in the long sweep of US history?
What are the choices for China? “Serve the people” was the foundation of Maoist ideology. The phrase was first enunciated by Mao Zedong in 1944. Mao deeply believed that under the leadership of the Chinese Communist Party, it would be possible to build a non-capitalist, humane society which provided the opportunity for the whole population to fulfill their human potential. During the Great
Leap Forward and again in the Cultural Revolution, the Party leadership led the drive to reduce drastically inequalities in the workplace.
Despite the turbulence in the mass movements, the mass of people did enjoy a high degree of livelihood security. Most impressive of all, the country achieved enormous advances in health and education. The Maoist period left many valuable legacies, and scored many fine achievements in
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development. When Nikita Khrushchev pulled out all Russian technical advisors from China in 1959,
China already had a sizeable industrial base to build on. Self-reliance and self-strengthening became the motto of the Chinese people. The Chinese economy expanded at an average rate of 4.4 percent per annum during the Maoist period. However, the Chinese people paid a high price for the attempt to suppress market forces completely, to cut the country off from the global economy and society, to constrain drastically the dimensions of inequality, to eliminate material incentives, to limit cultural freedom radically and to lead the society in wide, nation-wide mass movements.
Summing up the task facing the Party in 1980, Deng Xiaoping said: “The decade of the Cultural
Revolution brought catastrophes upon us and caused profound suffering. Had it not been for “Left” interference, the reversals of 1958, and especially of the Cultural Revolution, significant progress would certainly have been achieved in our industrial and agricultural production and in science and education, and the people’s standard of living would certainly have improved to a fair extent.” (Deng
Xiaoping, 1980:234). Deng emphasized the critical importance of preserving political stability:
“Without political stability, it is impossible for us to settle down to construction … The experience of the Cultural Revolution has already proved that chaos leads only to retrogression, not to progress, and that there must be good order if we are to move forward. Under China’s present circumstances, it is clear that without stability and unity we have nothing” (Deng Xiaoping, 1980:236 – 7).
It is true that during the long sweep of Chinese history, there have been epochs of corrupt rule and breakdown of law and order. However, it is impossible to understand Chinese socio-economic development over the long term without examining the role of the Chinese state in facilitating the growth and technical progress of the Chinese economy.
The key feature of the traditional Chinese state was a combination of a hereditary emperor with a large professional civil service, selected mostly through very competitive examinations. To pass these examinations, one had to master the classics of ancient China. This required years of studies. Thus, members of the professional civil service shared a common heritage and were united in their worldviews.
The early Han rulers (202BC – AD9) were the first to achieve real unification of the Chinese state.
They instituted a professional civil service. The overwhelming values were those of the primacy of order and stability, of co-operative human harmony, of accepting one’s place in the social hierarchy, and of social integration.
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China’s long tradition of political philosophy emphasized that the sole test of a good ruler is whether he succeeds in promoting the welfare of the common people. This is the most basic principle in Confucianism and has remained unchanged throughout the ages.
China’s merchants occupied a subordinate ideological and political role. They were placed at the bottom of the bureaucracy’s official ranking of social strata, behind the scholars, farmers, and artisans.
However, the fact that the merchant’s interests was degraded did not mean that trade itself was regarded undesirable. The successful merchant’s wealth had always drawn covetous awe if not respect. Many merchants wished that their sons could become members of the ruling bureaucratic class. Their sons had to master the Classics and pass the very rigorous examinations. This was the way sons could bring honor to their parents and ancestors. Essentially, the merchants were allowed to perform their highly useful function of stimulating economic interaction through expanding the division of labor, facilitated by trade, but were firmly kept in their place in terms of the political power structure and the ideology that underpinned that structure. The central task of Chinese political economy in the years ahead is to find a way to integrate market dynamism and social cohesion.
To most students taking an introductory course in economics in colleges and universities, it is clear that Adam Smith’s analysis of the market mechanism was an attempt to lay bare the fundamental laws governing economic development. Smith insisted that the dynamism of the free market economy should be considered alongside its deep ethical shortcomings. Smith did not know how to resolve these problems, but his intellectual honesty and driving sense of moral purpose led him to lay bare these contradictions clearly and passionately. His analysis of the contradictions of the market economy is highly relevant to fundamental issues facing the world today. Consider the following facts. Almost one billion people in developing countries are employed as cheap labor in the non-farm sector for US$ 1 – 2 per day. Even in rich countries, a large fraction of the service sector workers are working under intense pressure from “remote monitoring” made possible by modern information technology in order to increase “labor intensity”. In many developing countries, there is a continued erosion of a sense of social cohesion as “state desertion” in order to provide a “good investment environment” for global capital. The immense marketing expenditure of global giant firms promote widespread consumer fetishism. Importantly, as fast-growing parts of developing countries are moving toward the immense per capita consumption levels of the advanced capitalist countries, the very sustainability of life on the planet is in doubt. It is deeply misleading to use Adam
Smith as if he provided unqualified support to the free market.
Adam Smith’s penetrating analysis is of the deepest significance to China in her present search for a political economy that satisfies the yearnings of her people. The central preoccupation of
Chinese political practice over her four thousands years of history has been the attempt to find a
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function for the state, and nurture a social ethic that enables the economy and society to operate in a way that serves that whole social interest. The core of this approach to political theory and practical politics is the desire to establish social cohesion in the interest of all members of society, no matter what positions they occupy. These ideas had their foundation in the writings of Confucius. The
Analects is by far the most influential book in Chinese history, providing the moral foundations for the Chinese state for over 2,000 years.
It should be pointed out that Confucius and his followers were not interested in abstract philosophical debate for its own sake. Confucius lived at a time when there was great turmoil in
China. He was primarily concerned with the issues of good government, and his ideas were finally put into practice during the Han Dynasty. The Chinese philosophers, following the Confucian tradition, have been much more impressed by the opposite extremes of intelligence, the aphoristic genius which guides thought of the maximum complexity with the minimum of words.
Although Confucius and Adam Smith lived in different times and in drastically different environments, they had something in common. From a comparison of the key ideas in Confucius’
Analects and Adam Smith’s key works, The Theory of Moral Sentiments and the Wealth of Nations , we can see that there are powerful common themes concerning the relationship of the individual to society. They both emphasized the importance of maintaining social cohesion in order to serve the interests of the whole society. They both considered restraint of selfishness or “benevolence” as the moral foundation of their philosophies, not the pursuit of individual self-interest. They both emphasized reciprocal social obligations and duties as the foundation of a good society. They both regarded the pursuit of wealth and position as damaging to individual fulfillment. They both regarded education as the foundation of self-fulfillment. They both regarded morality as the cement for social cohesion. They both regarded individual happiness as the prime goal of a successful society, but they each believed that this was not to be achieved through the pursuit of ever greater material consumption. Rather, they both considered that this could be achieved through the contentment derived from living according to the ethical norms that had evolved in order to sustain a high level of social coherence. Simply put, both Adam Smith and Confucius are scathing about the possibility for happiness from high levels of material consumption. Paradoxically, many neo-classical economists in the United States and in China believe that Adam Smith was advocating the maximal pursuit of individual self-interest. As a matter of fact, few people, including professional economists, have read the entire works of Adam Smith. With advanced mathematics, professional economists have been exploring the role of the Invisible Hand in a capitalist society with little regard for Smith’s penetrating analysis of the contradictions in a free market economy.
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What would China do to build a modern economy with benefits that can be enjoyed by a great majority of the people? To enlarge membership of the Chinese Communist Party by admitting capitalists into the party cannot resolve the basic contradictions in a market economy. Former
President Jiang Zemin had advocated the “Three Represents” and had them written into the party constitution. The Three Represents means that the Chinese Communist Party represents the most advanced productive forces, the most advanced culture and the fundamental interests of the great masses of the Chinese people. Social cohesion could not be brought about simply because some capitalists had joined or would be joining the party. President Hu Jintao is speaking of a Chinese society that is in harmony. The Three Represents have gradually disappeared from official proclamations.
Since World War II, different parts of Western Europe have made valiant efforts to try to find a
“Third Way” between state planning and the free market. An example is Great Britain. The commanding heights of the British economy were replaced by the free market by Prime Minister
Margaret Thatcher, but eventually gave to the “Third Way” of Prime Minister Tony Blair. Despite heavy attack from the forces of globalization, most Western European nations are still trying to find their own “Third Way”. However, it is wrong to think that Europe alone offers an alternative to the globalization of American free market fundamentalism. Most of the developing world is debating intensely how best to respond to the forces of globalization and the U.S. “free market fundamentalist” ideology. The Far East, and China in particular, has a huge potential contribution to make toward global thinking about how to devise a socially cohesive society that satisfies both material and spiritual needs. China’s own recent history under Chairman Mao’s leadership provides a vivid illustration of the dangers of excessively simplistic and utopian approaches to this goal. However, as in the past, it is difficult to imagine how social cohesion can come about in a big country such as
China without a strong role for the state.
The consequence of the currently dominant US free market fundamentalism both within the USA and in its international relations is to undermine social coherence, by denigrating the useful functions of the state. It strives to establish a society based on minimizing the government’s functions in order to maximize individual freedom and rights. Adopting such a philosophy would gravely endanger
China’s development. In the turbulent environment faced by China, a sense of social coherence and a central role for the government is the sine qua non of system survival, let alone successful development for China’s 1.3 billion citizens.
China can learn from thinkers elsewhere, not least in the USA, who have deeply considered these issues, albeit that their voice is given only limited attention today, or those voices from the past, such as Adam Smith’s, which are presented in a distorted fashion. The Chinese leadership must look
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mainly to the country’s own past to try to find a philosophical direction that can provide the country and the Party with “moral cement” and confidence in the face of enormous ideological challenges.
In his speech of July 1, 2001 to celebrate the eightieth anniversary of the Chinese Communist
Party, Jiang Zemin, Party General Secretary, emphasized that China should look to the past to serve its current needs for a philosophical foundation:
We must inherit and develop the fine cultural traditions of the Chinese nation … With regard to the rich cultural legacies left over from China’s history of several thousand years, we should discard the dross, keep the essence and carry forward and develop it in the spirit of the times in order to make the past serve the present.
In the early days following his election in November 2002 to the post of Party General Secretary
(he became President in March 2003), Hu Jintao chose to make his first major speech at Xibaopo, a poor village in Hebei province at which the Party held a critical meeting on the eve of the Communist
Victory in 1949. He brought with him several members of the Party Central Committee.
In the speech, which was subsequently published in
People’s Daily
on January 2, 2003, he repeatedly stressed that the Party, especially the leading cadres, should not feel complacent about the enormous achievements since the start of the reforms, because the Party and the country still faced so many complex challenges both at home and abroad. He emphasized through innumerable repetitions the fact that it was necessary for the Party to follow the path of “plain living and hard struggle” for a long period ahead. He used the phrase over sixty times in the space of a relatively short speech. Here is an excerpt from his speech:
Our Party, especially the leading cadres, should keep firmly in mind our country’s basic condition and our Party’s solemn mission, and establish for the Party and people over the long term the ideology of “plain living and hard struggle”. We must deeply understand that in upholding the importance of “plain living and hard struggle”, the key point is to soberly understand our country’s basic situation. Our country is today and will be for a long time to come, in the primary stage of socialism, in which the primary social contradiction still is that between the need to increase the people’s material and cultural needs and the backward state of social production. Alongside the single objective of comprehensively establishing a “small comfort” ( xiaokang ) society, the Sixteenth Party Congress deeply analyzed the pressing problems and difficulties that we face, and made clear to the whole Party and the whole population the need for plain living and hard struggle over a long period of time.
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Ours is a developing country with almost 1.3 billion people. The productive forces, technology and educational level are still relatively backward. We have a long road to travel in order to achieve industrialization and modernization. Our population’s standard of living has, generally speaking, attained the level of “small comfort”. However, the level of “small comfort” that we have attained is still low, incomplete, and the developmental level is extremely unbalanced. Consolidating and raising our present level of “small comfort” still needs a long period of plain living and hard struggle.
Mao argued that “in the interest of the whole national economy and in the present and future interest of the working class and all the laboring people”, China should not “restrict the private capitalist economy too much or too rigidly”, but, rather, should “leave room for it to exist and develop within the framework of economic policy and planning of the people’s republic” (Mao Zedong, 1949:
368).
In terms of politics, Chairman Mao emphasized that while the Communist Party should be “led by the proletariat” and be “based on the worker-peasant alliance”, it was also necessary that the Party
“unite with as many as possible the representatives of the urban petty bourgeoisie and national bourgeoisie who can co-operate with us and with their intellectuals and political groups” (Mao
Zedong, 1949: 372). He emphasized that the Party’s policy should “regard the majority of non-Party democrats as we do our own cadres, consult with them sincerely and frankly to solve problems that call for consultation and solution, give them work, entrust them with the responsibility and authority that go with their posts and help them to do their work well” (Mao Zedong, 1949: 373). China may be developing a political economy that combines the best elements of her past and of the West. In other words, she may be trying to integrate socialism, Confucianism and Adam Smith. It is China’s
Third Way .
The Chinese are a pragmatic and ingenious people. They are most likely to create a political economy that is a synthesis of the best elements in the East and in the West. Viewed in this light, there is no reason for China to adopt unreservedly the free-market fundamentalist capitalism that is in vogue in the United States today.
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Article 1
Article 2
Article 3
Article 4
Article 5
This Law is formulated, in accordance with the Constitution, for the purpose of opposing and checking Taiwan’s secession from China by secessionists in the name of “Taiwan independence”, promoting peaceful national reunification, maintaining peace and stability in the Taiwan Straits, preserving China’s sovereignty, and safeguarding the fundamental interests of the Chinese nation.
There is only one China in the world. Both the mainland and Taiwan belong to one
China. China’s sovereignty and territorial integrity brook no division. Safeguarding
China’s sovereignty and territorial integrity is the common obligation of all Chinese people, the Taiwan compatriots included.
Taiwan is part of China. The state shall never allow the “Taiwan independence” secessionist forces to make Taiwan secede from China under any name or by any means.
The Taiwan question is one that is left over from China’s civil war of the late 1940s.
Solving the Taiwan question and achieving national reunification is China’s internal affair, which subjects to no interference by any outside forces.
Accomplishing the great task of reunifying the motherland is the sacred duty of all
Chinese people, the Taiwan compatriots included.
Upholding the principle of one China is the basis of peaceful reunification of the country. To reunify the country through peaceful means best serves the fundamental interests of the compatriots on both sides of the Taiwan Straits. The state shall do its utmost with maximum sincerity to achieve a peaceful reunification. After the country is reunified peacefully, Taiwan may practice systems different from those on the mainland and enjoy a high degree of autonomy.
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Article 6
Article 7
The state shall take the following measures to maintain peace and stability in the
Taiwan Straits and promote cross-Straits relations:
(1) To encourage and facilitate personnel exchanges across the Straits for greater mutual understanding and mutual trust;
(2) To encourage and facilitate economic exchanges and co-operation, realize direct links of trade, mail and air and shipping services, and bring about closer economic ties between the two sides of the Straits to their mutual benefit;
(3) To encourage and facilitate cross-Straits exchange in education, science, technology, culture, health and sports, and work together to carry forward the proud Chinese cultural traditions;
(4) To encourage and facilitate cross-Straits co-operation in combating crimes; and
(5) To encourage and facilitate other activities that are conductive to peace and stability in the Taiwan Straits and stronger cross-Straits relations.
The state protects the rights and interests of the Taiwan compatriots in accordance with law.
The state stands for the achievement of peaceful reunification through consultations and negotiations on an equal footing between the two sides of the Taiwan Straits.
These constitutions and negotiations may be conducted in steps and phases and with flexible and varied modalities.
The two sides of the Taiwan Straits may consult and negotiate on the following matters:
(1) Officially ending the state of hostility between the two sides;
(2) Mapping out the development of cross-Straits relations;
(3) Steps and arrangements for peaceful national reunification;
(4) The political status of the Taiwan authorities;
(5)
The Taiwan region’s room of international operation that is compatible with its status; and
(6) Other matters concerning the achievement of peaceful national reunification.
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Article 8
In the event of that the “Taiwan independence” secessionist forces should act under any name or by any means to cause the fact of Taiwan’s secession from China, or that major incidents entailing Taiwan’s secession from China should occur or that possibilities for a peaceful reunification should be completely exhausted, the state shall employ non-peaceful means and other necessary measures to protect China’s sovereignty and territorial integrity.
The State Council and the Central Military Commission shall decide on and execute the non-peaceful means and other necessary measures as provided for in the preceding paragraph and shall promptly report to the Standing Committee of the
National People’s Congress.
Article 9 In the event of employing and executing non-peaceful means and other necessary measures as provided for in this Law, the state shall exert its utmost to protect the lives, property and other legitimate rights and interests of Taiwan civilians and foreign nationals in Taiwan, and to minimize losses. At the same time, the state shall protect the rights and interests of the Taiwan compatriots in other parts of China in accordance with law.
Article 10 This Law shall come into force on the day of its promulgation.
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During the last decade of the Twentieth Century, there was much talk in Asia Pacific about the
Twenty-first Century being a Pacific Century. Three of the world’s biggest economies will be countries bordering the Pacific Ocean. They are: America, China, and Japan. Surely enough, Japan had lost a decade of growth during the nineties, but she was expected to recover. The question is not whether she would recover but really how and when. Since Deng Xiaoping’s southern tour to southern China in 1992, China’s economy had been growing at an unprecedented rate. During the
Clinton administration, there were also economic growth and a great number of technological innovations, particularly in the information and communication technologies. China and the United
States were cooperating as strategic partners, a term used by President Clinton to describe the relationship between the two countries.
Then there came the Asian financial crisis in 1997 and 1998. For a time, Asia Pacific was thought not as strong as before. The Asian financial crisis started in Thailand in July 1997 and soon spread to
Malaysia, Indonesia and South Korea. Surely enough, the International Monetary Fund (IMF) came to their rescue but dictated terms that were so harsh to these struggling economies that their people were quite resentful of the economic and financial measures forced upon them. Western companies, such as General Eclectic and General Motors, came to Asia and looked for bargains for acquisitions or strategic partnership. For some time, Asians were having doubts about their models of economic development, but they also did not have much faith in the free-market capitalism championed by the
United States.
Fortunately, the United States was experiencing a boom due to the rise of the Internet. Americans were led by technology and management gurus that the American economy was entering a new phase, a phase which they called the New Economy. Employees at many technology companies were more eager for stock options than for high salaries. There was an upsurge in consumption. Many Asian countries were able to pull themselves up again by exporting to the United States. Hence, with the exception of Indonesia, the financial crisis was over. People in Asia were once again talking about the Twenty-first Century as a Pacific Century.
Then there came the September 11 terrorists’ attacks in New York and Washington D.C.
Americans tried to hunt down any terrorists anywhere. This led eventually to the second Iraq War.
Americans put their faith in a new century of Pax Americana . Probably, every informed person would agree that the U.S. armed forces constitute the greatest military might in the world. The
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question is whether it is just the morality of power and not also the power of morality. Americans would do best if they combine the morality of power and the power of morality in bringing about peace and prosperity in a world which has received so many historical burdens from the past.
We can still have a Pacific Century but only if the three greatest economies in Asia Pacific, namely America, China and Japan, collaborate with one another and try to resolve disputes and conflicts that necessarily arise. In this regard, we must understand the problems between China and
Japan and the economic problems faced by United States even when the American economy constitutes 30 percent of the global output.
Japanese Prime Minster Junichiro Koizumi’s annual visits to Yasukuni Shrine where 14 Japanese
Class-A war criminals are among the war dead honored keep the Chinese irritated. In Japan, with little economic growth for years, such rituals might be seen as a kind of symbolism to unite the Japanese people together for the hardship that might still await them. However, to the Chinese, such symbolism is seen to be washing down the crimes committed by the invading Japanese armed forces during China’s War of Resistance Against Japan. It has been suggested that Japanese prime ministers should pay their respect to the tomb of the unknown solider rather than to the Yasukuni Shrine, which glorifies Japan’s aggressive wars in the past.
On his seventy-second birthday on December 23, 2005, Japan’s Emperor Akihito urged the
Japanese people to understand history accurately – apparently a reference to the disputes with China and South Korea over Japan’s past militarism. Akihito said that in their dealings with the rest of the world, Japanese should remember that “there were rarely peaceful times for Japan” form 1927 to 1945.
“I hope that knowledge about past facts will continue to be passed down in a proper manner … and will be used for future benefit.”
Chinese academic Liu Xiaobiao said the comments would have a minor, but positive, effect on the relations between China and Japan. However, Akihito’s apparent efforts to play peacemaker were not appreciated by all. “We on the right believe the emperor leans a long way to the left when it comes to Japan’s history in relation to China and South Korea and are uneasy with his views,” a conservative Japanese academic said. “Japanese public opinion is becoming more conservative but the emperor is not aware of that trend.” In other words, some Japanese conservative elements are still thinking that the Japanese were doing good work when they conquered Korea and China during the twentieth century.
The Japanese invasion was more than an act of aggression, a war of conquest and a drive to seek colonies. It was Japan’s “sacred war” to purge Asia of the dominating influence of the West. It was
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this mission that caused over 35 million Chinese lives and immense suffering to the Chinese people.
Let us take a brief look at this history.
Through the Second World War (War of Resistance Against Japan in China), Japan was trying to establish a new moral order. Yasuoka Masahiro, a leading Japanese nationalist, asserted that Japan was “the most sacred existence on earth with its moral values.” This he pitted against the liberal and communist concepts of the state in the West. He sought to distance Japan from Italy or Germany by arguing that Asia had been enslaved by the White nations and denied freedom and personality. The goal of Japan’s “sacred war” was to purge Asia of the dominating influence of the West, which had manifested itself in modern civilization with its stress on greedy competition and on inanimate machinery. Japan, and Asia, in contrast, would be characterized by collective harmony and by the human spirit.
Such ideas were repeated with monotonous regularity after 1938, when the Chinese war entered its second, prolonged phase as Tokyo abandoned all attempts at a negotiated settlement with the
Nationalist regime. By then, of course, the rape of Nanking, which caused the massacre over 300,000
Chinese civilians, and other instances of indiscriminate slaughtering of Chinese civilians had taken place, exposing the hypocrisy of talk of a new moral task. The butchering of innocent people belied any pretense at building a new culture. Or perhaps the massacres were a product of the new culture in the sense that it assumed Japanese superiority and leadership. It may well have been that, given the increasingly stringent wartime censorship and the built-in biases of war-reporting, most Japanese were unaware of the magnitude of the Nanking and other tragedies.
Despite what was reported about the Nanking and other tragedies, it is all the more remarkable that so many Japanese writers, official and non-official, should have continued to state ardently their belief that Japan did not desire to crush or conquer China, that the two countries must co-operate for their common good, and that there was some historical and moral significance to this task. By endowing the frustrating war with historical meaning, the propagandists were, in effect, saying that the fighting in China was more a cultural than a conventional military enterprise. In their view, Japan aimed at promoting a new cultural consciousness in Asia, a consciousness opposed to Western cultural consciousness and one that was to create a new worldview. That worldview would reject both capitalism and communism and would awaken and unify Asia under alternative principles. In the eyes of some Japanese intellectuals, the Chinese-Japanese war was taking place at a critical turning in history, when individualism and class-consciousness were giving way to a new vision of
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world culture, one placing less emphasis on politics and economics and more on cultural communication. Intellectuals and “cultural people” in all countries should cooperate in this task, with those in Japan playing the leading role. Coming from a heritage of Chinese culture and civilization,
Japan’s promotion of a new cultural consciousness in Asia was all the more remarkable because it had basically turned the teacher-student role between China and Japan around. China had little to learn from Japan’s new cultural consciousness except in economic and military affairs.
To call the war a cultural undertaking enabled the Japanese to assert that this was unlike other, more aggressive wars. As early as March 1932, Tsai Yuan-pei, the noted philosopher and president of the Academia Sinica, was appealing to the League of Nations to condemn the Japanese army’s wholesale destruction of China’s educational and cultural establishments, as it engaged in its aggressive war in Manchuria and elsewhere in China. “Wherever the arms of Japanese militarism reach,” he said, “China’s educational and cultural organs collapse under their wanton aerial and artillery bombardment.” Here was clear recognition that the military struggle involved a cultural conflict and that for the Chinese to defend their sovereignty meant first and foremost the preservation of their cultural institutions 1 .
Chinese cultural nationalism made it difficult for the Japanese to persuade the Chinese to embrace their brand of pan-Asian cultural renewal against Western civilization. Chinese statements of the period, coming from all political persuasions, constantly reiterated the theme that China’s struggle had the support of “world public opinion” and was part of the global quest of peace and justice. By the time Franklin D. Roosevelt and Winston Churchill met in August 1941 at Argentina Bay and issued the Atlantic Charter, the Chinese had clearly defined their struggle as one of democracy against totalitarianism and aggression, reiterating the theme of the May Fourth movement, now strengthened through the crucible of war. Japan was to find itself more isolated than ever, not just strategically, but ideologically as well.
The Japanese took their task of building a new Asian cultural order seriously, but they were finally beaten. The War against Japan cost more than 35 million lives in China. It was a bitter experience that the Chinese have documented well in their history books. A German novelist once wrote: “To forgive is to forget”. But how could the Chinese forget about Japan’s brutal invasion of
China from 1927–1945.
Having attained much in the economic sphere after World War II, Japan was about to define its foreign policy in the cultural realm. Once again, Japanese leaders spoke of culture, a throwback to the
1930s and the immediate postwar years. However, as Prime Minister Ohira stressed in Beijing that the Chinese and the Japanese shared a two-thousand-year history of cultural exchanges and a correct
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relationship between the two countries should be built on trust, which in turn hinged on “heart-toheart” bonds between the two peoples.
The Japanese have become keenly aware of the possibility of offering help to China on such areas as pollution control, city planning, and industrial diseases. Because Japan has had to cope with all the problems of a rapidly industrializing society, its experiences in dealing with the environmental and medical problems that accompany industrialization seem to interest Chinese officials and specialists.
This is part of ongoing global developments, where it is recognized that these matters cut across national boundaries and can be solved only through transnational cooperation. Chinese-Japanese cooperation in this regard will be a good test of whether humanity is really ready to undertake transnational projects.
The future of Chinese-Japanese relations may include themes that are only dimly perceptible today. Military power may regain its importance, either because armed forces come to predominate the respective political systems or because the world reverts to the pre-1914 situation – or because of a combination of these two factors. It seems more likely, however, that economic affairs may increase in importance as China continues to industrialize and Japan remains eager to supply capital and technology. So far, Japan has been reluctant to transfer the latest technology during the past quarter of the twentieth century. However, due to the pressure of Western firms which are willing to offer the state-of-the-art technology of China in a bid to win market shares in China, some Japanese firms are coming up with the latest car models as in the case of Honda and Toyota and with the stateof-the-art production technology. In time, an integrated Sino-Japanese production system may come into being. This system need not be a second occupation of China by Japan, but a system which benefits both countries. In recent years, the sustained economic growth in China has been able to turn a few giant Japanese firms around. For example, the top Japanese steel makers had been losing money in recent years. Surges in Chinese demand for steel made these Japanese firms profitable again. The Chinese shipbuilding industry, now the third largest in the world, has a huge demand for steel. Mitsubishi Heavy Industries and Kawasaki Heavy Industries may eventually lose out to the
Chinese shipbuilding industry in certain respects as the latter advances in technological innovation and holds down the cost in building large vessels.
The key question is, of course, whether or not nations and peoples can cooperate across national boundaries, often transcending narrow definitions of natural interest. Are the Chinese and the
Japanese prepared to undertake the task? We can only hope they are, but in order to effect cooperation in the future, it will first be necessary to learn from the past. That is particularly true of the Japanese, who have committed serious offenses against the Chinese through wars and military expeditions. On the other hand, the Chinese should also learn that the only way to hold a place under
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the Sun is to stand as “
United We Stand
” and put an end to all those conflicts and confrontations between the CCP and KMT for almost eighty years and now between the CCP and Taiwan’s
Democratic Progressive Party.
An island nation, Japan abounds with as many eccentricities as a circus. The Japanese have a word to describe it: Nihonjinron
, which means “the idea of being Japanese.” They have always considered themselves exceptional and not, surprisingly, superior. Immigration into the country is strictly limited. The Japanese tend to mistrust outsiders and occasionally even go so far as to despise them. This does not prevent them from traveling; but when they do so, they tend to venture abroad in groups. They fly Japanese airlines, eat Japanese food in Japanese restaurants and stay in Japanese hotels abroad.
Being Japanese means not only considering oneself superior, but also proving it from time to time by direct competition with foreigners. Early in the 20 th century, competition took a disastrous form.
The Japanese tried to achieve military domination of the entire Pacific Rim. The campaign worked all too well. Encouraged by success, the Imperial forces persisted until they finally found something that could stop them: the United States. Humbled, the Japanese retreated to their islands and plotted their next campaign.
While 99.5 percent of the Imperial Japanese Navy had been sunk to the bottom of the sea by
American warships and their navy pilots, the Japanese shipbuilding industry was not decimated. It soon recovered. By a government decree that international oil companies had to have their oil tankers built in Japanese shipyards if they wanted to sell oil in the Japanese market where oil prices were high,
Japanese shipbuilders soon built vessels of all kinds and helped solve the logistics and transportation problems of large Japanese trading companies, such as Mitsubishi and Sumitomo, and Japanese manufacturers in their global reach. There is an imperialist element in such global reach. Indeed,
Japan’s imperial overreach has become Japan’s imperial “over-rich.”
Central to the Japanese idea of themselves is what the French call solidarité and what the
Japanese call wa . It is the idea that all citizens of Japan must stick together and work in harmony toward the same national goals. An example of working toward the national goals can be seen as follows: the Japanese government maintained high retail prices for gasoline in Japan. This produced huge profits for international oil companies. The Japanese government then required these oil companies to ship their crude oil in oil tankers built in Japan, thus giving a strong stimulus to the
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Japanese shipbuilding industry. Shipbuilding activities stimulated the steel-making industry, which, in turn, produced steel for the automotive industry. Because gasoline prices were high in Japan, automakers had to come up with designs of automobiles that were efficient in their oil consumption.
When the oil crises broke out in 1973 and in 1979, Japan had the steel-making industry to build fuelefficient cars for export to the U.S. market. The Japanese have also developed new concepts and practices in their industrial management, such as lean manufacturing and JIT (just-in-time) inventory methods.
If any group were particularly susceptible to mass thinking, it would be the Japanese. The personal sense of right and wrong, guilt and shame find a completely different expression in Japan.
People are ashamed if they let down the group, or fail in their responsibilities to the group.
An example is the failure of LTCB (Long-Term Credit Bank), a prestigious bank in Japan. In bygone days, many graduates of Tokyo University chose a career in the Industrial Bank of Japan and the LTCB. In 1989, the Nikkei 225 hit a peak of almost 40,000. Japan’s share of world GDP reached
9 percent. LTCB was the ninth largest bank in the world, measured by market size, with a market capitalization several times that of Citibank. In 1990, the Nikkei plunged 40 percent after the Bank of
Japan tightened interest rates. In the autumn of 1999 Japanese government announced that LTCB was to be sold to an American investor group, Ripplewood. Takashi Uehara, head of the LTCB killed himself. On a May evening, he checked himself into a hotel a mile away from his family house in a pleasant suburb of Tokyo. Then he carefully created a noose with the belt of his traditional Japanese gown and hanged himself from the ceiling. In his eyes, he felt ashamed of letting down LTCB.
Japan was and still is a marvel of well-functioning social services. Health care is practically free.
Public transportation is ubiquitous and efficient. The average standard of living and satisfaction level are higher in Japan than in the U.S. Yet, despite these achievements, the hard fact remained. At the beginning of the 21 st century, it was as if Japan, which had boasted the world’s second largest economy in the 1980s, no longer existed. Economists in the United States had repeatedly urged the
Japanese to increase their money supply. But both monetary and fiscal policy had failed to work.
Now, said the American economists, generously offering more unsolicited advice, the Japanese needed to reform their economy. They needed the guts to tackle the tough problems, to mark down the bad loans and bad businesses to a ruthless market, to restructure whole industries if necessary, and to introduce dynamic American-style capitalism to Japan.
American-style capitalism was the last thing that the Japanese wanted. After World War II, they had created a completely different style of capitalism. The means of production were not really owned by the rich, independent capitalists, but by big commercial groups, who borrowed their money
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from the big banks. These, in turn, obtained their money from the savings of the ordinary Japanese people. It was a society in which the risks and rewards of capitalism had been collectivized in a uniquely Japanese way. Their society functioned not as a hodgepodge of individuals, each lusting after his or her own objectives, but more like an ant colony in which each little worker knew precisely his or her place and busied himself or herself for the good of the ensemble. It was a form of cooperative, consensual, centralized, post-feudal capitalism.
The Japanese system emphasized large companies, joined together by cross-held shares and networks of cooperating projects. Rarely did a small upstart challenge them. Rarely, then, did the big companies face fundamental competition from within the country. New technologies and new products were created or brought into the big company system, refined by tireless workers, and then put into service – producing goods that could then be exported, often to the United States.
Applying their united energies to the task of economic growth, the Japanese produced spectacular results. The American admiration for Japan was adulterated with fear, loathing, and jealousy. By the mid-1980s, it was beginning to look as though Japan might take over America as the world’s most important economy. Toyota changed its logo to a form that looked like a globe with a latitude and longitude running over it. Is it Japanese symbolism that Toyota wants to seek dominance in the global automotive industry? Another interesting event was when Yasuda Fire and Marine insurance company paid nearly $40 million for van Gogh’s Sunflowers . Can this be another case of Japanese symbolism? After all, it was a fire and marine insurance company that was making the purchase. It was as if Japan, symbolized by the Sun, had been reborn after World War II, during which many of its young men flew on suicidal missions (kamikaze attacks) against the approaching American Navy with insufficient fuel for a return trip.
On December 29, 1989, the Nikkei Dow reached its peak of 38,915. In the following 21 months, it declined by as much as 38.5 percent. But during this time, real estate prices, as measured by the
Japanese Real Estate Institute, continued to rise. It was not until two years later, in 1991, that property prices finally peaked out – about 15 percent higher than they had been at the end of 1989.
Can we draw any analogy between Japanese and American stock markets? By way of comparison, the U.S. stock market peaked out almost 10 years later – on December 31, 1999. Over the next 33 months, the S&P 500 lost 45 percent of its value. During the same period, U.S. home prices rose – just as they had in Japan. According to Fannie Mae’s index, the amount of the increase was, surprisingly, 15 percent.
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Most economists had no idea when the Japanese market would turn up, because they had no idea why it turned down in the first place. Short-term rates for the Japanese had been “effectively zero” for more than ten years sine the mid-nineties.
Columnists, analysts, and economists who, just a short time before, had been busy trying to explain first why the Japanese would dominate the world economy for a long time, and then why the slowdown was not too serious, were now explaining why Japan would not recover anytime soon.
Within a few years, Japan had gone from being the idol of the entire world to being an object of open contempt. In 1989, American businessmen were practically straightening their hair and dying it black in fawning imitation of their Japanese role models. A few years later, they were offering the Japanese advice and seemed almost indignant when the Japanese refused to take it. Among academic works are Can Japan Compete?
by Professor Michael Porter of Harvard Business School and The Last
Warning to the Japanese Economy by Professor John Kenneth Galbraith of Harvard University.
But the most important similarity between the American economy and the Japanese was both completely obvious and utterly ignored: never before had so many people had such a keen interest in the stock market and the economy. Never before were crowd dynamics so crucial to understanding how markets work. At the height of the bubbles in both the United States and Japan, people came to believe that there was something so special about their economies that the normal rules and limitations no longer applied.
Unrestrained, people thought they were doing a reasonable thing when they bought stock at preposterous prices – because they believed prices would be even more preposterous in the months ahead. Likewise, they saw no reason to curtail borrowing and spending. During the boom and bubble years in Japan, capital spending nearly doubled and banks lent extravagantly to large industries. The
Japanese authorities cut interest rates until they were giving away money. In fact, they probably only postponed the day of reckoning, turning a crash into what Paul Krugman, an economist at Princeton
University, called “a long slow-motion depression.” Krugman continues: “I wish I could say with confidence that Japan’s dismal experience is of no relevance to the U.S. And certainly our nations are very different in many ways. But there is a distinct resemblance between what happened in Japan a decade ago and what was happening to the United States economy just a few weeks ago. Indeed,
Japan’s story reads all too much like a morality play designed for our edification.”
Anyway, the Japanese did not panic. In their system of collectivized capitalism, everyone seemed to have such a stake in things as they were that no one was prepared to let the forces of creative destruction run their course. The banks, the government, the workers, the media – all the people who had worked so tirelessly to build Japan Inc. now rallied to prevent it from correcting its mistakes
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quickly. Thanks to their efforts, Japan has endured a long, slow slump beginning in January 1990. In recent months, there are signs of recovery of the Japanese economy. On September 1, 2005, the
Nikkei stood at 12,500. In the first week of January 2006, the Nikkei had risen above 16,000. The consumption market seems to be picking up; companies are having greater demand for their products and services. The question, of course, remains whether the Japanese economy has finally bottomed out of its valley and is making steady progress upward in the years to come. Recent signs do indicate that the Japanese economy is being re-vitalized and is on the way to full-blown recovery.
On the other hand, we should also draw a more balanced picture of Japan’s economic power.
With just half of America’s population, Japan has surpassed the United States in total manufacturing output. Many American commentators maintain that the U.S. still leads in the most “sophisticated” forms of manufacturing. However, to those who are familiar with the details, many of the products
Americans have retreated to are sophisticated only in the same sense as a Rolls-Royce automobile is sophisticated. Out of a concern to minimize the damage to America’s economic ego, the Japanese maintain that Japan’s exports are only a narrow segment of the Japanese economy and that other
Japanese industries are notably inefficient. Japan’s lobbyists, like Europe, know that flattering
America is simply good business. Japan’s high airfares are actually part of an elaborate system of cross-subsidies by which service industries help manufacturing industries. In this case, the airlines are required by oil industry regulators to pay high prices for fuel as a way of subsidizing the steel industry (whose fuel costs are correspondingly reduced). The steelmakers, in turn, pass on the subsidy in low prices for steel supplied to the auto industry. In effect, Japanese air travelers are helping to build the Japanese auto industry!
Air travelers also subsidize Japan’s aerospace industry. Thanks to high fares, Japanese airlines can afford to pay top dollar for American planes, and American plane manufacturers agree in return to transfer technology and provide subcontract work to Japanese aerospace companies, such as
Mitsubishi Heavy Industries. Today, Boeing subcontracts much work to Japan, retaining the work on cockpits and system integration, the most sophisticated tasks in building a jet plane. Even now, the
Japanese are learning about systems integration for smaller planes.
Surely enough, American companies have invested in Japanese companies. Typically, all that the
Americans bring to the party is their marketing clout in the United States. The true significance of these arrangements is that they institutionalize corporate America’s dependence on corporate Japan’s manufacturing skills. But the public relations version as presented in the America press is generally that strong and generous American corporations are helping troubled or technologically backward
Japanese counterparts.
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One such deal between General Motors and Isuzu Motors was presented in the American press as
GM “teaching” Isuzu how to cut costs. Only later did it emerge that GM had agreed to import diesel engines, truck cabs, and complete truck chassis assemblies from Isuzu. Similarly, in the case of a deal between Ford Motor and Mazda Motor, the press reported that Ford was teaching Mazda to cut costs.
Later Ford disclosed it would buy several lines of Mazda-built cars for sale under the Ford brand name.
Japan is also a society where there are votes but without much democracy. In East Asian eyes, the Western concept of rule by the people seems strange because it empowers the benighted (a healthy majority in any society) to overrule the intelligent and the informed. Nonetheless, Japanese leaders felt that, during the Meiji Restoration in the late 1860s, they had to pay lip service to Western democratic rhetoric. Thus, they modeled Japan’s parliamentary arrangements on those of Kaiser’s
Germany. After a new national constitution was promulgated in 1889, the first diet elections were held in 1890 – but only after essentially unrepeatable constitutional rules were installed giving unelected officials effective control over the national budget. By this expedient, the civil servants retained great patronage powers, which they used liberally to reward politicians and businessmen for cooperating with the government’s “transcendental” – nonpartisan – policies.
As part of the effort to fight the Unequal Treaties, Japan’s ancient, but to Western eyes, quirky legal system also was given a new look. The new system was modeled superficially on French
Napoleonic law and rendered the West’s extraterritorial courts in Japan redundant. To this day, however, the philosophy underlying Japanese law has hardly changed. In the words of James
Feinerman, a professor of law at Georgetown University and an authority on Japanese law, Japan is a society “ruled by men, not by laws.” Judges often seem to ignore the statutes in favor of their own intuitive ideas of natural justice. So much for rule of law in Japan and so much for democracy in
Japan.
Power is the defining feature of status in Japan; by comparison, fame and fortune, which many of the West’s finest pursue, are regarded askance in Japan. Fame signifies an attention-seeking, frivolous personality; and great wealth is regarded less as a measure of a person’s contribution to society than of his ability to cut corners in taking from society.
Some might imagine that elected representatives would bridle at this system of arbitrary civil service power. But, like most other members of the Japanese elite, they are not at heart great admirers of Western democracy. They believe in the Japanese principle of wa – harmony. In contrast with
Western culture’s concern to encourage a diversity of opinion, the search of wa pressures people to
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play down their differences and to seek to create a common front even where there is considerable disagreement under the surface. Ultimately, the pressure to conform must come from a strong central authority – hence the need for a civil service that enjoys considerable power to overrule an excitable and often benighted electorate.
Sometimes it seems as if Americans see Washington as the Vatican of world capitalism and
Tokyo as merely another diocese, albeit an important one. Any attempt by Tokyo to challenge the rules as laid down by Washington is automatically considered schism. For the Japanese, a more appropriate metaphor is the secular one of corporate competition. Tokyo is playing Microsoft to
Washington’s IBM. Microsoft defers to IBM while it is the weaker party but if it judges that the balance of power has swung its way, there is no law in the universe to stop it from challenging IBM.
Just as IBM has no universal right to lead the world computer industry in perpetuity, Washington has no universal right to lead the world indefinitely. In the end, the most successful economy will lead the world. In fact, we may go all the way to say that the Japanese have tightened their belts for a worldwide recession or even depression that will necessarily come about. By ignoring the Japanese challenge and thereby belittling lessons that can be learnt from the Japanese economy, Americans may be totally unprepared if there is a turn of events in the world.
Japan is not a crusading nation intent on winning over the hearts and minds of the world’s masses to a new ideology. Rather it is a highly pragmatic nation that is concerned first and foremost with its own security and well-being. The means toward those objectives are a matter for infinite flexibility.
Confucianism gives Japan a strong bond with many of the world’s most populous nations but it is a made-to-measure creed for Japan’s idea of the New World Order. Many of the world’s problems boil down to requiring today’s generation to make scarifies to ensure a more secure future for later generations. That’s a tough choice for a Western democracy, but it is the one that Confucianism instinctively approaches with the right mindset.
For one thing, Confucianism legitimizes efforts by a leader to conceal – and even misrepresent – what he is doing (as long as he feels he is motivated by a concern for the general good). More important, Confucianism legitimizes hierarchy not only among individuals but among nations. In fact, until the eighteenth century, the entire Confucian world was a hierarchy with China acknowledged as the Celestial Empire (or Middle Kingdom) by tribute nations from Vietnam to Japan. A frankly stated proposition that some nations are more equal than others circumvents some of the conundrums implied in American rhetoric on global problems. Pax Americana urges, for instance, Third World nations to adopt democracy. Yet Washington often gives scant weight to the opinions of such populous countries as India and China in setting the world agenda.
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By openly viewing the world in hierarchical terms, Japan suffers no similar embarrassment. As a mature economy, Japan’s economic growth has slowed down. It has played an important role in the transformation of other Asian economies. In the immediate post-World War II era, the Japanese people had reached a consensus of focusing on economic growth and developing the economy through export. The bureaucrats, the politicians and big businesses had unified themselves in this very important task. Now that Japan has caught up with the West, she is doing much soul-searching to re-define her national purpose. We believe that a great nation such as Japan can soon resume her economic growth. China has much to learn from Japan. With a Sino-Japanese co-production system being integrated, East Asia can be a leading force in the manufacturing output in the world. Today,
China is the largest trading partner of Japan, ahead of the United States. Although there is still some enmity between China and Japan as a result of the wars in their past history, these two countries can collaborate on many fronts and can ensure a peaceful and prosperous East Asia. If America contributes to such harmonious relationships, there will indeed be a Concert of the Pacific . If there was a Concert of Europe, there can be a Concert of the Pacific. Why not a Concert of the Pacific ?
Japan is the last of the mercantilist powers. It had, and still has, a conception of economics totally at variance with liberalism. The state remains the commanding heights of the economy, even if indirectly: the country is transformed into an aircraft carrier from which exports and outward investments are launched. The domestic market is heavily protected and the population is mobilized to generate GDP – irrespective of costs – while the foreigners are kept out.
As to relations with its Asian neighbors in the decades following the country’s failure to impose its military empire, this was seen and managed along the lines of a vertical division of production.
The favorite Japanese metaphor was the “flight of geese”. Japan in this scheme of things would not only be the head goose but also contrary to what actually happens with real geese, it had no intention of relinquishing its position.
This vertical perception of economies was (and is) replicated in the country’s vertical perception of nations and races. Indonesian and Malaysian managers repeatedly said that their Japanese superiors treated them as an inferior race. The Japanese, as is well known, are among the world’s least globalized people. They also, however, fail the test of being good regionalists. They are mercantilist nationalists. In the era of globalization, traditional Japanese practices may prove to be a stumbling block in her economic development. What is happening in China is very different.
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Paradoxically, while China is still officially a socialist state, the commanding heights of the economy are increasingly being wrenched away by the private sector.
China’s massive exports are more than compensated for by massive imports. Not only is China, unlike Japan, open to trade, but also to inward direct investments. Japan’s share of such investments to GDP is just over 1 percent, while China’s is more than 40 percent. Japan was closed not only to
Western corporations, but even more so to the exports and foreign investments of its neighbors.
Indeed, how many Korean cars are there on the Tokyo roads? There are, on the other hand, quite a number of Korean cars, such as Hyundai cars, running around in major Chinese cities.
China has become the first or second biggest export market for virtually all Asian nations. It is
China’s openness that is having such a positive effect on the global economy. According to the
International Monetary Fund, between 1995 and 2004, China accounted for about 25 percent of world economic growth, in contrast to 1 percent for Japan.
How China and Japan see the outside world differs profoundly in many respects. One of the more intriguing ways is how they treat their respective diasporas. In the 1980s, ethnic Japanese Brazilians were coming to Japan in droves. Disillusionment was perhaps the mildest of terms to describe their emotions when they found that they were treated almost as aliens rather than as brothers and sisters.
That sense of discrimination equally applied to those Japanese who had lived too long abroad. The problem of Japanese ( kikoku shi-jo ) returning from extended periods of residence abroad was a favorite topic of conversation in bars. Indeed, while many Japanese businessmen stay abroad on overseas assignments, their wives and children stay at home in Japan so that the children can go through the educational system in Japan. The four elite universities in Japan largely determine the fate and destiny of the best and brightest in Japan. Most Japanese parents will feel greatly honored if their children can gain admission to Tokyo University, which holds the key to inner circles in
Japanese government and big business.
Nothing could be more different in the attitudes of the Chinese to their diasporas and to the welcome reserved for those Chinese returning from periods of residence and study abroad. In contrast to the vertical division of production that Japan proposed to its neighbors, China envisages the integration of its market with that of the Association of Southeast Asian Nations (ASEAN), which would create a regional market of 1.75 billion consumers. Of course, Japan is now running behind
China and trying to catch up. However, Asian countries are not particularly interested in Japan’s vertical relationships. Although the Chinese have been described as the most chauvinist people on earth because of their sense of cultural superiority, the Chinese are a friendly people and believe in
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what Confucius says: “Within the four seas, all men are brothers.” That partly accounts for the commercial success of overseas Chinese in Southeast Asian countries.
How is history likely to judge this Asian transition from the predominantly Japanese 20 th century to what is shaping up to be a predominantly Chinese 21 st century? There can be no doubt that for all
Japan’s strident nationalism, imperialism and subsequent mercantilism, it did provide an important stimulus to Asian economic renaissance, even if unwittingly. By being the first nation in the modern era to defeat a European nation in a major war – Russia in 1905 – on the basis of a quite solid economic foundation, Japan broke the white western monopoly of power.
Japan showed that it could be done, and there was nothing inherently inevitable in the West’s dominance of the world, and that alternative approaches to creating wealth and power were possible.
Ultimately, Japan’s model proved deeply flawed because of its resistance to change. As China takes over, the message has to be: dump the Japanese model. Be nationalist if you want to, but be open. Be regionalist and globalist at the same time. This is the way to ensure that growth will be sustained and that the country and the continent will become truly rich, in every sense of the word.
However, to sustain its economic growth, China needs to allocate its scarce resources more efficiently and more effectively. Chinese leaders understand the importance of an efficient banking system and is now reforming its banking system in a “gradualist” approach, as briefly explained below.
China’s banking system reform is critical to its economic growth. In 2003, China’s newly appointed governor of the central bank, Zhou Xiaochuan, told a business audience that China would take a “gradualist” approach to the reform of its banking system. Since then, China has injected more than $60 billion to recapitalize four of its five largest banks and has transferred some $200 billion worth of nonperforming loans out of these banks into specialized asset-management companies, almost twice as much as Korea has spent in restructuring its banks during the 1997 – 1998 financial crisis. Many Chinese banks, including all the recapitalized ones, have brought in foreign “strategic investors” to become their shareholders. They are also planning for IPO in foreign stock exchanges.
For example, ICBC (Industrial and Commercial Bank of China) is the largest bank in the PRC.
The Ministry of Finance and China SAFE Investments each owns 50% of the bank. They sold a 10% stake to a consortium comprising Goldman Sachs private equity fund, Allianz group and American
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Express for US$3 billion. After a US$15 billion state cash injection, and removal of 705 billion yuan of non-performing loans and a 35 billion yuan subordinated bond issue, ICBC raised its capital adequacy ratio to 10.26%.
While welcoming this, many foreign analysts continue to greet China’s banking reform with skepticism and question the judgment and strategic intent of these foreign investors. They note that foreign investors are merely minority shareholders. Hence, their influence in running these banks is limited. In Korea, for example, the government-controlled Korean Exchange Bank got into trouble even though Commerzbank of Germany had become a 30 percent shareholder after the financial crisis, and LG Card, the country’s credit-card issuer, failed after a consortium of international investors had acquired more than 20 percent of its shares. In both cases, foreign investors had board seats but proved totally ineffective in bringing about any meaningful changes in the ways these firms were run.
In the end, it is the willingness of the controlling shareholder to accept change that matters.
Is there any reason why China should change the ways its bank conduct their business? The obvious and most quoted reason is that Chinese banks need to prepare themselves against an expected onslaught by foreign competitors in 2007 – a year when China, as part of its entry into the World
Trade Organization, will have to remove the last barriers to foreign competition in its banking sector.
This threat, however, is overrated. Simply put, it will take decades, if ever, and billions of dollars in investment, for any foreign bank to replicate the franchise of the largest of the Chinese banks.
Without such a network of thousands of branches, foreign banks will not be able to take any meaningful market share from their Chinese counterparts, especially in the most lucrative retail business.
In spite of the growth in volume of banking business in absolute terms, foreign banks have seen their market share in China fall in recent years. This is one reason why foreign banks trip over one another to get even a foothold in a Chinese bank.
A healthy banking system is, of course, necessary for China to sustain its economic growth. No country with an open capital market and convertible currency, the direction in which China is moving, can sustain its growth if it has a weak and inefficient banking system. In spite of its rapid growth in recent years, the Chinese economy remains inefficient and wasteful. This can be seen by the fact that, on average, it takes several times more capital and other resources for China to produce one dollar of
GDP than it does in developed countries.
These inefficiencies have not yet slowed down the economic expansion because the growth has been fueled by the country’s extraordinarily high savings rate of 43 percent of GDP. However,
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China’s growth model, consisting of throwing ever more resources at the economy, has reached its limits as a country cannot invest more than its savings over the long run. As the savings are channeled into investments by banks, the inefficiencies and wastefulness simply turn into bad loans.
To continue to grow, China needs to clean up its banking system and force its banks to kick the habit of underwriting bad loans. A strong banking system will ensure more efficient allocation and use of scarce resources, allowing the economy to grow on the basis of improved productivity, as opposed to increased input.
Chinese leaders’ resolve to reform the nation’s banking system shows that they understand what it takes to sustain economic growth. They are wise and far-sighted enough to take painful measures without waiting until the going gets tough. Whereas many other countries regard foreign capital as the last resort or a necessary devil in solving a banking crisis, China is in the enviable position of having sufficient resources to clean up its banks without foreign help. The capital spent so far on recapitalizing the banks represents only a fraction of the more than $850 billion in foreign exchange reserves that the country has amassed by March 2006.
China wants foreign investors not so much for their capital, but for the expertise they bring in. As such, China is prepared to be generous. Foreign investors may be the only minority shareholders, but it is whether they are treated as necessary devils or welcome angels that will make the difference between the success and failure of China’s banking reform. Chinese banking officials do not wish foreign investors to simply take a ride. They want them to contribute to changing how banking business is conducted in China.
Chinese banking reform does not just redress the balance sheet; it involves systemic change. By and large, policy lending, which was responsible for much of the bad loans, has become history. The two-year-old China Banking Regulatory Commission (CBRC) has severely tightened banking regulation. The central bank and the CBRC have jointly imposed strict capital requirements on banks, penalizing those not meeting them by various means, including making it more costly for them to borrow and limiting their businesses. The central bank has removed the ceiling on interest rates so that banks can now better price risks. But the most significant step is China’s effort to push its banks to adopt good corporate governance. Almost all the national banks have been transformed into joint stock companies. All the recapitalized banks are required to go public, preferably in overseas markets.
This subjects them to greater transparency, tighter supervision and close scrutiny by overseas regulators and public shareholders.
While what China has accomplished thus far in its banking reform program is impressive,
Chinese banking still has a long way to go to meet international best practices. For example, it is still
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the government, rather than the board, that makes the ultimate decision on the appointment and removal of the top management of government-controlled banks. Also, it will take time for Chinese banks to build a credit culture in which lending decisions are made on the basis of the credit worthiness of the borrower and risk analysis, regardless of relationships and government policies. In hindsight, a “gradualist” approach means one step at a time, although the pace of change is anything but slow. However, it should be recognized that the first step is always the most difficult step to take.
China has already embarked on such a journey in her banking reform. Surely enough, the rest of the journey will be very tough. However, there is good reason to believe that China will get there eventually, given the vision and resolve its leadership has shown in banking reform so far.
In their book, Empire of Debt: The Rise of an Epic Financial Crisis (2006), Bill Bonner and
Addison Wiggin give the following interesting analogy: 2
The citizens of Squanderville, as Warren Buffett calls the United States, are a happy bunch. They believe happy things; it doesn’t bother them that the things they believe are impossible. After 20 years of mostly falling interest rates, mostly falling inflation rates, and mostly rising asset prices
(stocks and real estate), people have come to believe that this is the way the world works: interest rates mostly go down, and house prices mostly go up; it goes on forever.
Even the professionals in Squanderville have never been more certain: A 2005 poll of economists working for major brokerage houses found that 100 percent of them expected rising stock prices over the next 12 months. And real estate? Who believed house prices will fall? Almost no one.
While it is all very well to think happy thoughts and spend happy money, it is savings and investments that produce real jobs and real earnings. As the years go by, Squandervillians make less and less what they can sell abroad, and consume more and more from overseas. So, when they spend money, much of it goes to buy products from Thriftville (Buffett’s term, perhaps he had Asia in mind.)
The industrious people of Thriftville use the money to hire more workers, build more factories, import more technology, and improve their products. Thus, the authorities in Squanderville find themselves in a remarkable position: they can still use monetary and fiscal policy to create a boom, but the boom happens in Thriftville!
The happy residents of Squanderville hardly know or care. The latest job numbers are celebrated; who bothers to notice that the new jobs are not quite as nice as the old ones? While companies lay off
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relatively highly paid people in the manufacturing sector, other companies hire relatively cheaper employees in the service sector. General Motors declines; Wal-Mart grows.
The total value of all assets in America is only about $50 trillion. Current U.S. debt is about $37 trillion. Add to it the present value of Federal government liabilities and America is broke. America can pay off its debts to foreign countries in three ways: (1) devalue the greenback against foreign currencies, (2) inflate the American dollar, and (3) repudiate the debts.
The United States economy has been so strong for so long, people all over the world have come to accept the imperial currency. A popular joke is that “A man who owes his banker $100,000 can’t sleep at night, but when a man owes his banker $1 million, it is the banker who can’t sleep.” At the end of 2004, the Japanese central bank had an estimate $700 billion worth of U.S. dollar-denominated paper assets in its vault. Mr. Asakawa was the central banker. Beside his bed was a blue plastic monitoring device that would go off like an alarm clock if the dollar/yen exchange rate fell out of a given trading range. It is not surprising that Mr. Asakawa could not sleep well. Surely enough, a relatively modest drop in the value of the dollar would have significant impact on the central bank of
Japan. Even if the Japanese buy all of the shares of General Motors, such holding merely constitutes only 3.1 percent of Japan’s holdings of dollar-denominated assets.
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Inflation would be an obvious way of reducing the value of America’s debts. This is how
Germany reduced her debts after World War I. The Reich was left with a bill for $33 billion in reparations to be paid to the Entente powers. But Germany was worn out by the war, and had no way of making such large payments. Out of desperation, she resorted to the printing press. Hyperinflation followed. The German middle class was ruined and that, more than anything else, led to the rise of the Nazi Party in Germany. At some point, America’s debt will probably be incinerated by inflation.
What the consequences would be are hard to foretell now.
In 1996, Professor Samuel Huntington of Harvard University published a book, The Clash of
Civilizations: Remaking of World Order . It became an international bestseller. Professor Huntington draws a scenario in which the United States goes into war with China. He writes:
If it continues, the rise of China and the increasing assertiveness of this “biggest player in the history of man” will place tremendous stress on international stability in the early twenty-first
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century. The emergence of China as the dominant power in East and Southeast Asia would be contrary to American interests as they have been historically construed.
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In his scenario, the United States, Europe, Russia, and India would become engaged in a truly global struggle against China, Japan, and most of Islam. How would such a war end? Both sides have major nuclear capabilities and clearly if these were brought into more than minimal play, the principal countries on both sides could be substantially destroyed.
Professor Huntington gives a scenario in which the United States goes to war with China over
Chinese invasion of Vietnam which arises as a dispute over the development of the oil reserves in the
South China Sea.
Professor Huntington is a very learned man and a very prolific writer. However, he has a very strong bias toward China. Maybe, we can draw on some simple examples. During her recent past history, many foreigners and their armies have come to China to take possession of many valuable masterpieces of art. Some of these have been kept by private collectors; some have been displayed in museums in cities, such as London, New York and Paris. Still some more have been taken from
China and stored in the Imperial Palace in Tokyo; they are not shown to the public. It is that Japanese way of doing things. The collection has become a private collection so that Japan does not have to boast of her past imperialism and colonialism. To the Chinese, many of these are national treasures.
Can China appeal to international law to claim back some of these items? After all, they were looted, yes, looted from China during her century of humiliation. Now the Chinese simply buy back some of these items with hard currencies.
If China continues to develop economically, she can solve many of the disputes she has or may have with her neighbors. In the first place, we are not sure whether there are huge oil reserves in the
South China Sea. Even if there are such reserves, the Chinese can still buy them from the rightful owners of such resources. When no such resources are made available to the Chinese in the market or otherwise, the Chinese may then take appropriate action.
In a similar vein, Japan does not have many natural resources to boast of. In an attempt to occupy territories with abundant natural resources, she got herself into a war in which she was totally defeated.
As a point of interest, 99.5 percent of the Japanese Imperial Navy was sunk to the bottom of the sea by the Americans during World War II. After the war, the Japanese worked hard to build their country into the world’s second largest economy and use her wealth to buy natural resources, including iron ore, from as far as South America. Japanese resourcefulness is Japan’s answer to a lack of natural resources in Japan.
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Likewise, China is the second largest importer of oil today. She has to pay for such huge import.
The only way is to export a great variety of items to earn hard currencies in order to pay for her oil import. Why is Professor Huntington so firm in his belief that China will use military means to possess whatever there may be in terms of oil reserves in the South China Sea. This reflects a basic hostility of some Americans against Beijing simply because the Chinese regime is communist.
Certainly, the Western civilization is a great civilization, perhaps the most progressive civilization in the world today. Professor Huntington says it best:
All civilizations go through similar processes of emergence, rise, and decline. The West differs from other civilizations not in the way it has developed but in the distinctive character of its values and institutions. These include most notably its Christianity, pluralism, individualism, and rule of law, which made it possible for the West to invent modernity, expand throughout the world, and become the envy of other societies. In their ensemble these characteristics are peculiar to the West. Europe, as Arthur M. Schlesinger, Jr., has said, is
“the source – the unique source” of the “ideas of individual liberty, political democracy, the rule of law, human rights, and cultural freedom … These are European ideas, not Asian, nor
African, nor Middle Eastern ideas, except by adoption. They make Western civilization unique, and Western civilization is valuable not because it is universal but because it is unique.
The principal responsibility of Western leaders, consequently, is not to attempt to reshape other civilizations in the image of the West, which is beyond their declining power, but to preserve, protect, and renew the unique qualities of Western civilization. Because it is the most powerful Western country, that responsibility falls overwhelmingly on the United States of America 5 .
In the twenty-first century, national wealth and per capita income may be more important than raw military power. In the above, we have briefly gone over the horrendous economic problems faced by America, China and Japan as they enter a new millennium. We are optimistic that if the peoples in these countries collaborate together in some ways, they can solve many of the problems.
There is no need to resort to arms even when there are disputes over natural resources such as oil and gas reserves in South China Sea or elsewhere.
Being surrounded by Japan, Taiwan, Vietnam, India and the U.S. Navy, Beijing naturally wants to have a multipolar world to balance off the ring of her neighbors. But China, as a civilization and as a nation-state, has no great interest to project her power to the far corners of the earth. It is simply not
Chinese. Surely enough, the European Union is now China’s largest trading partner over Japan. But
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it should be recognized that the European Union has more than two-and-a-half times the population of
Japan, and has a strong presence in traditional manufacturing. In many areas, Japan has more advanced manufacturing than the European Union and even the United States.
Probably corporate Japan’s most important area of monopolistic leadership is electronics. The seeds of monopoly which Japan has planted here promise a truly exceptional harvest. The Japanese technology expert Masanori Moritani has perhaps put it most succinctly: the silicon revolution, he says, promises as big a transformation in the world economy as all other technologies developed since the eighteenth century put together. This is quite a statement but the evidence that it is true is widely apparent to anyone who has looked at how corporate Japan’s control of the electronics industry is giving it growing power to shape dozens of other industries, form robotics and factory automation to cars and aerospace.
To characterize the twenty-first century as a multipolar world or a multicivilizational world as
Professor Huntington has done in his book, The Clash of Civilizations , is over-simplified. In fact, one can still have a multipolar world while the twenty-first century may hold the promise of being a
Pacific Century. This is because if the basic conflicts among America, China and Japan have been resolved, these countries, separately or together, can work on other worthwhile projects dealing with other civilizations and other nation-states. In short, if there is peace and prosperity over the Pacific
Ocean, there will be enough opportunities for other economic and social players from other parts of the world. So while there is steady progress being made in China in her political, economic and social realms, other countries or even civilizations, such as the European Union, the Middle East, Russia and
India can benefit from such progress. Hence, when we suggest the term “a Pacific Century”, it is not because of lack of developments in other parts of the world. It is, rather, that America, China and
Japan are the three greatest national economies in the world in the first half of the twenty-first century.
Their wealth and cultures can contribute to the enrichment of life in other parts of the world. Thus, while the world in the twenty-first century will undoubtedly be a multipolar, multicivilizational world, it can benefit significantly if the three largest national economies perform in a Concert of the Pacific with other Pacific rim countries.
Surely enough, the European Union is a big economic entity. However, because of linguistic and cultural differences, one will still refer to a Mercedes-Benz as a German car rather than as a European car. More fundamentally , Asians, particularly the East Asians and Southeast Asians want to learn from the enterprising and entrepreneurial spirit of the American people. Stories about how American companies undertook great risks were circulating among the better educated people in Asian societies:
IBM’s System 360, Boeing’s 747, Xerox’s 914, Intel’s Crush crusade, and Microsoft’s Internet
Explorer are well-known examples. The Chinese, including the top Chinese communist leaders, are
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fascinated by how a young country, such as the United States, can accomplish so much within so short a span of time. America ignites the imagination of the Chinese people, but America’s free-markets capitalism and democracy which is bypassing consensus-building may not be the model for Chinese economic and political developments.
Europeans pride themselves as being more culturally superior to Americans. They don’t have a higher per capita income than the Americans nor do they work as hard. They simply explain that they treasure leisure. Instead of thinking and working hard to bring home bacon, the Europeans spend more time in perfecting their skills in cooking the bacon they bring home. With a history of 5,000 years, the Chinese are rightfully proud of their culture and civilization, but they sincerely admire the
American “cowboys” because these somewhat unruly characters have made America a rich place. In turn, many Americans have thought well of the efforts and hardship borne by the Chinese to stand up in a world colonized by the Europeans and the Japanese.
In his book, The Pacific Century: America and Asia in a Changing World (1992), Frank Gibney wrote:
The Asia-Pacific nations at our doorstep, taking many a cue from our own experience, have not been afraid to take risks. By virtually deifying education they have assimilated new technology, but they have not turned their backs on old values. Over the past half century, they have built new dynamic economies, on the ruins of old economic principles. Albeit in varying degrees, they have kept a sense of community identity and community action. To go forward, they need our help and past example.
Equally, we need them. We can learn much from their present achievement and we must 6 .
To bring about a Pacific Century, the Taiwan problem must be resolved. If Americans help facilitate the process of Chinese reunification, they can win the hearts and minds of the Chinese people. In reciprocity, the Chinese will try to win the hearts and minds of the American people.
Without a siege mentality, the Chinese will be more open to foreign ideas, practices and institutions.
Materialism alone may not win the Chinese to democracy and freedom of speech, of the press, of religion, and of assembly. However, a more relaxed China will be more ready to welcome these ideas, practices and institutions. If Americans truly have no territorial ambitions in Asia and have no great interest in a Taiwan that is politically separate from the mainland, why not be a peacemaker. The status quo may be something that many people on Taiwan want. However, strictly speaking, the status quo translates into no war, no peace, no reunification, and no independence. It is very ambiguous. The problem is actually not about its ambiguity; it is about uncertainty. Uncertainty can
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lead to war and even nuclear war between America and China. Great leaders are those who can reduce uncertainty in the world over a prolonged period of time.
Of all the decisions of a free people must face, the question of war and peace is the most solemn.
Before sending young Americans to kill and die in foreign lands, a democracy has a sacred obligation to permit full and searching discussion of the issues at stake. Debate is presumably the essence of democracy. That is why this book is written in a way to present different perspectives rather than simply those of the authors. Americans must ask themselves what they may really gain from an independent Taiwan or a commitment to Taiwan that can be manipulated to lead to a war between
America and China.
The relationships between America, China and Japan require a delicate balancing act. If mishandled, the relationships can rupture into devastating warfare. If handled with prudence and wisdom, the relationship can lead to prolonged peace and great prosperity over the Pacific, enjoyed by all the peoples living in the countries bordering the Pacific Ocean. We believe that American people can understand the issues at stake and the American government can act with great prudence and wisdom in such a difficult situation. In aerospace engineering, we talk about dynamic stability, dynamic programming and dynamic feedback control mechanisms. Americans are the most advanced in aerospace engineering; they can likewise think of, and practice, dynamic stability in geopolitics in
Asia Pacific.
Thomas P.M. Barnett was a senior strategic researcher and professor at the U.S. Naval War
College. He has written two bestsellers. They are (1)
The Pentagon’s New Map: War and Peace in the Twenty-first Century and (2) Blueprint for Action: A Future Worth Creating .
He is now an independent consultant to the Pentagon.
He reminds his fellow countrymen as follows:
If the United States is committed to winning a global war on terrorism by defending globalization’s progressive envelopment of the planet, then our blueprint for action must obviously list somewhere near the top the following task: locking China in at today’s prices.
By that I mean securing a long-term strategic partnership with China on security affairs now , while Beijing’s prices remain relatively low, rather than putting off the inevitable for another twenty years only to pay through the nose at some later date. Right now we know what
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China’s price is: our defense guarantee on Taiwan and our acceptance of their growing security clout in the region. If Taiwan chooses to force the issues of independence, it could easily torpedo the most important strategic relationship America has now. The straits remains the one potential military flash point that can still ignite East Asia and send this whole global economy up in flames in a heartbeat … If we lose China (again), we might just kill globalization, and if that happens, it won’t just be a matter of what historians write a hundred years from now – we’ll spend the rest of our days wondering whether we destroyed the planet’s best hope for ending war as we know it.
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He passionately urges his fellow countrymen to be more realistic.
America needs to take its defense guarantee to Taiwan off the table, and do it now before some irrational politician in Taipei decides he’s ready to start a war between two nuclear powers. Trust me, we’d be doing Taiwan a favor, because it’s my guess that our defense guarantee would evaporate the moment any Taiwan Straits crisis actually boiled over, leaving
Taipei severely embarrassed and Beijing feeling excessively emboldened. I say, let’s lock in a strategic alliance with rising China at today’s price, because that cost has nowhere to go but up over the coming years. Buying into this relationship now is like stealing Alaska from the czars for pennies on the dollar – it’ll never be this cheap again 8 .
Thus it is important for the United States to act now to facilitate the process of Chinese reunification. A unified China would make greater contributions to peace and prosperity in the Asia
Pacific region and to a more peaceful and prosperous world in the twenty-first century. While there are people who would not agree with the notion that the twenty-first century would be a Pacific
Century, greater peace and prosperity over the Pacific will definitely provide plenty of opportunities for other countries and economic entities, such as the European Union and South America and even
Africa. China’s great demands for raw materials can pull many poor countries that are endowed with natural resources from poverty.
Americans must unload their Cold War mentality. Containment of the former USSR should not become containment of the PRC. The Chinese in mainland China and overseas are more interested and absorbed in their horrendous tasks of economic development. They have little interest in challenging the United States or other powers in other parts of the world. However, a Pacific Century is not pre-ordained. Asians and Americans would have to work hard to bring it about. That is why we say: Toward A Pacific Century rather than A Pacific Century as heading for this concluding chapter.
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Understandably, the great majority of the American people are not well informed about the history and current developments in East and Southeast Asia. Americans were not well informed about the financial crisis in Asia in 1998 because their attention had been focused on the case of
Monica Lewinsky. On the same day in August 1998 that Russia became the first of the crisis countries to default on its foreign debt, President Clinton testified before a grand jury and made a televised speech apologizing to the nation about Lewinsky. In the meantime, markets around the world, including those in the United States, were severely disrupted, and the world felt the threat of a truly global financial crisis.
There are simply too many uncertainties in the world. These uncertainties can lead to worldwide disasters. Great leadership is called for to reduce these uncertainties although there is simply no way to eliminate all uncertainties because uncertainties are simply part of nature. In quantum mechanics, we speak of Heisenberg’s Uncertainty Principle. In numerical analysis, we speak of rounding errors, which can blow up a computational process. In applied mathematics, we speak of instability of solutions to complex mathematical equations. All these remind us how uncertain the world can be. If the United States is to lead the world into the twenty-first century as the indispensable nation,
Americans should focus on the reduction of uncertainties rather than the preservation of strategic dilemmas. Perhaps Americans should rethink about their policy towards China and East Asia. By facilitating the process of Chinese reunification, Americans can win the hearts and minds of the
Chinese people; and the Chinese will, in reciprocity, try to win the hearts and minds of the American people. Chinese unification is deeply imbedded in the collective psyche of the Chinese people just as fair play is deeply embedded in the collective psyche of the American people. That will be far superior to building a $100 billion-plus missile defense system that may yet prove technologically ineffective. In ancient Chinese wisdom, it is called winning without fighting . Blessed are the peacemakers for they shall be called children of God. God bless America!
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Theologians speak of different worldviews. Through worldviews, people attempt to understand their roles in the universe. Below we shall briefly mention three worldviews that are more relevant to today’s human existence.
1.
The Materialist Worldview
This view claims that there is no heaven, no spiritual world, no God, no soul; nothing but what can be known through the five senses and reason. The spiritual world is an illusion. There is no higher self; we were mere complexes of matter, and when we die we cease to exist and all that remains are the chemicals and atoms that once constituted us. Matter is ultimate. There is a
“hard” materialism that sees the universe as devoid of spirit, and a “soft” materialism associated with consumerism, self-gratification, and an absence of spiritual values. Since there can be no intrinsic meaning to the universe, people have to create values, purposes, and meanings for themselves. There is no right and wrong except what society agrees upon for purposes of survival or tranquility. Materialism has, in fact, become so pervasive in modern society that it is virtually identified with the scientific point of view, even though the new physics has moved beyond materialism into a reenchanted universe.
2.
The Theological Worldview
In reaction to materialism, theologians created or postulated a supernatural realm. Acknowledging that this higher realm could not be known by senses, they conceded earthly reality to science and preserved a privileged “spiritual” realm immune to confirmation or refutation. The materialists were only too glad to concede to the theologians the “heavenly” realm, since they did not believe it existed anyway. The slogan that many clergy were taught in seminaries was “Science tells us how the world was created, religion tells us why
.” This means splitting reality in two and hermetically sealing off theology from the discoveries of science and science from the wisdom of theology. In a world inundated with scientific data and discoveries, many theologians simply have not been interested in science. The price paid for this schizoid view of reality was the loss of a sense of the whole and the unity of heavenly and earthly aspects of existence. The earth reveals the glory of God, and scientists uncover God’s majesty. Science and religion cannot be separated.
3.
An Integrated Worldview
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This view is emerging from a number of streams of thought, including the new physics. It sees everything as having an outer and an inner aspect. Heaven and earth are seen as the inner and outer aspects of a single reality. This integrated worldview affirms spirit at the core of every created thing. But this inner spiritual reality is inextricably related to an outer form or physical manifestation. The idea of heaven as “up” is a natural, almost unavoidable way of indicating transcendence. There is no longer an “up” anywhere in the universe, just as north is no more “up” than south is “down”. The integrated worldview reconceives that spatial metaphor not as “up” but
“within”. In this worldview, soul permeates the universe. God is not just within me, but within everything. The universe is suffused with the divine. This is not pantheism, where everything is
God, but pan en theism ( pan , everything; en , in; theos , God), where everything is in God and God in everything. Spirit is at the heart of everything, and all creatures are potential revealers of God.
This worldview does make the biblical data more intelligible for people today than any other available worldview.
The passion that drove the early Christians to evangelistic zeal was not fueled just by the desire to increase church membership or to usher people safely into a compensatory heaven after death. In the final analysis, the gospel is not a message of escape to another world, but of rescue from the enticements of “this world”. Eternal life is not something reserved for the future in another reality, but begins now, the moment we become alive to God and God’s revealer (John 17:3).
In a pluralistic world in which we are privileged to learn from all religious and philosophical traditions, Christians still have a story to tell to the nations. As Christians tell it and live it, they may see themselves – and maybe even the world – a little bit transformed.
Most Americans are Christians. They have a story to tell. By telling it and living it, they can transform themselves and even the world. Living as Christians would mean following Jesus’ teaching.
Blessed are the peacemakers for they shall be called sons of God .
With transformational leadership, Americans can write a new chapter in world history not with arms but with hearts. Religion is not opium of the people. It does not sanction social injustice and social ills. Karl Marx is in the mainstream of thought in social science. He was not brought up in the tradition of natural science. Had he been brought up in the tradition of natural science, he would have been more imaginative to the vistas that would be opened up as people treasure their lives on earth and not wait for escape into another world after their death. Right now, the official stand of the
Chinese Communist Party is still dialectical materialism. However, dialectical materialism cannot fill up the hollow in human hearts because we have to have God within us. Nature abhors a vacuum.
Religious and philosophical traditions will revive and flourish in China.
297

Contrary to common beliefs, Karl Marx had left a legacy in China not because he advocated dialectical materialism and proclaimed that religion was opium of the people, but because he had followers who built a form of state capitalism in China. The production forces of this state capitalism were the foundation upon which Deng Xiaoping built his socialist market economy. Some American politicians and academics may decry China’s efforts to win a place under the Sun. Eloquence is certainly a great gift for politicians, but simply mouthing conventional wisdom eloquently is not necessarily great leadership.
Right now, the conventional wisdom is to keep the status quo in the Taiwan Strait. However, it is time to re-examine this logic and conventional wisdom. Only then can America lead the world into the new millennium as the indispensable nation. There is God in every Chinese just as there is God in every American. We are heading toward a new century when religion and science can find meanings in our everyday lives. We don’t need an Armageddon before we come to our senses that we should preach and practice long-lasting peace . We should strive for peace and prosperity in all regions in the world in the years to come. This includes Asia Pacific in general and the Taiwan Straits in particular.
As stated in the Preface, most Chinese, irrespective of the differences in their political beliefs, want to see Chinese reunification within their lifetimes. Chinese reunification can be delayed for a decade or two, but cannot be postponed forever. The Taiwan problem has to be resolved with vision, political wisdom, consummate diplomatic skills and great leadership. When there is still time, act now. Action speaks louder than words.
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304

Terence Kwai is President of China Specialists, a research and consulting firm based in Hong
Kong, the People’s Republic of China. The firm’s motto is:
Private interests serving the public purpose. Previously, he worked at Union Carbide Corporation and Pfizer Corporation in the United
States and later in two large and prestigious American and Swiss consulting firms in their Asian practices.
Dr. Kwai taught strategic management and China business at the University of Hong Kong and the Hong Kong Polytechnic University. He has written a number of books, including (1) Strategic
Planning and Control: A New Dimension to Asian Business ; (2) China’s Challenges in the 21 st
Century ; (3) Japan and China: Prospects for Economic Partnership ; (4) Multinationals in China:
Execution in A Dynamic Economy ; (5) The Transformation of Hong Kong-based Companies and the
Creation of Regional Wealth .
He made a contribution to the evolution of politics and government in Hong Kong prior to 1997, when Hong Kong was returned to China by Great Britain. He advises American, European and
Japanese multinational corporations and Asian firms on matters of vital interest to them. His advice is often taken into serious consideration and implemented because it is based on strategic information and distilled wisdom. He maintains a strategic alliance with the School of Economics and
Management at Tsinghua University (in Beijing), which is the most prestigious university in China.
He has invested in high-tech industries in China and runs seminars on strategic management of technology and innovation.
He was educated at California Institute of Technology and Harvard Business School. Caltech probably represents the greatest concentration of talent in fundamental research in the world.
Caltech’s alumni and faculty have won 32 Noble Prizes. As a doctoral student at Harvard Business
School, he had availed himself of the vast intellectual resources of Harvard University. He lives in
Hong Kong and can be reached at honkwai@netvigator.com or (852) 6071 9079.
Chan Hon Wing is a retired businessman. Over the past thirty years or so, he had done business all over Asia. He was fully versed in the political, economic, social and technological developments in Greater China. He has invested in manufacturing industries in China. He combines intellectual curiosity with the wisdom of Chinese philosophy. He was educated in China and Australia. He resides in Hong Kong.
305

Introduction
1 David Lampton, Same Bed, Different Drams: Managing U.S. – China Relations 1989-2000.
Berkeley:
University of California Press, 2001.
2 Chalmers Johnson, Blowback: The Costs and Consequences of American Empire, New York: Henry Holt and
Company, 2000.
3 Ibid.
4 Henry Kissinger: Does America Need A Foreign Policy? Toward a Diplomacy for the 21 st Century , New York:
Simon & Schuster, 2001.
5 Ibid.
6 Chalmers Johnson, Blowback: The Costs and Consequences of American Empire, New York: Henry Holt and
Company, 2000.
7 Qian Ning, Chinese Students Encounter America , Hong Kong: Hong Kong University Press, 2002.
8 Henry Kissinger: Does America Need A Foreign Policy? Toward a Diplomacy for the 21 st Century , New York:
Simon & Schuster, 2001.
9 Robert Kagan, Of Paradise and Power: America and Europe in the New World Order , New York: Vintage
Books, 2004.
10
Ibid.
Chapter One
1 Lloyd Dumas, Lethal Arrogance: Human Fallibility and Dangerous Technologies , New York: St. Martin’s
Press, 1999.
2 Ibid.
3 Akira Iriye, China and Japan in the Global Setting , Harvard University Press, 1989.
4 Ibid.
5 William Bonner, Financial Reckoning Day: Surviving the Soft Depression of the 21 st Century , Hoboken, New
Jersey: John Wiley & Sons, 2003.
6 John Keegan, The Iraq War , London: Hutchison, 2004.
Chapter Two
1 Arthur Schlesinger, Jr., War and the American Presidency , New York: Norton Paperbooks, 2005.
2 Ibid.
3 Ibid.
4 Ibid.
Chapter Three
1 Bill Bonner & Addison Wiggin, Empire of Debt: The Rise of an Epic Financial Crisis , New York: John Wiley
& Sons, Inc., 2006.
2 Ibid.
3 Ibid.
4 Niall Ferguson, Colossus: The Price of America’s Empire , New York: The Penguin Press, 2004.
5 Michael Hiltzik, The Plot Against Social Security: How the Bush Plan is Endangering our Financial Future ,
New York: HarperCollins Publishers, 2005.
6
Ibid.
7 Ibid.
8 Ibid.
9 Niall Ferguson, Ibid.
10 Gerald Swanson, America the Broke , New York: Doubleday, 2004.
11 Ibid.
12 William Bonner, Ibid
13 Ibid.
Chapter Four
1 George Bailey, Germans: The Biography of an Obsession, New York: The Free Press, 1991.
2 Ibid
3 Matt Marshall, The Bank: The Birth of Europe’s Central Bank , London: Random House, 1999.
306

4 Werner Meyer-Larsen, Germany, Inc. – The New German Juggernaut and Its Challenge to World Business ,
New York: John Wiley & Sons, Inc., 2000.
5 Ibid
6 Steven W. Mosher, Hegemon: China’s Plan to Dominate Asia and the World , San Francisco: Encounter Books,
2000.
7 Ibid
8 Andrew Nathan and Robert Ross, The Great Wall and the Empty Fortress: China’s Search for Security , New
York: W.W. Norton & Company, 1997.
1
Chapter Five
Nancy Bernkopf Tuck (ed.) Dangerous Strait: the U.S.-Taiwan-China Crisis, New York: Columbia
University Press, 2005.
2 Ibid.
3 Kuhn, R., The Man who Changed China: The Life and Legacy of Jiang Zemin , New York: Crown Publishers,
2004.
4 Tyler, P., A Great Wall: Six Presidents and China – An Investigative History , New York: A Century
Foundation Book, 2000.
5 Lampton, D., Same Bed, Different Dreams: Managing U.S.-China Relations 1980-2000 , Berkeley: University of California Press, 2001.
6 Wesley Clark, Winning Modern Wars: Iraq, Terrorism, and the American Empire , 2003.
7 Lampton, D., Same Bed, Different Dreams , Ibid.
8 Ibid.
9 Ross Terrill, The New Chinese Empire: And What it Means for the United States , New York: Basic Books,
2003.
10 Ibid.
11 Peter Hays Gries, China’s New Nationalism: Pride, Politics and Diplomacy , Berkeley, University of
California Press, 2004.
12 Ibid.
13 James Gregor, A Place in the Sun: Marxism and Facism in China’s Long Revolution, Boulder, Colorado:
Western Press, 2000.
14 Ibid.
15 Ibid.
Chapter Six
1 Dali Yang, Remarking the Chinese Leviathan: Market Transition and the Politics of Governance in China ,
Stanford: Stanford University Press, 2004.
2 Minxin Pei, The First Chinese Democracy, Stanford: Stanford University Press, 2001.
3 Kuhn, R., The Man Who Changed China: The Life and Legacy of Jiang Zemin , New York: Crown Publishers,
2004.
4
Francis Fukuyama, The End of History and The Last Man, New York: The Free Press, 1992.
5 Randall Peerenboom, China’s Long March Toward Rule of Law , Cambridge, England: Cambridge University
Press, 2002.
6 Benjamin Friedman, The Moral Consequences of Economic Growth , New York: Alfred Knopf, 2005.
7 Ibid.
8 Ibid.
9 Ibid.
10
Ibid.
Chapter Seven
1 David Aikman, Jesus in Beijing: How Christianity is Transforming China and Chaning the Global Balance of
Power , Washington, D.C.: Regnery Publishing, Inc. 2003.
2 Ibid.
3 Ibid.
4 Ibid.
5
Gaddis, J., The Cold War , London: Penguin Books, 2005.
6 Soderberg, N., The Superpower Myth: The Use and Misuse of American Might , New York: John Wiley & Sons,
2005.
7 Ibid.
307

8 Ibid.
Chapter Eight
1 Tom Osenton, The Death of Demand: Finding Growht in A Saturated Global Economy , New Jersey: Prentice
Hall, 2004.
2 Ibid.
3 Ibid.
4 Ibid.
5 Jonathan Garner, The Rise of the Chinese Consumer , London: John Wiley & Sons, 2005.
6 Ibid.
7
Ibid.
8 Fishman, T., China, Inc.: How the Rise of the Next Superpower Challenge America and the World , New York:
Scribner, 2005.
9 Joe Studwell, The China Dream: The Elusive Quest for the Greatest Untapped Market on Earth , London:
Profile Books, 2005.
10 Ibid.
11 Ibid.
12 Chen, C., High-tech Industries in China , U.K.: Edward Elgar Publishing Ltd., 2005.
13 Ibid.
14 Peter Nolan, China and the Global Business Revolution , London: Palgrave, 2001.
15 Ibid.
16 Michael Mandel, Rational Exuberance: Silencing the Enemies of Growth and Why the Future is Better Than
You Think , New York: Harper Business, 2004.
17 Matthew Simmons, Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy , New Jersey:
John Wiley & Sons, 2005.
18 Ibid.
19 Rolf Jensen, The Dream Society: How the Coming Shift From Information to Imagination Will Transform
Your Business , New York: McGraw-Hill, 1999.
20
Ibid.
21 Ibid.
22
Ibid.
Chapter Nine
1 Berger, Global Taiwan: Building Competitive Strengths in a New International Economy , Armonk, New York,
2005.
2 Ibid.
3 Nancy Tucker, Dangerous Strait: The U.S.-Taiwan-China Crisis, New York: Columbia University Press, 2005.
4 Alain Minc, The Great European Illusion: Business in the Wider Community , 1992.
5 Peter Nolan, China at the Crossroads , Cambridge: Polity Press, 2004.
6 Ibid.
7 Joseph Stiglitz, The Roaring Nineties , New York: W. W. Norton & Co., 2003.
8 Ibid.
Chapter Ten
1 Akira Iriye, China and Japan in the Global Setting , Cambridge, Mass.: Harvard University Press, 1992.
2
Bill Bonner and Addison Wiggin, Empire of Debt: The Rise of an Epic Financial Crisis , New York: John
Wiley & Sons, Inc., 2006.
3
Ibid.
4
Tsang, S., Peace and Security Across the Taiwan Strait , London: Palgrave Macmillan, 2004.
5 Ibid.
6 Frank Gibney, The Pacific Century: America and Asia in a Changing World
, New York: Charles Scribner’s
Sons, 1992.
7
Thomas P.M. Barnett, Blueprint for Action: A Future Worth Creating
, New York: G.P. Putnam’s Sons, 2005.
8 Ibid.
308