The US and China are not just engaging in a trade war and military posturing, but also in a technological race and ideological challenge, or more specifically, it is about the future of democracy. This is the final article in a three-part series examining the prospects of major economic and political reform around the world in 2019, and the complexities and impacts of this process.
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To remain economically viable in the near term, China needs to start focusing on exporting to countries that can afford to pay and help sustain its weakening economy, and also attract foreign direct investment and other critical resources. It can no longer afford to risk any further trade or technological wars with its major trading partners or lose the support of strategic economies in the Asia region.
In the midst of its current challenges, China needs to reorganize its resource planning and priorities. Its Belt and Road Initiative (BRI) may just be too costly a pursuit at this juncture. Despite such a gloomy outlook, all is not lost for the Chinese, but they must find a way to win the trust and respect of the global community.
The global community still has vested interests in helping China avoid an economic derailment. It can still strategize its way out of all these challenges but it must be strategic and decisive, as time and goodwill are definitely not on its side. China needs new ideas to reinvent itself and harmonize with the global community.
The Chinese social and political systems are based on Mao Zedong’s socialist ideology, while its economic system is based on its own version of state-managed capitalism. Aggregated, it is inherently Marxist yet tempered socio-politically by its own Confucian philosophy that survived the Cultural Revolution.
With a large geographic mass and population, China is up against unmanageable risks as it sees that its economic success can be easily threatened by any internal revolt as a result of economic instability. Externally, it does not seem to trust anyone. As such, the state, or rather its president, literally controls everything.
When China commenced its assimilation of Macau and Hong Kong to bring them under its central control in 1997, with its unique “one country, two systems” policy, the world watched in amazement, since Hong Kong was based on the democratic, not socialist, ideology. In many ways, China has yet to utilize Hong Kong effectively to its advantage, treating it as an undifferentiated extension of Shenzhen.
China’s cultural advantage
Nobel Prize-winning economist Milton Friedman advised the Chinese leaders back in the late 1980s that if Beijing wanted to help its people thrive in the new world, the state must incentivize and support its people. He realized in his 1993 visit that most of the managers at state-owned enterprises (SOEs) were not willing to give up their powers. Their collective resistance to change was real and formidable. To compete globally, China needs to empower its people and grow its private sector.
If China were to review the World Bank data on its growth in per capita GDP in purchasing power parity (PPP) terms over the past 40 years, it would see that after the first 13 years of its “opening up” period, it had only hit US$1,526 by 1990 despite its low base. But when it started to empower its private sector from 1991 to 2017, that 27-year period saw its PPP grow to $15,308.
The real economic power of the Chinese lies with its private sector, not in its SOEs. China needs to invest in more dynamic individuals like Alibaba co-founder Jack Ma. These are the talents who can truly compete in the global arena and help China move forward. In retrospect, Friedman was right all along, and China could have done much more, much earlier.
Unlike the US, China has a culture that stretches back more than 5,000 years. The Chinese diligently wrote down their thoughts and insights on the many issues that they had observed and faced. With each BRI investment, one can find a Confucius Center that seeks to impart cultural knowledge. It is time for China to open its own chest of knowledge and bring out the “gems” from its past to address the multi-faceted challenges it is now facing.
The Chinese have to demonstrate that they truly understood their own ideology and consistently show that they can be used to forge peaceful and harmonious collaboration with others.
Essence of ‘Ru Jia Si Xiang’
In “Rú Jiā Sī Xiǎng” (儒家思想), or Confucian thoughts that the Chinese have articulated, its whole essence can be summarized in just one text, rén (仁). There is no English word that can fully express the meaning of this single text. The closest English word available is “benevolence” but it is much more dynamic than simply being benevolent.
The essence of this singular text seeks to bring out not only the best in self, but more importantly in others, and harmonizes collaboration more effectively and meaningfully. If this very essence can be strategically injected into China’s domestic and foreign policy, and its external engagement, President Xi Jinping may just have at his disposal a whole new range of options that he can use effectively to counteract almost all of the challenges China is now facing.
Empowering Hong Kong
Domestically, a simple shift in empowering the Hongkongers by addressing the key issues they are facing, such as with affordable housing and economic opportunities, could greatly reduce its brain-drain problem. These talented people are what China needs at this stage to help make Hong Kong much more successful and economically viable than what the elite or bureaucrats could do for China. China needs to engage and empower these talents to work in its favor, not the other way around.
After all, the system for Hong Kong is segregated from that of the mainland. With the strategic shift, China is simply seeking greater value from its investment in Hong Kong by empowering its human capital in a more harmonious way for a greater win-win outcome. This is also much more cost-effective than the building of big-ticket infrastructure projects that tried to turn Hong Kong into an undifferentiated extension of Shenzhen. At the end of the day, it is always the people who make or break an investment.
Differentiated foreign and trade policies
China’s current foreign and trade policies are confusing, and its engagement antagonizes even its neighbors who are already grounded in Confucianism. Nothing meaningful can come out of such mistrust. As a superpower, China has to take the initiative in forging a new social compact that addresses their concerns and build up trust if it wants to see a meaningful outcome from such engagement.
If China can embrace this new essence in a more holistic manner, and use it strategically, there is a much greater probability of creating many more new economic opportunities with these neighbors. If China cannot win over its Southeast Asian neighbors with its economic advocacy, it has very little chance of success with the wider global community.
Importance of ASEAN
The economies of the Association of Southeast Asian Nations (ASEAN) offer China opportunities to counterbalance against any potential fall in trade as its re-strategizes its long-term engagement with the US and its allies.
The same is true for its engagement with India. China has the “gems” within its own cultural chest, and just like the US, it must use them effectively and avoid straying into unwarranted and unproductive entanglements. This shift will also enhance its soft power in narrating a new China, one that is fair and worth engaging with.
China needs to be much more inspiring than the US if it wants to be a formidable superpower in the new world order. It has to show a more desirable engagement stance.
If it can strategize this successfully, its trading partners’ FDI will be beating their way into China of their own accord. It has to earn the trust and respect of its partners, just as the US has done and will need to continue doing.
Forward into 2019
The day for major economic and political reform is already at hand and there is no turning back. As such, 2019 is going to be the year of major reform for every economy, be it democratic or socialist.
The US and its allies already have much to do. From reforming their economies to strategizing the various innovations needed to drive the Fourth Industrial Revolution forward, they cannot afford to falter if they want to redefine a new world order where democracy remains the cornerstone of the free world.
The tensions between the US Congress and President Donald Trump will be a common feature for at least the first half of 2019. Once the race for the next US presidential election takes off, the power to change will finally return to American voters.
How they vote for their next president is going to make a difference, probably one that will define the outcome of the technological race, and ultimately the future of democracy.
The US needs an inspiring president, one who can lead its collective push for the technological race and also be the global voice for true democracy.
As for China, its future lies in its own hands. The good news is that China is already undertaking steps in reforming its economy, its trade policy and its engagement with the global community. It needs to be smarter in instilling the trust and respect needed to narrate a more inspiring China.
If it can restore its relationship with the rest of the world and be seen to be fair and consistent, the future for China can be equally bright.
For the UK, 2019 will be an interesting year as it exits the EU to forge its own future. Together with the EU and Japan, the British can be the pivoting third power between the US and China, offering greater stability to the wider global community.
Logic dictates that nobody in the free world wants a divided world or any change that may harm the concept of free trade or the prevailing ideology. The year 2019 will definitely be remembered as the defining year of major economic and political change.