China’s political leadership has lost two very important battles in 2019. It lost its ability to manage its relations with the US. It also lost the initiative to pursue and deliver on internationalizing the renminbi. Having a globally accepted fiat currency would entail fiscal, monetary and geo-strategic advantages China needs in its efforts to rebalance its economy toward consumption and services. Having lost these advantages, the Chinese leadership has been left bewildered and weakened.
Edward Luttwak has detailed the reasons underwriting such myopia in China’s political leadership in his magisterial book The Rise of China vs the Logic of Strategy. Here we find a study of the limitations of Han strategic thought on economic, diplomatic and military themes that wrecked the tenures of previous Chinese statesmanship. The Americans waded into a globally defined leadership role after the demise of British dominance at Suez. It wasn’t foreordained; because both China and North America reside as islands cut off from major commercial currents dominating the Eurasian landmass, the American imperium could have floundered abroad after the demise of British leadership but didn’t. However, China’s reach in managing its advances abroad have reached inflection points.
The source underwriting China’s flailing behavior is that Beijing’s dominant political class assumed it had achieved power parity with the United States. China’s leading strategists arrogated to themselves a position of enabled superiority without having alloyed themselves to the cultural achievements that underwrite US commercial dominance. A dangerously simple idea of economic interdependence enticed Beijing’s dominant political class to ignore the profound differences between the Chinese and American regimes.
The American commercial regime is mature, with astounding redundancies in both its civic and governing features that are easily obscured. China’s emerging regime, driven principally by exports in a managed economy, isn’t mature in its economic or financial development. Any quick glance at China’s banking system or capital markets should belie any claim that these two regimes are equal. There are profound social, legal and institutional differences between these two regimes. This was ignored by China’s political class throughout 2019. The consequences will be felt for generations.
Any look at Donald Trump’s political competitors in the Democratic Party reveals that his presidency has permanently changed the view Americans have of Chinese leadership. Absolutely no Democratic contender seeks to reverse the US-led tariff war or the decoupling of the United States from China. Currently, Beijing’s policy stances on all US-led initiatives against China remain unaddressed. The reasons are stark, yet simple. Beijing’s governing class, like British Edwardians, has only sought to fortify a self-imposed idea of a Han-led Greater China.
There remain distinct policy challenges that China can pursue to alleviate its current self-imposed crisis, but most of these reforms cannot be reconciled to the ethnically based polity of leadership that dominates Beijing. China can reform its banking sector and currency regime so that the Chinese people are rewarded for their personal capital investment in the rebalancing. Currently, China’s banking is reserved as a strict domestic tool in the allocation of state-directed capital. Market liberalization should continue apace with monetary reform that would alleviate China’s debt-fueled, credit-based growth model. Currently, the Chinese leadership shows no desire to pursue real reforms that would address the country’s systemic downturn.
China’s current malaise was preventable, if Chinese leadership sought contrary perspectives that would challenge a Han-dominated view of China and its self-imposed imperium at the heart of Asia.