A leaked copy of the US State Department’s China study, “The Elements of the China Challenge,” found its way into the American media today. Most of it is predictable, parts of it are insightful, and other parts of it suggest that no-one in the department’s Policy Planning Staff bothered to read the final version before it went to the printer. The paper compares itself to American diplomat George Kennan’s celebrated “Long Telegram,” which proposed to contain Soviet Communism at the outset of the Cold War. This document unfortunately has some elements of a Wrong Telegram. But it gets one important thing right: The United States should have no illusions about transforming China into a Western-style democracy and must engage China
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A leaked copy of the US State Department’s China study, “The Elements of the China Challenge,” found its way into the American media today. Most of it is predictable, parts of it are insightful, and other parts of it suggest that no-one in the department’s Policy Planning Staff bothered to read the final version before it went to the printer.

The paper compares itself to American diplomat George Kennan’s celebrated “Long Telegram,” which proposed to contain Soviet Communism at the outset of the Cold War. This document unfortunately has some elements of a Wrong Telegram. But it gets one important thing right: The United States should have no illusions about transforming China into a Western-style democracy and must engage China as it is.

“Traditional Chinese thinking features authoritarian proclivities. It is characterized by a statism that directs economics and society. It is home to a legalism that employs a strict penal code to create the domestic stability that allows for the building of wealth and military might. And it sees political power as properly residing in an elite bureaucracy rather than springing from the people,” the report states at the outset.

And it concludes in part: “Strategic competition with China requires delicate balancing: The United States must engage with Beijing cautiously and creatively while countering its economic imperialism and military adventurism and firmly opposing the brazen violations of the rule of law and the gross human rights abuses that seem to be inseparable from CCP rule.” That means that the United States will complain about what China does but engage it where it must.

China is not the old Soviet Union, the report states: “While communism aims to create a universal and classless international order, the CCP seeks to export the Chinese model of authoritarian governance and create economic dependence on Beijing in nation-states around the world.” But I am hard put to find an example in which Beijing took an interest in how the barbarians (that is, everyone except China) governed themselves. Economic dependence is another story.

China aims to build the world’s fifth-generation (5G) wireless-telecommunications physical and digital infrastructure as a steppingstone to broader dominance in emerging and next-generation information technologies,” the report notes, and repeats the US government’s often-stated claim that “countries that use them as 5G vendors face growing threats to their network integrity, data privacy, economic stability, and national security.”

Technologically, the allegation is nonsense, as I detailed in my book You Will Be Assimilated: China’s Plan to Sino-Form the World. In the coming era of end-to-end encryption with quantum keys, equipment providers will have no more access to their customers’ data than Kalahari Bushmen.

Mobile broadband, though, is the foundation for grass-roots economic transformation in the developing world, linking people to the world market who live in an economic twilight world. It is the ultimate instrument of globalization and the virtual link that binds a growing number of economies to China.

China is not merely the world’s largest exporter, but it is also the fastest-growing exporter, and its central position in the world’s largest trading agreement, Asia’s Regional Comprehensive Economic Partnership, ensures that its economic power will expand. That is what I dubbed “Sino-forming,” namely drawing the Global South into China’s economic model by means of Chinese technology and business organization.

It has nothing to do with exporting China’s political model; on the contrary, the power of China’s approach to the world is that it seeks to transform the economy at the capillary level, from the bottom up, rather than from the top down.

The State Department document lists a number of industries in which China seeks technological preeminence, but attributes this to Beijing’s military ambitions. It misses the radical nature of the transformation that China has undertaken and how much this has contributed to the resilience of China’s economy.

A chapter entitled “China’s vulnerabilities” contains this embarrassing lapse:

While the extent in China of the economic contraction caused by COVID19 is uncertain, the pandemic’s consequences are bound to exceed what Beijing endured in the aftermath of the 2008 financial crisis. Stimulus measures stretching across more than a decade have taken their toll on China’s corporate sector while saddling the government with immense debt. In response, China has imposed strict lending standards on its banks, the efficacy of which is to be determined. While many Chinese companies depend on capital markets in the United States, Britain, and other countries, some use secondary listings in Hong Kong or Shanghai to insulate themselves from limitations on access to foreign capital markets. Meanwhile, China’s manufacturing sector is likely to keep contracting due to sharp drops in consumer demand at home and abroad. Declining manufacturing, diminished consumption, and limited stimulus tools would depress GDP and increase unemployment, yielding further dissatisfaction and social unrest.

That is what many Western analysts hoped would happen when the COVID-19 pandemic began in China at the end of 2019, and the meme of the day was China’s supposed “Chernobyl moment.” Quite the opposite occurred, however. China applied its prowess in Big Data/Artificial Intelligence analysis of public health data, fueled by an unrivalled capacity for data collection, and crushed the epidemic within weeks.

China’s industrial production as of October was 7% higher than the year-earlier month while the US and the Eurozone were down by nearly the same amount. The chart for year-on-year change in real Gross Domestic Product is more or less identical. China’s world-beating economic recovery has been evident since May, and the State Department’s scribes have had half a year to adjust their forecasts. Their failure to do in face of overwhelming evidence suggests an ideological mindset sufficiently robust to resist the distraction of facts.

This nugget is embedded in a chapter entitled “China’s vulnerabilities,” which also avers that “China suffers from worsening demographic conditions. The size of the population is on track to peak in the coming decade and then gradually decline. To make matters worse, Beijing is about to experience an explosion of those 65 and above while its working-age population shrinks sharply.

The absence in China of a modern social-safety net will impose strains as workers struggle to support a steadily growing retiree population.” That is true, although China’s demographic profile (assuming no improvement after the removal of the one-child policy) is better than Japan’s or South Korea’s, and about the same as Germany’s. The absence of a safety net, moreover, is mitigated by extensive household savings; during the past generation Chinese households have saved about 40% of their income (compared to about 8% in the US).

What, after all, should the United States do in the face of China’s challenge? The State Department offers only: “The United States must strengthen its alliance system by more effectively sharing responsibilities with friends and partners and by forming a variety of groupings and coalitions to address specific threats to freedom.”

After the announcement of the RCEP in early November, that is unconvincing in the extreme. If it wants to keep up with China, the United States will have to mobilize all of its resources to rebuild the high-tech industries that Silicon Valley abandoned when it discovered that software had a higher return on investment. It will have to discover new industries, as it did during the 1970s and 1980s when it spent twice as much relative to GDP on basic research.

There is no credible proposal on the table to do this, which means that China will continue to gain ground, and the State Department will issue more white papers to complain about it.