Understanding and Misunderstanding China

The Hong Kong protesters should demonstrate to us once and for all that the Chinese are not genetically conditioned, compliant and quietist “yellow ants”, as many in the West still assume. Nor must we forget 1989 when young freedom protesters surrounded a Statue of Liberty on Tiananmen Square. About one million Beijing residents from all walks of life, including numerous party and union officials, demonstrated for reform and greater freedom. Most remarkably, Zhao Ziyang, the general secretary of the Communist Party of China after a long career in the Party elite, addressed the crowds on the square. He advocated freedom of the press and freedom of association, free markets and parliamentary democracy. Could a leader like that again one day emerge from the bosom of the CPC?

This essay appears in the latest Quadrant.
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Of course, earlier generations of Chinese had to knuckle under to survive, buy a decent apartment and give their children a good education. Many still do. But many of their children and grandchildren now have attained middle-class living standards or better, together with the education and knowledge which come with that. More and more Chinese—in the PRC and the diaspora, including in Australia—now aspire to civic, economic and political rights. And they are prepared to stand up for their liberties.

During my visits to the PRC over the past forty years, I have seen a pervasive shift from unquestioning compliance and the pursuit of narrow material aspirations to demands for individual freedoms. Many Chinese now complain about the oppressors in Beijing and the surveillance state. “It takes the authorities a mere seventeen minutes to know exactly where everyone is at the moment,” they joke. “China is so poor at soccer because the national team consists of players with money to bribe the selectors,” you are told. Ordinary folk one meets decry openly the blocking of Google, Wikipedia and YouTube by online censorship—and show you how to circumvent the ban. America-based, Mandarin-speaking bloggers, whose political comments are critical and often well-informed, have hundreds of thousands of tech-savvy, VPN-enabled followers in the PRC. Their blogs often attract a hundred times the number of viewers that the PRC’s main broadcaster gets. The professors and students of Shanghai’s Fudan University, whose charter contains the motto “freedom of thought”, but who have been officially instructed to drop it, now defiantly sing their campus anthem daily, extolling “freedom of thought and academic independence”. Many in the rapidly growing middle class speak admiringly of the individual freedoms they have observed in the West during holiday trips or semesters of study.

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Our issue is not with the Chinese people, not with the amazing Chinese diaspora community we have here in Australia. My issue is with the Communist Party of China and their policies to the extent that they’re inconsistent with our own values.
                                 —Peter Dutton, Minister for Home Affairs, October 11, 2019

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The rapidly growing middle class, who aspire to enjoy the freedoms and material comforts that we enjoy, differ in one important respect from us in the West. The Judeo-Christian guilt feeling for enjoying high living standards and taking from nature is absent. If people can enjoy honestly acquired wealth, they do so without inhibitions, guilt feelings or much social criticism. The more opulent, the merrier! Admonitions at global climate talkfests are therefore likely to have little effect on the PRC’s policies, except where the local environment is damaged. With regard to improving local rubbish handling, as well as air and water quality, the Chinese with their typically resolute approach to problems are making admirable progress. Only look at how quickly noisy, smoky motor-scooters have been replaced by electric ones, how quickly city buses and garbage removal trucks are replaced by battery-operated models. While the New South Wales authorities have set up a taskforce to discuss electric city buses, the skies over China’s big cities seem, by and large, to be turning a little bluer. Credit where credit is due!

When I see young Australians sporting Mao T-shirts, I realise that the unmitigated disasters of the Mao era, the mass starvation and the utter contempt by the leadership for the suffering of the masses seem to have faded from popular memory in the West. During the 1950s and 1960s, the “Bamboo Curtain” kept the true face of Maoism hidden from Western view. The few Western sympathisers, who were regime guests of Mao’s PRC, returned wilfully unaware of the reality or naively allowed themselves to be duped by the Potemkin-style communes they were shown. Among those Western “running dogs” were, for example, British proto-communists, such as the economist Joan Robinson and the biochemist-historian and UNESCO official Joseph Needham. They acted no differently from the notorious Beatrice and Sydney Webb in the 1930s after their visit to Stalin’s Soviet Union. To everyone else, the PRC was closed. 

The professionals one now meets in China mourn the passing of the “Golden Years” of economic reform and opening. It had all begun so forcefully and pragmatically after Mao’s death, as Deng Xiaoping and Zhao Ziyang launched economic reforms. When I travelled throughout China on an official tour in 1981, I was taken aback by the pervasive and prompt productivity increases evident in those provinces where agriculture and industry had been privatised and given a free hand. The end of central planning and commissar control came as a surprise to me, and to most of my new friends. Western journalists and “China experts” were still singing sotto voce the praises of the disastrous people’s communes and central industry planning.

In the early 1980s, it was difficult for officials in reforming provinces to broadcast the happy news. Allow me to admit to a personal involvement: I was invited in 1981 as a guest of the Chinese Academy of Social Sciences on a lecturing and industry-inspection tour. Professor Jock Anderson (University of New England) and I were the first Western economists since the Revolution to visit partially privatised industries in Sichuan province, which had long been hermetically closed. Our colleagues in the Sichuan Provincial Academy of Social Sciences were eager to feed me detailed information about the reforms and the (for them) surprisingly positive consequences. This did not occur during the formal, official meetings and in the presence of our official minders, but during surreptitious evening encounters, sitting on hotel beds. The Sichuan scholars did not feel confident to make their “discoveries” public throughout China. Only through the observations of a foreigner, translated into Mandarin, could the good news be broadcast.

In the provinces, economic liberalisation was greeted with great cheer. Yes, cheer! I will never forget the haggard farmer in a Sichuan country market whose wife and daughter had just thrown their Mao uniforms into the wastebasket of history and appeared before him in new flowery cotton frocks stitched together by an enterprising local tailor. The farmer exclaimed to our interpreter: “I had long forgotten how beautiful Sichuan women are!” Priceless also the remark of the director of a big metal factory, when I asked him whether the need to find out about demand for the firm’s products did not cause him unaccustomed stress. “Yes, fulfilling plan targets was easy. Now I have to work a lot harder. But I arrive at work every day with anticipation and go home happy!” During the reform era, local officials often acted with resolute autonomy in the knowledge that “tiān gāo, huángdì yuăn—Heaven is high and the Emperor far away”—and got away with it.

The thin-skinned neo-authoritarianism of recent years has not only led to incidences of cowardly self-censorship, but also provokes expressions of dejected resignation, sadness and anger. The mood began to change after 2012, when Xi Jinping became General Secretary of the CPC and Chairman of the Central Military Commission, and 2013, when he became President of the PRC. When Comrade Xi assumed the title of “core leader for life” in 2018, everyone realised that the “Golden Years” were definitely over. Censorship has been stepped up. University education is again officially made an ideological battlefield, “studying, researching and propagating Marxist scientific socialism”, rather than evidence-based, critical inquiry and teaching. A campaign against “Western values”—specifically constitutional democracy, universal values, civil society, pro-market neoliberalism, media independence, historical nihilism (that is, criticism of past errors) and doubts about Chinese socialism—has gained momentum. In 2013, Xi Jinping even spoke of a Communist-led “post-Western world order”. The “win-win relationship” with the West that inspired observers during the reform era has turned into a “you win, I lose” antagonism culminating for now in the continuing US-China trade war.

Despite a new personality cult, a renewed centralisation of power and a resurgence of assertive nationalism, Xi is a far cry from the Mao’s totalitarian, revolutionary fervour. He is holding on to many of the reforms implemented since Mao’s demise. However, no one can be sure how far the clock will be turned back. What we now know with certainty is that most Chinese people, when free to vote—whether in Hong Kong or Taiwan—or able to move to the West—whether from Hong Kong or the PRC—prefer Western values to being ruled by “Xi Jinping Thought”.

The danger of a middle-income trap

Arguably, only a few thinkers in China—such as the nonagenarian economist Mao Yushi and his colleagues at the now suppressed Unirule Institute of Economics in Beijing—fully understand why re-Maofication and the campaign against “Western ideas” are so tragic at this phase of the nation’s economic development. Let me explain why.

In the early years of reform, it was relatively easy to reap rapid economic gains. After the demise of Mao’s economically suicidal regime, imported ideas and technical equipment could produce great productivity gains. They were used intelligently and competently by many Chinese firms, who had access to free markets at home and abroad. China’s was not a completely underdeveloped economy where “take-off” had to rely on textiles and footwear. Notwithstanding official propaganda, industrialisation had begun long before the Revolution. In particular, foreign-governed enclaves—such as Shanghai, Tianjin, Wuhan and Chongqing—had acquired substantial and sophisticated industrial and financial capacities during the first half of the twentieth century. After 1978, low wage, tax and land costs attracted foreign investors eager to cater to China’s huge markets or set up a low-cost base to supply world markets. Massive improvements in infrastructure (transport, energy and water supply and development of industrial estates) have facilitated unprecedented economic growth, first in coastal regions, then throughout the country.

Most Chinese observers do not see their country as a newly industrialised country (NIC), comparable for example to South Korea or Mexico. Rather, they tell you that China had long been the technically most sophisticated and affluent country on Earth before Western Europe took off into sustained growth, partly thanks to inventions such as the compass, gunpowder, the wheelbarrow, paper and printing, purloined from China. They see the emergence of the Chinese economy over the past quarter-century as a return to its traditional place on the world income pyramid. While the relevance of this long-term perspective seems debatable, it is politically relevant.

The economic growth of the past four decades has lifted unprecedented numbers of people out of grim poverty. Although the statistics are dubious and although it is problematic to describe as diverse a nation as China—from Shanghai glitz to dirt-poor back-country villages—as a “middle-income country”, I risk saying that China has become one in record time. The economy is now no longer dominated by agriculture and the few heavy industries that the new communist regime tried to plan centrally in the 1950s. It is now a complex, dynamic economy reliant on widely distributed, changeable knowledge and sophisticated, specialised logistics channels. Even if interventions are less direct, a return towards the Stalinist-Maoist mindset among officials would therefore be infinitely more damaging to incentives, risk-taking and further innovation.

The pre-conditions for rapid “catch-up growth” cannot last in any NIC. Wages and taxes rise—the growth of private and government incomes is after all the very purpose of economic development. Space becomes scarcer. Local pollution problems become more costly to rectify. The scope to reap productivity gains by copying imported concepts and equipment gradually narrows, even when the workforce becomes more skilled. Economic success normally induces national leaders to become more assertive and meddlesome, frequently also more corrupt. These changes can be considered part of the standard pattern of industrialisation. Once middle-income levels of productivity and income are reached, further growth requires clearer, more competition-friendly rules, more secure property rights, less prescriptive intervention, freer markets and above all the freedoms that facilitate creative risk-taking by entrepreneurs. All too often, NICs then slither into a “middle-income trap”. As of 2020, many parts of the huge and diverse Chinese economy display symptoms of a middle-income trap: estimates of what economists call “total factor productivity” have plummeted in recent years, a fraction of the contributions to growth attained after the reforms began.

It was of course clear that China would become a huge challenger to the established global pecking order and probably the global rule system, not only because of its sheer size and the competence of many Chinese producers, but also because the government was an ambitious one-party dictatorship with little respect for the established and successful global order. Besides, China was never destined to become your standard NIC. First, it was by far the biggest newcomer on the global economic scene. Second, unlike most NICs facing the middle-income transition, China has a rapidly ageing population, and demography is half the story of economic development. Over the past four decades, the costs of labour, land and other local inputs have risen faster than in comparable cases. More and more Chinese industries have now reached world best practice and what economists call the “productivity frontier”. China-based producers now have to discover new solutions and test their own innovations, which is much more difficult than simply importing knowledge.

Over the past decade, the national government has tried artificial demand stimulation to stem the consequences of these emerging constraints on the supply side of the economy. This has led to distortions: transport infrastructure in part far exceeds prospective demand, and belts of unsold high-rise apartments surround every city and town. These “Keynesian stimulus ruins” also weaken the national financial system. Alas, the most important source of genuine further growth—Western ideas and creative thinking by free people who compete in open markets—is now being politically stymied by the woolly ideology of “Xi Jinping Thought”.

The Chinese are thus in danger of becoming old before they become really rich. Such a fate is not inevitable, as is demonstrated by those of their countrymen who have attained more economic, civic and political freedom, namely the Taiwanese, the Singaporeans and (till recently) the citizens of Hong Kong.

The Chinese economy will continue to narrow the gap between it and the West, but at a much reduced pace. By the middle of the twenty-first century, “Greater China” (the “Confucian orbit”) is likely to produce and consume about half the world’s production. This will not mean that the average East Asian will work with First World productivity and enjoy the same per capita income that Westerners will have.

Beware of the terribles simplificateurs

In this situation, we in the West are confined mainly to the role of bystanders. It would be naive to expect that the cultural values deeply embedded after 4000 years of high civilisation will be pushed aside in favour of a Westminster-style democracy. In addition, we must understand that the current dynasty of “Red Emperors”—despite the calls for freedom discussed above—can for now claim a considerable degree of legitimacy: economic growth (the equivalent of the good harvests for which earlier emperors used to pray) confirms for many that the Beijing rulers of 1.4 billion people enjoy the “Mandate of Heaven”. As a consequence, the extremely difficult task of adapting Confucian cultural notions to the necessities of the modern world in a middle-income contingency will have to be mastered by the Chinese themselves. Being judgmental or dismissive from a Western standpoint shows disrespect; it is rightly resented by most Chinese. We can only watch and act when the emergence of the PRC on the world scene inflicts undue and unacceptable consequences for our legitimate interests.

We would certainly be poorly advised to persist with mere antagonism to, and stereotyping of, all things Chinese, let alone be gripped by “yellow peril” hysteria. There is much to admire and respect in modern China. Let us not forget that even high-ranking Communist Party leaders, such as Zhao Ziyang, and eminent economists have castigated the damaging consequences of centralisation and top-down control. The proper attitude for us to embrace is, in my opinion, concisely expressed by Peter Dutton at the top of this essay. China is not a monolith; we must learn to differentiate.

First of all, there is an urgent need to study the rich and varied history and civilisation that most call “Confucian”, but some of my friends prefer to label “the chopstick-and-soy-sauce culture”. I am always ashamed to discover how little most educated Westerners know about China’s history, mores, philosophy, regional diversity and recent technical achievements. It is, on average, much less than what educated Chinese know about the West. It is estimated that about 10 million people in China are fluent in English and about 450 million learn some English. By contrast, a mere 10,000 to 20,000 Westerners, who are not ethnic Chinese, are estimated to have fluent Mandarin. How little do our schools teach about the four millennia of Chinese civilisation! Yet, the future of mankind over the next few generations will be shaped by the world’s two most outstanding, most durable civilisations (which I will persist in calling Confucian or Eastern, and Christian or Western respectively). And nowhere are these two great traditions likely to come into more intimate contact than in Australia, thanks to our geography and immigration. Yet, all the time one encounters fellow Australians who confuse the Qín and the Qīng or who could not name China’s ten biggest cities, but who hold forth about what a threat the Chinese are and how governments and businesses must now act.

Even a cursory acquaintance with China’s history and civilisation will dispel the widespread notion that this vast, diverse country was ruled from the top down by despots, before whom everyone had to kowtow. In reality, imperial governments stayed mostly aloof from ordering people’s private and economic affairs. That was deemed mainly the task of moral education and privately enforced conventions.

Three great philosophical traditions dealing with good government originated in China more than 2500 years ago: Daoism, Confucianism and Legalism. The Daoist tradition has a decidedly individualist bend. “Lao-tzu … anticipates the theory of spontaneous order by teaching that harmony can be achieved through competition. [He] … advises the ruler not to interfere in the lives of the people.” To be sure, the Daoist maxim of wú wéi (which might be translated as “masterful inaction”) does not mean total laissez-faire, but guidance by example and abstaining from utopian objectives and micro-management. Confucianism, which is not a religion, but rather a Weltanschauung combined with certain rites, has over the centuries given rise to as many variants of social theory as Christianity. Good government generally relies on morally educated gentlemen (jūnzí) and on social discipline. Only the Legalist tradition advocates the iron hand of despotism. It was favoured by Mao Zedong and now seems on the rise again.

While studying books is for most the main source of understanding another culture, specific, singular observations of reality make certain features plausible and deepen one’s understanding. So, it was for me when—on a visit to the Confucius temple in the historic financial centre of Pingyao in Shanxi province—I observed a grandfather with three youngsters bowing in front of an “altar” niche and then spending a long time in front of it in earnest conversation with the children. After they left, I inspected the niche, which contained a tablet with a helpful translation into English. It read: “The people are the most important element in a nation; the spirits of the land and grain [agricultural productivity] are the next; the sovereign is the least.” This assertion of the second-most important Confucian thinker is embedded in popular thinking. It will, I trust, eventually exert a moderating influence even on the currently ruling Red Dynasty.

The 2500-year-old philosophic traditions—in particular the teachings of Confucius—have a pervasive influence in Chinese society. I have visited many such temples and come to the conclusion that they are not strictly comparable with Western synagogues, churches or mosques; rather they mix the attributes of a chapel with those of a think-tank, where great intellects and leaders are venerated and their ideas conveyed to ordinary people. A great variety of moral insights are thus kept alive in popular memory. There is nothing quite like it in the West. It is as if we had chapels in which the ideas—dare I say?—of Voltaire or Darwin were kept alive in popular opinion!

The most important Western response to the now more confrontational tenor in the systems competition between China and the West ought to be a renewed assertion of the values and institutions that have facilitated the West’s ascendancy since the Enlightenment. Alas, Western civilisation looks fragile on that front, given the many attacks on our core values and strengths. Beyond enabling us to better cope with the China challenge, analytical comparisons between the Eastern and the Western traditions would add depth and a sharper profile to understanding our own civilisation. They would also enable us to better project those of our qualities and strengths that are admired, and aspired to, by many in East Asia.

The China challenge

Without doubt, China is now posing the biggest challenge to the global order that has underpinned unprecedented prosperity and peace in the world since 1945. In a way, the China challenge is reminiscent of what ascendant Wilhelmine Germany did in the late nineteenth century, Imperial Japan in the early twentieth century, and the Soviet Union from the 1930s to the 1970s.

These episodes are part of a broad pattern of long waves of accelerating and decelerating economic growth (economists speak of “Kondratiev cycles”). Every thirty to fifty years, it seems, innovations appear that create new industries, boosting economic activity. When global growth accelerates, industry spreads to new locations, so that new industrial countries appear on the scene. A generation into the upwave, the socio-economic system in the old industrial countries typically develops signs of sclerosis, so economic growth slows. But the NIC economies keep growing. Thanks to new industries and being as yet without entrenched producer lobbies, they do not have to struggle with “creative destruction”. The disparity in the resulting pace of economic growth between old and new industrial countries is then often projected into the future and ascribed to some superior regime in the NICs. For example, during the Great Depression unabated economic growth in the Soviet Union was widely seen as a result of socialist planning, and not the result of a “one-off NIC advantage”. When the 1970s global slowdown came around, Soviet state capitalism suffered from a protracted “sclerosis crisis”, in this instance a terminal one. Likewise, the still healthy pace of the PRC economy can be ascribed to the fact that many of its parts still enjoy that “one-off NIC advantage”. It will not last forever.

When the pace of global economic advance decelerates, as has been the case lately, economic and political pecking orders are inevitably overturned. It is then tempting for producers in the established, comfortable and more mature economies to revile the upstarts. And it is then difficult for an ignorant public and an ignorant political leadership to tease apart what is economic-competitive and hence legitimate and what is political-interventionist and hence should be resisted by the old industrial countries. It is then tempting to fall back on populism and embrace might-is-right attitudes. Yet history and economic logic tell us that it is always more conducive to peace and progress to be well informed about the rising challengers, their history, culture and aspirations and to differentiate between what is compatible with an open global order and what is illegitimate.

The potential benefits from the open exchange of people, goods, investments and ideas between the free, affluent West and a progressing China are great, even if that requires major structural adjustments in the West. For starters, we must accept that more Chinese people from the PRC and the periphery have now reached income levels that make them visible in those parts of the world which we have claimed as our space. This is part of global population growth and the fact that affluent Asians are able to consume what we have long taken for granted. When Chinese tourists now add to long queues in front of the Vatican, when tour groups from Beijing push through the Getty Museum and bus tours disgorge more Asian selfie-shooters into the grounds of Angkor Wat, we—long the top dogs in tourism—may not be amused. But these people have worked all year to earn a holiday, want to know about the world and want to eat the same good meals and enjoy the same drinks as we do and maybe sing a song together, just as some of us do.

When I hear Australian students complain that students from China occupy the front rows in lecture theatres and work too hard, I tell them that this is legitimate competition of the sort that they will face all their lives. They might as well get up a bit earlier and study a bit harder. I also wish more of my fellow countrymen knew about the thousands of young Australians who are having the time of their lives contributing to the exhilarating and cosmopolitan “Shanghai boom”. They know that co-operation pays off. Australians cannot complain that the Chinese are spreading their influence and enjoy a higher living standard and at the same time show satisfaction about our record sales of minerals and services to China. Admittedly, Chinese producers often suffer from fewer regulations, less excessive concerns about the environment, health and safety, and fewer industry lobbies. Instead of complaining about this, we should streamline our cumbersome regulatory order and compete by competition-friendly institutional change, and not protectionism, the virus that only raises the potential for conflict.

Around 2001, when the PRC joined the World Trade Organisation (WTO), there was much optimism that the Chinese government would be cured of mercantilism. That was not justified. It is unclear whether the Beijing authorities really intended to comply with the strict WTO conditions on transparency and the protection of intellectual property as understood in the West. Nor is it clear by how much they kept the currency artificially undervalued. In any event, the political reversals in Beijing since 2012 have raised growing concerns and the relationship with the West has turned to confrontation. The old hegemon America rivals openly with ascendant China in numerous fields, ranging from trade and political influence to military position. In this new win-lose climate, Australia’s elites find themselves in an uncomfortable, maybe an inevitably clueless, position.

The PRC is not a normal competitor. The one-party state often backs up Chinese producers, whether state-owned or not, with sly or even openly coercive political means. Investors from the PRC often encounter justified concern in the West because they are not like foreign investors from Switzerland or the US. In these countries, Australians or Canadians are not taken hostage, as may be the case in China when Chinese officials or investors with government links feel like it. Western investors in the PRC may be forced to share technical secrets or may find that the stealing of valuable commercial secrets is not properly punished in the courts. The official Belt-and-Road initiative—an outlet for China’s surplus capital—often comes with hidden political ties. Although this project began by relying on age-old cultural relations with central and western Asia through the Silk Roads, it has promptly stoked resentments in nations that have received infrastructure assistance. In short, the preponderance of a mighty state looming behind traders and investors from China means that the time-tested rules of international economic relationships cannot be automatically applied. To determine where the rules of equal exchange must be enforced requires knowledge, clear-sighted policies and political will. The terribles simplificateurs who simply demand across-the-board bans on all Chinese undertakings do not serve our purposes well. We need to know enough to be able to put ourselves in our opponents’ shoes, which does not mean that we always will agree with them.

We must beware of summary “yellow peril hysteria”, including the Chinese who live in our midst and abhor what can be observed at present in the PRC and Hong Kong. Facile, simple-minded anti-Chinese postures, let alone paranoia, only strengthen the hand of the bad guys, similar to what occurred in Wilhelmine Germany, 1930s Japan and Stalin’s USSR. We must avoid pushing the West’s potential friends and admirers in China, who in essence think like we do, into the embrace of the nationalist-communist hardliners. That could have tragic consequences all round.

The antidote is to learn more about long-term economic history, to decide where China’s aspirations deserve to be respected and to concentrate on pushing back resolutely against rule violations that undermine the free global order. Let’s not repeat history out of ignorance or spite!

Wolfgang Kasper is an emeritus professor of economics (University of New South Wales) with a long-standing interest in China. He wishes to express his gratitude to those who helped him in the writing of this article