Wishful thinking on China will not serve American interests

© Matt Kenyon

Years ago in Beijing, I interviewed the chief executive of a European clean tech company that was a market leader in China at the time. I asked the executive how he saw business going forward, and he said he felt optimistic — the company would be in fourth place within the next five years. I was startled. Why was falling from pole position to fourth place good news? And how could he be so precise about the future? Because, the executive told me, this is what Communist party leaders had told him would happen as local competitors moved into the market.

It was one of many moments in the past two decades that have made me wonder why American policymakers and corporate leaders ever thought that China would simply take its place in the existing world order and trade system. Why would such a large nation, with its own long history, rich culture, unique political system and enormous market, not create its own rules?

It has done so, of course. Perhaps the only good thing that Donald Trump’s administration did economically was to stop pretending that the “one world, two systems” problem didn’t exist. While the former president lacked a coherent strategy for countering the rise of China, and his vitriolic rhetoric didn’t help America, the past four years did at least bring an end to the wilful blindness. No matter how tempting that next quarter of growth in the Chinese market might be to corporate executives, there are no guarantees that the playing field will be fair or that the rules won’t change at any time — particularly in the most strategic, high-growth sectors.

This is the reality that Joe Biden’s administration must now keep front of mind as it crafts its own China policy. As political science professor Minxin Pei recently put it during a Council on Foreign Relations meeting, China’s foreign policy stance towards the US is based on three things: perceived US decline, perceived opportunities for China’s own economic and political development, and President Xi Jinping’s own massive ambitions. These points should help inform America’s own strategy towards China.

First, it’s important that President Joe Biden keeps expectations for co-operation rooted in reality. Xi’s China isn’t going to do anything that isn’t explicitly in the interest of the state. That leaves few areas of overlapping interest for the two countries. The biggest one is climate change. In an ideal world, American and European technologies would combine with low-cost, large-scale Chinese production to move the world away from fossil fuels.

But we don’t live in an ideal world. Between Chinese intellectual property theft, the inability of outside players to get fair market access in the highest-growth sectors and dubious labour practices, more active co-operation on clean tech is improbable. The best that can be hoped for is that both sides agree not to actively undermine each other’s efforts, and to come together on shared emissions goals and technology standards.

That would be easier if America and Europe had a common approach towards Beijing. Not getting Germany on board with its trade sanctions against China was one of the biggest economic errors of the Trump administration (and that’s saying a lot). Both Europe and America share many of the same concerns about Chinese mercantilism, which creates an unfair playing field, and human rights issues.

Europeans are understandably frustrated by the loss of trust and co-operation during the Trump years. But the EU’s recent trade deal with China, which seems blind to the incompatibilities between state-surveillance capitalism and European-style liberal democracy, is a bad move. So is French president Emmanuel Macron’s new embrace of Russia. Given the historic ties between Europe and Asia, it’s easy to imagine closer ties between the two regions. But that will come with a huge cost to Europe’s professed values.

Brussels knows this, and Biden should continue to push for a reset of the transatlantic relationship, as well as a “coalition of the willing”. In Asia, countries such as India, Australia, and Japan could work together with the US and the EU to reshape supply chains and minimise Chinese leverage in Taiwan — where the semiconductor industry is already a point of conflict — and the South China Sea.

Perhaps most importantly, America should face the China challenge by bolstering capacity at home — in education, infrastructure, high-growth technologies and parts of the industrial ecosystem as well. Manufacturing matters not as some kind of silver bullet solution to middle-class employment (robots will do more and more factory jobs), but because owning key parts of the industrial commons is crucial for innovation. It’s telling that China itself is increasingly focused on maintaining its own strategy in manufacturing even as services play a larger role in the economy.

As Biden told the Munich Security Conference last month, the US will “work with Beijing when it’s in America’s interest to do so”, but “compete from a position of strength by building back better at home”. The west isn’t going to reshape China. But it should change how it responds to the challenge.