An expert's point of view on a current event.
Locking China Out of the Global Order Could Backfire
Washington is wrong to assume Beijing is incapable of accommodation.
Both Russia’s scorched-earth invasion of Ukraine and the swift fury of the U.S. and European Union-led global response seem to have come as a shock to Beijing. China’s ambiguous stance—clearly anti-American but not explicitly pro-Russian or anti-Ukrainian—in part comes because the West’s surprisingly strong response has frustrated Chinese ambitions.
It may not have fully sunk in yet in Beijing, but the resurgence of an economic and strategically unified West, and the risk of the financial and political liability of protecting a dependent, wrecked petrostate, should lead Chinese President Xi Jinping to see the wisdom of cooperating with the global economic order, albeit with a larger Chinese voice and modest distancing from its partner in Moscow. Despite its echoing of Russian disinformation, Beijing has cautiously cut off Asian Infrastructure Investment Bank loans and trade financing to Moscow, and China’s state-run Sinopec halted gas and petrochemical projects in Russia. With $3 trillion in mostly dollar and euro assets and watching the United States disappear Russian Central Bank assets overnight, Beijing’s caution is understandable.
But would the United States accept inclusion of a more cooperative China if Beijing changed course and used it leverage to help resolve the Ukraine question? Given relentless U.S. indictment of Chinese behavior on Ukraine, even before China has taken any actual moves to aid Moscow, Xi could be forgiven for thinking that the answer is: probably not.
I’ve never quite understood the endgame of the many efforts to forge common cause solely with democracies on global trade, technology, and all things digital. I thought the point was to position the United States to shape global rules and standards—which means accepting major authoritarian economies in that order, lest a dangerous race to the bottom from a fragmented order of competing rules and standards ensues.
The unified public and private sector sanctions placed on Russia underscore the imperative of reaching consensus on rules and standards with allies and like-minded partners to the degree possible. It’s a smart U.S. starting point, a force multiplier for U.S. leverage. And in strategic areas of supply chain security and technology like 5G, it can be a viable end goal. But what jumped out at me watching U.S. President Joe Biden’s Summit for Democracy last December was the question of whether this is viewed as an end in itself across the board. If the United States can, for example, reach a consensus with the EU and Japan on World Trade Organization (WTO) reform or standards for artificial intelligence, shouldn’t this provide leverage to negotiate with China, Russia, and others to shape global norms?
Instead, the opposite appears more the conventional wisdom. In February, when asked about consulting with the region on the recently released U.S. Indo-Pacific Strategy, U.S. Assistant Secretary of State Daniel Kritenbrink said emphatically, “There is currently no intention to engage the People’s Republic of China on the Indo-Pacific Economic Framework.”
This is not a one-off aberration but tracks with the responses I get when I ask senior administration officials, “Won’t this lead to a more dangerous, divided world? So why not test China’s intentions at the negotiating table?” The response, as one official put it, was, “Yeah, we assume China won’t change.” Richard Fontaine, the CEO of the Center for a New American Security, seemed to embrace this assumption in a recent essay in Foreign Affairs, writing, “The aim of U.S. policy toward China should be to ensure that Beijing is either unwilling or unable to overturn the regional and global order.” That assumes China seeks not just to tilt rules in its direction but overturn the order on which its economy depends.
Yet China is hardly impervious to change. Aside from 12 major (and dozens of minor) dynasties over the past 4,000 years, since the Chinese Communist Party (CCP) took power in 1949, there have been no shortages of major shifts. There was Mao Zedong’s Great Leap Forward, a catastrophic collectivization campaign launched in 1958 that led to some 30 million Chinese starving to death. That was preceded by Mao’s “Let a Hundred Flowers Bloom” campaign to encourage diverse, new thinking—but then Mao cut the flowers with an anti-rightist campaign against those who spoke out.
In 1966, to reassert control over what he feared was a bureaucratizing CCP government, Mao started the disastrous Cultural Revolution, empowering Chinese youth (so-called Red Guards) to attack the CCP bureaucracy, institutions, and intellectuals. Nearly 2 million people were killed and millions imprisoned or tortured, disrupting a generation and setting China back. The led to the reform period. After Mao had a stroke in 1972, Deng Xiaoping gradually took the reins of power, following internal CCP struggles against Mao’s wife, Jiang Qing, and the “Gang of Four.” Market-oriented reforms took off, first with incremental experiments and then writ large, with Deng proclaiming, “To get rich is glorious.” Collective leadership followed, implementing change, until Xi’s rise and his “rejuvenation of the Chinese nation,” undoing some market reforms and Deng’s restrained foreign policy. The reactionary trend of policy under Xi is, in fact, a sign that China is capable of change—in both directions.
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But even a post-Xi leadership is unlikely to see any incentive to change if it believes the United States has no interest in seeing it or in reaching accommodations with China in a viable international order. Despite the wild political roller coaster of CCP rule, much of the deluge of commentary by the post-engagement commentariat seems to view the party as a monolithic, relentless force. There may be some truth in Xi’s own inflexibility. Though he has eliminated many rivals, Xi has his share of enemies and, as noted above, a CCP history of course changes. There are hints of discontent: Recent extraordinary articles by a Central Committee member and a leading party school official, respectively, praising Deng’s reforms and not mentioning Xi were widely discussed in China.
If the United States wants an international order, rather than, as Princeton University’s Aaron Friedberg recently proposed, a “partial liberal order,” it has to offer states such as China some stake in that order. The logic of “democracies only” could lead to a bifurcated or maybe trifurcated world (the EU has a different philosophy on regulation) with dueling trade rules and tech standards.
How would this work? Markets are still global. China is the largest trade partner and a major investor of the United States’ European and Asian allies—and despite all the tariffs, sanctions, and talks of decoupling, particularly with regard to diversifying supply chains, U.S.-China trade is still robust, totaling some $615 billion in 2020. Then there are China’s $1 trillion holdings in U.S. Treasury securities; more than $1.2 trillion ($124 billion in 2020 alone) in U.S. foreign direct investment (FDI) in China; and Chinese FDI in the United States, totaling some $222 billion since 2000.
To be sure, some targeted decoupling on both sides is occurring, particularly with regard to diversifying supply chains and high-end tech. Meanwhile, Wall Street is pouring billions of dollars into China’s bond markets, and Asia is more deeply integrating trade with China.
Such complex, dense trade and financial webs would make a divorce problematic.
The United States ended negotiations for a trans-Atlantic trade accord and then walked away from the Trans-Pacific Partnership (TPP), developed by the George W. Bush and Obama administrations, precisely to shape rules and press China to either meet the standards negotiated or lose out. Is it not possible that China, with only 17 percent of the world economy, would alter its policies to sustain access to global markets? It’s worth trying further diplomacy before concluding there is no difference between China’s grandiose ambitions and its bottom line. That’s where coordination among democracies and the like-minded can build leverage to fairly test the proposition.
But what if the United States is erecting a scaffolding of economic policies based on flawed assumptions? It may be that China’s unyielding view of global rules and standards is rigid. Perhaps conventional wisdom is correct, and this is the best we can do. But the evidence thus far doesn’t point inescapably in that direction. China is joining new trade and investment arrangements, such as the pan-Asian Regional Comprehensive Economic Partnership, and getting in line to join the CPTPP, the successor to the TPP, while trying to forge investment accords with the EU. And based on former U.S. President Donald Trump’s bilateral trade deal with China and Biden pursuing discussions on implementing it—and even going beyond—pushing back on Beijing’s predatory industrial policies suggests an interest in probing Beijing’s intentions.
All this raises questions about the wisdom of erecting an economic order excluding the world’s trading power, with $4.5 trillion in total trade, booming exports in 2020, and which remains a leading exporter of capital. Is it a safe bet that China is locked into its predatory industrial policy—even as its investment-driven, state-centric development model is faltering? That would seem to accept Xi’s conceit that the CCP can’t be wrong. Xi’s COVID-19 restrictions in major cities affecting up to 400 million people may be raising China’s middle-class views of the CCP’s infallibility.
China’s current predicament may well spark the next round of CCP internecine conflict. Many, myself included, assess that the CCP’s investment-driven, state-centric economic model is outdated and that we may be approaching peak China. Why? The concern is that demographic aging (growing old before getting rich), declining growth and productivity, and debt exemplified lately by the beleaguered property giant Evergrande but running much deeper—total Chinese debt is some 290 percent of GDP—reflect an outdated economic model. Xi’s crackdown first on the tech sector and now on the property sector, which accounts for some 29 percent of China’s economy, highlights the volatility of the country’s economic system.
Xi has unveiled a “dual circulation” economic model aimed at rebalancing the Chinese economy out of its dilemma by boosting exports and consumer-led growth. But consumption is at historic lows as a percentage of GDP, and rather than raising taxes on the rich as well as wages, Xi has cracked down on Big Tech, demanding that they contribute billions of yuan to a social fund. As the economist Michael Pettis has argued in the Financial Times, Xi’s two goals are contradictory: Record exports are occurring because domestic wages and consumption are stagnant.
A way out of this middle-income trap would start with Xi—or a successor if it sparked internal CCP conflict—implementing the market reforms promised in 2013. Xi has backtracked, finding the notion of markets being the “decisive factor” in economic decision-making too difficult politically.
Beijing used entry into the WTO in 2001 to deflect domestic resistance to reforming state-owned enterprises (SOEs) in the late 1990s. There are small hints that Beijing may be testing the waters with local market reforms. Beijing has applied to join the CPTPP, but its massive subsidies to SOEs and “digital sovereignty” policies are incompatible with the accord. The United States would be wise to rejoin the TPP and pursue parallel policies, such as an Asia-Pacific digital accord, that some in the White House favor—and that offer a chance to test China’s intent, both there and inside badly needed WTO reform.
It may be that China is unshakably on a path to remake the world order on its terms and also, as a result of the Ukraine war, to being tied more tightly to Moscow. But many have bet against China and lost over the past 40 years. I’m skeptical of straight-line projections, particularly in a fluid situation, when China may be approaching an inflection point. A “democracies only” ideological approach to world order could render global problems insoluble and lead to a conflict-prone, fragmented world. It might be unavoidable, but before foreclosing U.S. options, there is a good case for testing China’s intentions.
Robert A. Manning is a distinguished fellow at the Stimson Center and its Reimagining Grand Strategy Program. Twitter: @Rmanning4
