China just presented its 12 points proposal for peace in Ukraine[1]. Its main point is about respecting a country’s territorial integrity. On the one hand, it is about Ukraine, whose territory was invaded by Russia, but on the other hand, it’s about Russia.
If President Vladimir Putin is defeated in the war, Russia might break up, leaving China’s northern border dangerously open to hostile forces.
Beijing walks a tightrope trying to add some positive element in a messy situation and save itself in a nasty spot. Ukrainian president Volodimir Zelensky declared he appreciated China’s plan and we shall see in the next few days what will happen. Still, is it enough?
China fears becoming totally surrounded and cornered at the war’s end. China might be tempted to support Putin’s Russia more vigorously to prevent that. The stratagem could work in the short run, and to this end, it could help sustain Moscow’s draining efforts in Ukraine. Still, it could soon create even more significant problems for China.
Russia started with the 16th century Ivan the Terrible freeing his kingdom of the yoke of the Golden Horde’s Mongols. Its growth into an Empire, beginning with the 17th century Peter the Great, was about pushing back and subduing the Asian people. It is still in Russian cultural DNA, as the fear of the “yellow peril” is a dominant element of politics in the Russian far East even now.
If Beijing’s help becomes a predominant force in Moscow, it can try to hide its influence, but then it might be hijacked in whatever gamble Moscow might venture in. Or it can muscle into Russian politics and thus ruffle many feathers, reminding Russians of the times of the Golden Horde.
The present Chinese predicament comes from a long-term mis-assessment of its global situation.
My lengthy article presented below was published in a shortly abridged form in the Italian review Limes China at the center of Asia, January 8, 1999. It is the original Italian (without footnotes, lost with the passage of software) and an English machine translation.
Shortly, I wrote that China, to become the global center of gravity in the medium and long term, had to do a few things: have good ties with Russia, Japan, and India and not irk the US. It didn’t happen. Then it was a golden moment for China, on the wake of the 1997-1998 Asian financial crisis.
Things went very differently because, in a very tiny nutshell, China’s political decisions were driven by short-time concerns blinding the country and the party of their long-term interests.
In many ways, if that modest advice had been followed, China and the world would be immensely different now.
But similarly, China needs a long-term vision and plan to escape the present situation. I won’t suggest any now, as the 24 years ago experience doesn’t bode well.
[1] https://www.fmprc.gov.cn/web/zyxw/202302/t20230224_11030707.shtml
China at the center of Asia (Limes January 8, 1999)
Just a few years ago the question was: can a country as populous and as large as China manage to remain united against all centrifugal tendencies and against all historical precedents? The historical precedents, especially, were not there, and are not there. No country has ever administered 1.3 billion people efficiently. The other example of a mammoth state, India, was there to prove that you could not administer a billion or so people without going through episodes of fierce clashes in parts of the country and between parts of the population.
On the surface, the Chinese example also fit. Tensions in the far west of the country, in Xinjiang, where a part of the Muslim and Turkic-speaking minority had taken up arms, and in Tibet, where the Dalai Lama’s followers were on the warpath, seemed to indicate that this was also China’s fate. Tensions between the various provinces and Beijing could have escalated.
Some five years after these warnings of an implosion and splintering of the Chinese continent, however, China today appears more solid and united than ever. Indeed, Beijing has halted this process of fragmentation of the country by reversing centrifugal tensions and instead activating toward the entire region a centripetal force that now places it at the center of this Asian continent of more than 3 billion people.
The consequences for Asia and the rest of the world are immense, and not only for geopolitics but also, as we shall see, for the development of many current industrial policies.
On the other hand, it should be kept in mind that these trends are not unambiguous and certain. There are risk lines and uncertainties that can change the course of events.
But first we need to look at how China has arrested centrifugal trends within itself and turned them into centripetal trends.
From repulsion to attraction
1.1 The first stage manifested itself in the two-year period ’95-96. In this couple of years, Beijing used force and the threat of force to arrest two strong centrifugal tendencies that separately threatened de facto if not its political unity, the primacy of Beijing to be the center of China. Compared to Beijing’s authority on the one hand Taiwan was trying to assert more markedly an independence of its own, and on the other hand Tibetans loyal to the Dalai Lama were trying to gain more political-religious space.
The two phenomena were independent but certainly contributed to the same purpose: to undermine Beijing’s central authority in the Chinese subcontinent on the eve of another major historical event, the return of Hong Kong to the motherland on July 1, 1997.
Taiwan’s centrifugal process partly paralleled its democratization process and its effort to heal wounds inflicted 50 years earlier when some one million mainland Chinese had effectively invaded the island in the wake of Nationalist General Chiang Kai-shek. This minority had fiercely suppressed island resistance and imposed its control over the island’s original majority. For decades Taiwan had claimed to be the true heir to the Chinese tradition, versus the betrayal, with respect to that tradition, wrought on the mainland.
The ideological operation might have worked in the hope of Taiwan’s recapture of the mainland, but as this hope faded, such ideology appeared only as a trick to keep that mainland-born minority in power on the island. This had resulted with the passage of years in a gradual delegitimization of the ruling party, KMT, and a strengthening of the antagonistic forces that supported island particularities, even with initial tacit support from Beijing.
Instead, President Lee Teng-hui, a Taiwanese native, nearly half a century later, sought to right those old wrongs by restoring weight to Taiwanese particularity to the KMT’s power. In doing so, he was turning the table against the support Beijing had hitherto given to KMT opponents. Lee made himself such a champion of the island’s particularity that he called for a recognition of Taiwan’s formal independence from the rest of the Chinese mainland.
The leap made by Lee in the mid-1990s appeared extremely threatening to the very unity of the rest of China. That is, if Taiwan, inhabited by an ethnic Chinese, Han population, like the rest of the mainland, could declare formal independence, then so much the more could those provinces and regions of China inhabited by non-Chinese, Han majorities, such as Tibet and Xinjiang.
In other words, Beijing needed to reassert its authority over Taipei to arrest ideologically, even before militarily, centrifugal tendencies in other regions.
Not least because Taipei’s centrifugal force was beginning to be felt strongly in Fujian Province, where the southern part of the province speaks the same dialect as the island and where many Taiwanese investments are concentrated and where Taiwan’s currency, NT, circulated frequently. And centrifugal drives in China did not stop at Tibet and Xinjiang.
The democratization process in Hong Kong, by which British governor Chris Patten was giving more and more powers to the LegCo, the territory’s parliament, and expanding its democratic representativeness, represented a major force of attraction for the rich and dynamic Guangdong province. It could thus be attracted more to Hong Kong than to Beijing. With the end result that this province, after the territory’s return to Chinese sovereignty in 1997, could have become the starting point for a destabilization and splintering of mainland China instead of-as Beijing hoped- being the anchor that would closely tie Hong Kong to Beijing.
In Tibet, the situation was even more delicate. The death in 1989 of the Panchen lama, the region’s second spiritual authority after the Dalai had created an immense vacuum for Beijing. Indeed, the Panchen was close to Beijing, and thanks to him, Beijing could hope for soft control of the region. Since the Panchen’s death de facto Beijing and the Dalai had collaborated in the religious-political process of seeking the Panchen’s reincarnation. Both had to gain in such collaboration. Beijing received from the Dalai a cloak of religious orthodoxy to what was only an effort to politically control the region, the Dalai reentered Tibet by participating in the delicate process of discovering the Panchen, thus also gaining some influence over the choice. By 1995, however, this underground collaboration had broken down with the Dalai’s unilateral proclamation of the new Panchen.
Politically, this was unacceptable to Beijing, which saw such a proclamation as a challenge to its political power in Tibet.
Finally, Xinjiang where some Uighur minority militants had for the first time studied the Quran more closely and had also learned from guerrilla experiences in the Middle East and Central Asia, Afghanistan. They had thus organized an aggressive independence movement that went so far as to carry out terrorist attacks in Beijing for the first time in 1996.
Alongside these marked fracture lines there were then also others, albeit more tenuous ones. They were lines of economic attraction that in light of the stronger political fractures, could also have become dangerous. The Southeast was attracted to the dynamism of Southeast Asia, and the development of the Mekong area magnetized Yunnan to Thailand. So to the north, Japanese and South Korean dynamism was forging stronger relations with the three provinces of Jilin, Heilongjiang to Liaoning.
The result could have been frightening: a balkanization of China. And in 1996 scholars such as Hu Angang were highlighting the parallel between the shattering of Yugoslavia and the relationship between divisions of tax revenues between central and provincial governments. Data in hand, Hu Angang argued that there was a dangerous trend not only politically but also administratively and financially, according to which an increasing share of resources was flowing from the center to the provinces, weakening the capital’s power of financial, and therefore also political, intervention.
Such a shattering tendency was a problem of Beijing’s political sovereignty but also of re- legitimizing the power of the CPC in China. The two went hand in hand. The CPC in order to strengthen itself and find new legitimacy had to reaffirm Beijing’s power in the provinces.
1.2 The first step to halt this trend was somewhat suggested by circumstances and not planned at the table. In 1995, Taiwan President Lee Teng-hui, contrary to assurances to that effect given by the U.S. State Department, obtained a visa from the U.S. Congress for a trip to America.
This was a huge political victory for Lee who could credit himself at home as a genuine champion of Taiwan independence, and thus cut off the legs of the opposition independence party, The Democratic Progressive Party (DPP).
But for Beijing it was also an unparalleled challenge to its legitimacy to rule the country. From that moment on, the threat of the use of force, built around a tough rhetorical offensive, and a deployment of an often plethoric but nonetheless missile-efficient military apparatus had multiple purposes.
On the one hand he had to terrorize the Taiwanese population with a threat of war or invasion if the island dared to proclaim de facto independence. On the other hand, he would have to convince the most skeptical island businessmen that the simple economic damage of military diplomatic pressure could be enormous to their business. During Beijing’s pressure phase on Taipei, Taiwan spent about $20 billion to defend its stock exchange, and the pressure cost the island about 2 percent less economic growth.
Along with the stick to Taiwanese entrepreneurs, Beijing also offered the carrot: they had excellent business prospects in the mainland if they discouraged Taiwan’s independence line. The same line was applied with Hong Kong at the end of the year where the choice of Tung Chee- hwa, a wealthy Taiwanese family shipowner, as the territory’s governor after the handover was a clear wink at benefits for wealthy Taiwanese.
By the turn of 1996 and 1997 externally, a close relationship between Hong Kong’s business and economic elites was being cemented, and a relationship with those in Taiwan was beginning to form.
Moreover, the fierce patriotic rhetoric on Taiwan also had a centripetal effect on domestic public opinion because it was not seen as a purely official phenomenon. Indeed even having initiated it, the government found itself in the months between 1996 and 1997 and chasing trying to stem the harsh nationalist campaign.
The overwhelming success that greeted then Zhang Xiaobo’s book “Zhongguo keyi shuo bu” (China Can Say No) cannot be underestimated. The volume is an unexamined and sometimes simplistic collection of anti-American and even xenophobic biases. But the millions of copies sold and the dozens of volumes released on the same wave prove the public’s interest in the subject.
In addition, controversies with America over the protection of intellectual property rights and disputes with Japan over possession of the Diaoyu/Senkaku Islands reinforced the country’s patriotic sentiment.
It was the beginning of a shift that then picked up tumultuous pace in 1997 as Hong Kong’s return to Chinese sovereignty approached.
The approach of July 1, 1997, promoted a crescendo of national-patriotic sentiments. Unpublicized surveys revealed a rise in nationalistic sentiments that went far beyond Beijing’s expectations and needs, and could turn into something else. Indeed, heated patriotic sentiment has historically been a double-edged sword for China: patriotic demonstrations have traditionally been in this country first an opportunity to demonstrate against foreigners and then to oppose Chinese rulers who have not done enough against foreigners. Such logic underlies the May 4, 1919, movement that started the revolution from which both Beijing and Taipei China are offspring.
Evidence of the political danger to Beijing of such sentiments can be seen in the fact that Beijing banned a series of anti-Japanese demonstrations and did not release Zhang Xiaobo’s second volume “Zhongguo hai keyi shuo bu” (China Still Says No). This proves that at that point a nationalist sentiment was moving independently of government thrusts and indeed went beyond what Beijing had at first intended.
On the other hand, a number of studies put Hu Angang’s early analysis in perspective, pointing out that the burden of the tax burden should be read more carefully, and that in any case Beijing maintained a strong power of control over the provincial apparatus with its power to appoint and remove all levels of the administration.
On the other hand, the very alarms of years past meant that in 1997 Beijing was preparing to launch its new economic reform program later presented at the 15th Party Congress in September. Congress fired about half of the central committee, unveiled a vast program of divestment and restructuring of state industry accompanied by a vast program of bureaucracy reform, which in March in 1998 became official with a plan to lay off four million state bureaucrats.
The purpose of this immense change was to strengthen Beijing’s lines of command and control in Chinese territory.
Administrative reform then became the pendant of the country’s new centripetal feeling. The reality of this new atmosphere, in which the centrifugal shadows appear for the moment to have receded, comes from an external phenomenon: the testimony of the difficulties now felt by Tibetans loyal to the Dalai Lama. As the Dalai Lama himself ponders seeking a compromise with Beijing.
But domestic success is also due to a more complex international success, again achieved by riding circumstances.
The unhoped-for gift of the financial crisis and the Indian atomic experiment.
2.1 On the eve of the outbreak of the Asian financial crisis in July, the atmosphere surrounding China in the region was not the best.
Japan the year before had signed a new pact with the United States in which the two countries pledged to maintain stability in the region. The formula was vague enough to possibly include the stability of the Taiwan Strait, from where Japanese oil routes pass. And despite Chinese insistence, the Americans did not want to clarify whether Taiwan was to be considered within such a pact (which would have hurt Beijing’s susceptibility) or not.
Throughout the region still weighed the memory of military exercises around the island and the tension that had caused that crisis with the arrival of two U.S. aircraft carriers in the strait.
The patriotic wave that within China had bridged many fault lines, externally offered an alarming side with small, but still worrisome, frictions with Vietnam and the Philippines over this or that Nansha Islands rock, and with Japan over the Diaoyu/ Senkaku Islands.
Finally, there was the accusation that the financial crisis was actually set in motion by Chinese exports competitive with those of Southeast Asia and South Korea.
Such exports had taken market slices away from these countries, thus depriving them of the liquidity needed to finance the high growth rates they had projected themselves into. In fact, the Chinese were making no secret then that they wanted to launch their consumer electronics industry in competition with the Korean or Japanese industries.
This atmosphere was destined to change dramatically in the following months when from September onward Hong Kong fended off speculative attacks on the devaluation of the territory’s common currency and pledged not to devalue the renminbi.
In September, October ’97, China’s cherished idea of creating an Asian crisis aid fund was stalled. The Americans opposed it on official efficiency grounds. They feared that such aid led by China and Japan would cover up the wretchedness and inefficiencies of the economies instead of restoring them.
On the other hand, it was clear that a Sino-Japanese aid cordate in Asia would have strengthened relations between Beijing and Tokyo to the detriment of Washington’s strategic influence in the region, and that an International Monetary Fund-led economic rehabilitation, would have created an economic environment more conducive to the movement of American companies than Chinese or Asian ones.
However, the cordate hypothesis was not dear even to the influential Singaporeans, who nevertheless saw the need for rehabilitation in some countries in the region, but felt that an American-imposed recipe would be better accepted than one proposed by Singapore’s neighbors. However, the IMF’s recipe was not working to arrest the shock wave of the regional crisis. As the months passed, the crisis engulfed South Korea also slowly invested more and more widely in Japan, the world’s second largest economy.
Not only that, the IMF models proposed in Indonesia were not bearing fruit as hoped, and this giant of 200 million people, the fourth most populous in the world, and the largest Muslim country on the planet, was sinking into a financial, then social and political crisis from which for now there is no exit in sight. In a few months through its own and probably others’ insipience, 30 years of slow economic development were slipping away, as if down the drain of a sink.
The Indonesian crisis still remains the most serious element of instability in the region.
In early 1998 the scenario in the region was alarming. In essence, China was the only country left standing, and while still in March April many hoped that the situation was going to recover in reality the crisis was getting deeper and deeper.
In that situation, Beijing made what many Southeast Asian governments recognized as the greatest contribution to exiting the crisis: it kept the exchange rate with the dollar fixed for both the renminbi and the Hong Kong dollar.
Chinese economists repeatedly explained that other than financial stability reasons for the region, there were no economic reasons to devalue the renminbi. In essence, a devaluation of the renminbi would have triggered a series of competitive devaluations in the region, which in turn would soon wipe out the benefit of China’s first devaluation. Moreover, since more than 50 percent of China’s exports are re-exports, a devaluation would have increased import costs and China would also have imported inflation, which at the end of 98 was instead negative.
In fact reasons to devalue could be found in abundance.
It is true that China will end the year still with an abundant trade surplus, over $30 billion according to Chinese statistics. But it is also true that many of these billions have not turned as they did in the past into foreign exchange reserves because they have been taken abroad. According to some Chinese sources as much as $20 billion may have been taken out of the country. In fact then there is an objective downward strain on the renminbi proven by the return of the black exchange rate that gives the dollar at 9.2 yuan against the official exchange rate of 8.3 yuan.
In addition, the biggest reason that would militate for a devaluation is the situation in which Hong Kong ended 1998 with the worst recession in the postwar period. The territory is stranded by an exchange rate that is now too high compared with the rest of Asia, where all countries have devalued by 20 percent or more.
But devaluing in Hong Kong also means driving a wedge into the territory’s relationship with the mainland. Bilateral trade is denominated in dollars but normally takes place in Hong Kong dollars. Shifting the exchange rate then would create an endless series of trade problems, but more broadly of relations between Beijing and the territory. Moreover, a devaluation in Hong Kong would mean importing devaluation into China.
Instead, it seems to us that the reasons why China did not want to devalue in ’98, and does not want to devalue in 1999 either, are ultimately geopolitical in nature. On the one hand, a series of competitive devaluations would have greatly complicated relations with Hong Kong and would have wiped out the geopolitical advantage gained since July 1997 in the region.
A devaluation in other words would have reopened dangerous internal and external fault lines. Hong Kong, a few months after returning to the motherland would have been entangled in far worse than a financial crisis, would have drowned in a sea of trade, and therefore political, diatribes with the mainland. This in turn would have opened fracture lines with Taiwan, between Guangdong and the rest of the country…. In other words, the speculative attacks against the Hong
Kong dollar went far beyond the financial framework: they represented a true geo-strategic attack on Chinese unity.
Moreover, a devaluation would have reopened barely healed wounds with many countries in the region. Instead, so all countries in Asia know that China is damming up. By preventing its currency from falling it effectively puts its exports out of trade with those of its neighbors, gives its neighbors’ exports breathing room, gives it a way to accumulate liquidity, and thus shortens the time for economic recovery.
From another point of view, one can look with alarm at the situation in Indonesia, but a 15-20% devaluation of the renminbi, in line with similar devaluations in the region, what would that mean for Jakarta? An explosion or further tightening of the situation there could directly impact the Philippines, Malaysia, and Singapore and have reverberations everywhere.
There is nothing and no one to prevent this unfortunate scenario except China, which in such a way for itself accumulates strategic influence and much gratitude, in a continent pervaded by a stronger sense of loyalty than among Westerners.
Moreover, these credentials have been confirmed by another unexpected development in the region: the atomic tests in India and Pakistan.
2.2 In early May 1998, Indian Defense Minister George Fernandes at the end of a visit to India by Chinese Chief of Staff Fu Quanyou said that China posed a strategic threat to India. It was a very serious slap in the face for China, which was just coming out of the thicket of accusations that it was a strategic threat to everyone. Also just days later New Delhi announced that it had conducted five nuclear tests.
The tests then triggered Pakistan’s reaction, which by Indian admission was authentically from China. Indeed according to such officials China had a greater interest in India being completely isolated in international condemnation for the tests. Conversely, a participation of Pakistan in this nuclear chase as well would have inevitably divided blame and responsibility between the two neighbors.
The tests greatly complicated the reading of geostrategic events in the region. On the one hand, it was no easier to isolate China as the only major “threat” in the region, and on the other hand, Southeast Asian countries could appreciate Beijing’s cold and calculated reaction in an attempt to dissuade Pakistan from its nuclear chase.
Japan, shaken in its anti-nuclear sensibilities by the tests, was to stop developing a line of cooperation with India, and even the U.S. in light of the tests was to postpone the president’s trip to New Delhi until 1999, while at first, and with great symbolic significance, it was scheduled in rapid sequence with the June trip to China.
In other words, in June, after Clinton’s visit China became a point of political as well as financial stability in the region.
Japanese diplomats privately confessed to being surprised and taken aback by the extent of the strategic agreement the Americans were willing to enter into in their relationship with the Chinese. For Washington, the combined action of the financial crisis and the Indian and Pakistani tests, the deepening crisis in Indonesia, and the widening to Malaysia proved China’s importance and centrality in the region. Its role was irreplaceable with no other country in the region. Only Beijing could keep cool in the face of Indian outbursts; it had the influence to exert over Pakistan or North Korea, or Indonesia.
Japan has to discount its ill-digested imperialist past and its even recent practice of in-country investment however always aimed at economic integration of the industrial sectors of individual countries with the industrial apparatus of Japan. Thus political, financial or other intervention by Japan in the region lacks much political force.
Just as the Americans cannot do without some form of political, as well as financial, cooperation with China, neither can the countries of Southeast Asia. The calmness with which they reacted to the lynching of ethnic Chinese Indonesians in 1998 contrasts with the almost pan-Chinese activism of the Mao years, when the Chinese were seen tout cour as a fifth column of Beijing. This is not to say that the privileged relationship between Beijing and Chinese emigration has broken down but certainly Chinese behavior at the time of the Jakarta riots confirmed a more measured attitude in which on the one hand the wealthy Chinese minority did not go into a frenzy, and on the other hand the Indonesian majority was aware of Beijing’s political clout but had no reason to launch into indiscriminate alarms about its possible direct interference.
Even India, which had launched heavy rants against the Chinese threat, then worked hard to maintain a high level of diplomatic relations with China, while a withdrawal of the Indian ambassador to Beijing was also on the horizon after the tests. And they subsequently resumed working hard for the reopening of a dialogue on outstanding border issues. Even the existing to hoped-for lines of relations between India and Japan today must triangulate through China, which after the tests and the financial crisis has leverage with India, which it can remind of threats, and Japan, which it can remind of its insufficient contribution to the region’s economic recovery. These conditions have created a great centripetal force in Asia, China. But for now it is on a force based on two major circumstances (financial crisis and Indian atomic tests) that Beijing has ridden well but which are not enough to polarize the region in the long run.
Here the new military exchange and supply pacts that the U.S. has concluded with Singapore and is preparing to conclude with other countries in the region and the adjustment of IMF aid plans create the conditions for a new political atmosphere in Asia. In other words, the U.S. is preparing to enter into a series of bilateral security pacts in which it provides military technology and know- how, which it still charges for, and for which it ultimately remains the ultimate technology owner. Because such services rely on the continued development of U.S. technology and hooking into the satellite intelligence apparatus. Both can be shut down at any time, leaving the client-ally in the lurch.
On the other hand, U.S. financial engagement in Asia through the IMF and World Bank, even in light of past failures, remains without alternative. No European or Asian bank has proposed an alternative framework strategy to that of the IMF.
This propositional absence, which is a limitation of economic strength but also of the ability to propose an alternative strategic model of development, limits China’s strength in these albeit very favorable conditions.
China at the moment then has three concentrated challenges that it must be able to address in the coming years without losing its privileged status in Asia.
1) it needs to equip itself with economic muscle to intervene in a positive direction in the region, and not just be limited to having a damming force, halting the slide of devaluation in the region, with its commitment to the defense of the renminbi.
2) It must equip itself with a strategic model of intervention. Having the money in fact is not enough if then at the end of the day it is the Americans who say what should be done with it. China today certainly cannot use the old socialist thinking, nor the fables of the Asian model, now shattered by reality.
3) must do all this by eliminating or at least limiting the three big geostrategic suspects in the region: Japanese fears of isolation, Indian fears of Chinese containment, and Russian fears of being virtually engulfed.
Solving these challenges would at once resolve China’s geostrategic risks and nullify centrifugal tensions within China.
While the order in which these tasks are to be addressed is as we have set out, in the order of analysis we will begin with item (3) and move on to item (1) and then conclude with item (1).
Do not isolate the islanders
3.1 Japan has been plagued for much of its history by an isolation complex that in many periods has been artfully nurtured as the quintessence of national culture. Many Chinese feel the sense of isolation that besets Tokyo, ultimately fearful of an embrace between Beijing and Washington, whose alliance humbled Japanese dreams of victory in World War II.
These fears were refreshed when in June 1998 Clinton during his visit to China spoke of strategic partnership with Beijing and especially did not stop in Tokyo on his way back to Washington. This attitude had been forced to some extent by China.
On June 17, in fact, Hong’s Hang Seng index exceeded all worst predictions of a fall, and at the same time many Chinese business newspapers launched violent attacks on Japan and the United States, guilty of failing to act in the face of the yen’s fall.
Hong Kong slumped 5.72 percent, closing at 7,462 points, below 7,500, which only a few weeks earlier appeared to be the worst-case scenario. Immediate cause of the collapse was the yen’s continued slide against the dollar, which was heading toward the 150 threshold.
If Washington had not intervened to support the yen, explained Liu Ji, economic adviser to President Jiang Zemin up, Beijing could have become an adversary of the U.S. The next day Washington and Tokyo spent $6 billion and brought the yen back around 130 to the dollar. Japan calculates that with the yen at 144-145 against the dollar its GDP could have an eased growth of 1 percent, reported the editorial in Financial News, China’s central bank newspaper, on June 17. And with a strong dollar, the U.S. finances the continued success of its stock market. In fact, Washington fears that the dollar’s fall due to intervention to support the yen and an interest rate cut “is likely to result in a flight of foreign capital, and thus a collapse of the U.S. stock market,” Financial News continued.
At the same time, however, Japan does not intend to use its $220 billion in reserves to support its currency and wants to get out of its crisis by increasing exports, the paper wrote. These choices, however, are being paid for by other Asian countries, whose exports are losing out to more competitive Japanese goods, and China, which is maintaining the dollar-yuan exchange rate. Confirmation of that analysis then came from the Tokyo Stock Exchange’s quotations, which continued to travel in those days firmly around the 16,000 mark, the margin within which banks are insured against possible capital losses.
China in other words threatened to stop defending the yuan and blame the new Asian crisis torment that would follow on the selfish policies of the U.S. and Japan. The geopolitical consequences of a propaganda war in Asia over responsibility for a new collapse were beyond calculation. But in such a scenario it would have been easy for Beijing to prove numbers in hand how much it had cost its economy so far, in terms of lost growth, to defend the Yuan.
The outcomes of such a confrontation were by no means a foregone conclusion, but certainly Japan and the U.S., especially, could have lost heavily. Japan could cite in its defense its patented economic difficulties.
Such a broadside that had secured U.S. help in supporting the yen and prompted the U.S. to accept a still growing trade deficit with China to help support the yuan. But after that China needed to catch up with Japan, which with the launch of a North Korean missile over its airspace proved that it was for the second time exposed to possible missile threats from abroad.
Jiang’s trip to Tokyo in November was supposed to reconcile the two countries son a written statement in which Tokyo would offer a formal apology for the invasion and, most importantly, the two countries could talk about security issues that so concerned Beijing.
Neither has occurred, however. Within days of the visit it appears that the Japanese got an endorsement from Washington and backtracked on the arrangements made. The visit, however, was made anyway to avoid on the Chinese side exacerbating tempers, a move somewhat in line with Beijing’s reaction toward New Delhi.
Such reasonableness reaped success in the region but did not stop what appears today as a definite Japanese rearmament program. At the end of December Tokyo approved the study of a theater missile defense system to be organized with the United States.
The thesis behind this study is that Japan sooner or later must take care of its defense and cannot forever delegate it to Washington. In addition, the deepening crisis in North Korea reveals the twists and turns of East Asian security. Some 100,000 American troops are concentrated in Japan and South Korea formally against a possible North Korean threat. But if and when North Korea disbands, the Americans will have no sense in the region, and then Japan will have to assume firsthand the security responsibility it has so far delegated to the U.S., with the tacit consent of China, which prefers an armed Yankee than an armed Japanese.
But such a situation cannot be dragged on forever, and while the U.S. and Japan are moving toward thinking about a security order after the North Korean collapse China is still timid in this regard.
The only thing that seems clear is that Beijing should not stress Tokyo’s sense of isolation. But beyond that it is not clear what to do.
On the other hand, this situation of mistrust between the two major Asian capitals plays in Washington’s favor, and not only in strategic terms, but also in purely economic terms.
Tokyo and Beijing are the world’s two largest creditors, with about $220 billion in reserves for one, mostly then in U.S. Treasury bonds.
America on the other hand is the world’s largest debtor with about $1 trillion in foreign debt. Tokyo and Beijing thus control between 20 percent and 40 percent of America’s foreign debt. It is true that these credits are partly a roundabout game: the Chinese and Japanese finance U.S. purchases, which pull up their trade surplus and cause reserves to accumulate. And it is true that in this strange intersection of debts and credits, trade surpluses and deficits in the end, the country’s political clout is what counts, but that is precisely why if the two Asian capitals were to get closer again it would not be so convenient for Washington, not least because there are another $180 billion in reserves (again mostly in dollars) in Taiwan and Singapore. That would be too much money in the hands of too few people, which would give Asia a lot of blackmail power vis- à-vis Washington.
With these facts, the choice of policies is up to Beijing: does it want to be fiercely independent of what it publicly calls American hegemonism? Then it must seek to wrest, or at least distance Tokyo from its embrace with Washington. Does it want to come to terms with the US? He can choose to act as its proconsul general in this case by wresting the primacy of the relationship from Japan. The same argument basically applies to Japan as well.
These are the two main strategic lines, although there are many other medium ones.
In general, however, a good relationship with the U.S. is maintained by not bending completely to its will. Besides, the game is not two but three, even with India and Russia.
3.2 For China, India constitutes a problem that is strategically not as fundamental as Japan. India did not invade China and indeed was won by it in a border war in 1962. These were the reasons, according to Indian officials, why the border talks launched in the late 1980s then did not go forward. The Indians complained that the Chinese “did not take them seriously” and so the Indian question could safely be postponed sine die.
The attitude seems in principle to have changed after the tests. But the change in attitude also implies a rethinking of China’s strategy in South Asia, a region that Beijing hitherto thought was not turbulent.
In fact there is de facto Chinese “containment” against India. In the west China can count on a close alliance with Pakistan, and in the east it counts on an even better relationship with Burma whose troops it is rearming and on whose territory it may have equipped observation points for the Indian Ocean.
Such “containment” was not working effectively. Pakistan is influenced by China but certainly not driven by it, as evidenced by the episode of nuclear testing, which was strongly discouraged by Beijing thinking of a long-term goal of isolating New Delhi, and which Islamabad instead carried out due to internal pressure.
Similar problems exist with Burma where the Chinese are dissatisfied with the performance of the military junta, which is failing to revive the national economy. This lack of economic achievement makes a country divided between fierce ethnic and social strife even more socially and politically unstable, a country that would represent a very important piece for any future Chinese penetration of the Indian Ocean.
With these two chessboard pieces not perfectly in place, the strategic burden returns to Tibet, a place where it is difficult to maintain troops for long because of physical conditions (it is a 4,000- meter plateau to which the Chinese are often not accustomed) and internal social conditions (an increased troop presence unnerves already delicate relations with the ethnic Tibetan population). Here sustained economic progress in recent years seems to have weakened irredentist forces so much that Tibetans in India are divided and some are contemplating a return to armed struggle. This incidentally would play in favor of Beijing, which is more capable of repressing guerrillas than peaceful demonstrators. On the other hand, India has not played the internal subversion card in Tibet.
But equipping Tibet with modern weaponry and control systems is a more difficult and costly affair. New radar stations and troops in the region would be evidence of China’s belligerent intentions, but on the other hand, after Fernandes’s tests and declarations of fire, can China shy away from being more vigilant about this great neighbor?
For the time being, China is postponing the confrontation, taking as much time as possible and thus maximizing the advantage gained from the Indian tests. But sooner or later it seems clear that it will have to engage in serious border negotiations with New Delhi, and from this negotiation could come fundamental news for the geostrategic arrangement of the continent. For while the Kashmir issue is one that maintains Pakistan’s identity, it is often forgotten that part of Kashmir is occupied by China and is a disputed area with India. A border negotiation should get to talk about Kashmir and, if approached in the right spirit, could not only solve the problems between the two giants but also help lay the groundwork for a solution or minimize the importance of the Kashmir issue to Pakistan.
More broadly, a wide-ranging negotiation between China and India could lay the groundwork for a strategic rapprochement between these two countries and put their bilateral relations on a much stronger footing than the 1950s fraternal relationship between Zhou Enlai and Nehru. While ideological issues were worth much then, today the two countries would be united by common strategic and economic goals.
Both countries need stability in the region and to proceed with rapid economic development. Both actually have the same agenda in addressing international pressures on the environmental impact of their economic growth. Moreover, over the past 15 years India has a growing interest in the Chinese development model, which it would like to emulate. And India, with its bureaucracy its courts and its democratic political system is an unparalleled example for the delicate and slow transition to democracy that Beijing intends to follow.
The Tibet issue, which today is a thorn in China’s side, could instead return to what it has been for a thousand years: a bridge between Indian and Chinese cultures. On the other hand, no civilization has had more influence in China than India.
These could be the lines of development of a new relationship in Asia, and of course the emergence of such a relationship, with what it entails (a super giant of 2.5 billion people) would change many geopolitical arrangements on the planet.
This, however is throwing over many hurdles, because a border negotiation, precisely because of the immense prospects it opens, is fraught with particular and general pitfalls. The Indian government must have great strength to be able to negotiate on territorial compromises, without fear that such concessions will backfire on it as a matter of domestic policy. Moreover, such a prospect could find clear opposition from many other countries, the U.S. and Japan first, which would have to completely rethink their role in Asia.
From that perspective, the Russian presence, if the country cannot get out of its current crisis, is completely irrelevant, beyond the ambitions to do so advanced in December by Premier Primakov. China already now has sufficient strategic levers to penetrate Central Asia where good relations with Kazakhstan have convinced the local government not to support the possibly Uyghur pro-independence forces. But except for this relationship cemented by China’s oil field purchases in Kazakhstan in 1997 and its related plans to build a giant pipeline, Beijing has so far not shown the same enthusiasm for investing in Siberia.
In fact in spite of the magniloquence flaunted by the two countries at each summit, Moscow and Beijing appear nowhere near having the desired explosion of bilateral trade. An antiquated credit system in Russia dictates that de facto bilateral transactions are handled by German or Scandinavian banks. Added to this is the fact that the Chinese complain about the commercial unreliability of the Russians. Russian ability to export arms to China also does not seem likely to last long, as the Chinese increasingly need sophisticated electronics, which Moscow does not possess.
If natural and technological resources have ceased to be attractive, Siberia remains an ice desert with the same population as Mongolia, a country that has re-entered the Chinese sphere of influence, despite the fact that the Chinese have not in fact lifted a finger in this regard.
A modicum of Chinese activism toward Moscow would produce the same results on Vladivostok, where the pressure of the Chinese population is such that they are granted an entry visa valid for only a few hours. But Beijing does not press the issue, for reasons of long-standing geostrategic prudence and also little objective interest in the Deep North.
In fact, Chinese priorities today, and probably for a long time, are not in an indiscriminate enlargement of its area of influence, but in an acceleration of its economic development.
The large Chinese market
To date, China, the world’s most populous country, has grown by leveraging direct investment, which totals $220 billion, more than 20 percent of GDP, and through foreign trade, which accounts for about 40 percent of GDP. These proportions more suitable for small countries, but not for an area that is potentially the largest market in the world. And market automatically means cash flow.
Moreover, thanks to the development of the past 20 years, China is not without money. At the end of the third quarter of 1998, total bank deposits were 9,442 billion yuan, 18.2% higher than the same period of the previous year, growing at more than double the rate of GDP growth. Among them, corporate deposits were 3,153 billion, 16.1 percent, and total private deposits, on the other hand, were 5,295 billion, 18 percent higher.
In fact, until late 1998, Chinese savers had virtually only one way to invest their savings, put them in banks. This means that banks monopolize the allocation of funds for investment, but also that they take all the risk, which led to the fact that in 1997 about 20 percent of the total domestic loan stock was in arrears to one extent or another. This proportion should have been drastically decreased with the issuance of 270 billion bonds intended for the recapitalization of state banks. But it will not be until July 1999 with the entry into force of a new framework law on the stock exchange that savers will have more choice for their investments, that banks will not monopolize this flow but neither will they assume all the risks.
The measure is aimed at creating the domestic market that China strategically needs to develop and strengthen its voice in Asia and the world.
China’s new Stock Exchange Framework Law is expected to revolutionize and reclaim the indirect investment model and help give a more modern profile to the country’s financial structure. The law will take effect on July 1, the 78th anniversary of the founding of the Chinese Communist Party.
The 214 articles divided into 12 chapters basically serve to create transparency and openness in a market that so far has remained polluted by insider trading, bribery, deals made under the table, and unscrupulous speculation that have driven away most honest savers and left on the ground people behaving on the two stock exchanges, in Shanghai and Shenzhen, as if they were at a roulette table. In fact, in the jargon here, stock trading is called “chao gupiao,” cooking stocks, a delicate art in these parts, where holding stocks too long or too much causes one to lose a large part of the return.
In fact, most of the articles are focused around one primary purpose: to prevent brokers from playing on their own using the institutional funds they hold. What used to happen was that some brokers would sell or buy on their own first and then follow up with institutional trades.
After they were prohibited from having personal accounts in the stock market, many of them opened accounts with nominees. The result was that some upward or downward movements were artificial, for the sole purpose of maximizing personal profits, perhaps to the detriment of the agency they worked for. With the new law, which includes careful control measures, this should end or at least should drastically decrease.
The stock exchange law is also crucial in the country’s economic transformation strategy. On the one hand, it should be used to raise funds from savers to replace today’s all-state ownership of large companies. On the other hand, private companies that need financing to get off the ground should access the stock exchange.
They should also be able to safely shop on the stock exchange the pension funds that China is already establishing and intends to expand in a very major way from next year. This will serve to create a first nationwide welfare state system, which 50 years of “socialism” has not created. In fact, peasants are still basically without any form of pension or health care or social assistance, and social assistance for urban dwellers was not paid for by the government but paid for directly by the companies for which people worked.
This last perverse mechanism still causes the liquidation of a decayed industry to result not only in layoffs for its workers in active force, but in a drastic curtailment of pensions even for those who have already left. Which means a multiplication of social discontent over ongoing reforms where, precisely, so many industries are being liquidated.
The law thus fills an immense void, and takes huge slices of power away from state industries and its big managers. This aspect of power struggle is in fact behind the long years of debate and confrontation over this law.
Other losers from the law are financial institutions, such as Itics (sort of locally based financials with often very vague powers of action), which will no longer have any margin to gamble on the exchange for funds raised in no clear way. If the stock exchange has its own transparency and efficiency private and institutional savers will no longer have so much need to look for strange alternatives, in Itics, to the safety of bank deposits. They will be able if they want to risk directly on their own.
In this way on the other hand, the state, with its presence in the banks, also takes a step backward. It will no longer be through the management of de facto bank deposits the sole manager of savings, but will compete with more efficient industries.
However, it will not be full liberalization, nor should one dream that Shanghai or Shenzhen will be transformed as if by magic into Wall Street, and not only because of management issues, but mainly because of the continuing closure of the domestic market.
Indeed, another goal of the law is to put clarity in the two markets originally thought of as divided but now often confused: that of A shares for Chinese and B shares for foreigners. It will be much more difficult for the Chinese to buy B shares, which are more desirable, while it is not known whether, with the exchange rules in place, foreigners will soon venture into the Chinese financial market.
If, however, potentially immense Chinese pension funds do indeed enter the market soon, foreigners may be tempted to ride the wave. After all, it may still be safer to invest in the stock market than to make a direct investment in a domestic industry. If this is the case, and if the market can maintain the level of transparency it promises, the next decade could be the Shanghai Stock Exchange’s.
This is where the concrete program outlined for 1999 but which in reality will be firmly in place until 2001 comes in. Indeed, the watchword for the coming years is to increase domestic consumption “through whatever means,” but certainly not by opening the cataracts of easy credit and devaluation that would lead to high inflation. In fact, the introduction to the Blue Book, edited by Liu Guoguang, Premier Zhu Rongji’s chief economic adviser, makes it clear that it is not possible to think of a reasonable rate of inflation, we must only promote growth without inflation. Liu analyzes how in the eight years prior to the outbreak of the 1997 crisis, the inflation differential between Thailand and the United States created the conditions for the fixed baht- dollar exchange rate to then become unsustainable. There is, Liu concludes, no acceptable rate of inflation, in part because the U.S. growth pattern in recent years has eliminated the Keynesian assumption that growth must entail inflation. The U.S. and the world have grown in these years by virtually defeating inflation.
This is one of the strategic goals for China in the coming years, coupled with a radical change in the country’s production and financial structure. China in other words wants from now on to grow in a healthy way, with modern models, as Europe or the U.S. grows today, without inflation. Growth in the next couple of years will be driven by this immense shower of infrastructure investment, but there will be no uncontrolled spending. On the contrary, those who win bids for work that they later conclude badly will be punished severely. The funds must be used well, the products coming out of the factories must be of competitive quality and not just cheap. In other words, quality, so far neglected, must enter among the production criteria.
It is then a mixture of primarily administrative and secondarily financial measures, because the Chinese problem is primarily one of administrative reform and not one of simply using financial levers, as in the Japanese case.
“The development of our economy,” the book writes, “is in the midst of two important transitional stages (transition of the economic system and transition of the mode of economic growth [from quantity to quantity plus quality, ed.])… we must pay attention not only to the pursuit of increasing the speed [of growth] but we must also promote the transition of the mode of economic growth and promote the change and improvement of the economic structure, to create an improved macroeconomic environment and thus promote long-term sustainable economic development. The Blue Book on the other hand explains that the success of many reforms in 1998 fell short of expectations because many reforms were introduced at the same time. This created a sudden contraction in spending by individuals that curbed the growth of the domestic market that was supposed to make up for the lack of growth in exports, contracted due to the Asian crisis last year. “People were gripped by a wave of panic,” explains one of the report’s drafters, “they saw that you have to put money aside for fear of being laid off, you have to put money aside for the health care reform that will go into effect this year, you have to save money to send your children to school which is now expensive, etc. There are so many reasons to save money, and at this point there is only so much liquid left to buy the house.”
Housing privatization was indeed a fiasco, failing to trigger the hoped-for virtuous cycle whereby the state could simultaneously dispose of useless real estate and raise funds to finance further growth in the housing sector. Within a year of the launch of this reform, the state managed to dispose of most of its heavy real estate, but virtually gave it away at prices far below market rates. Thus the second phase of the growth of a higher-quality real estate sector starts without the hoped- for strong liquidity base.
These structural reasons on the whole, according to the Blue Book, explain why there was a phenomenon of no increase in consumption in 1998. State-owned industries continued to produce low quality products, over-saturating consumer sectors that had already reached their ceiling, while for higher quality products, where there is still demand, the market is occupied only by foreign or joint venture production.
Then for the next few years China will grow by leveraging government investment in infrastructure. The paper explains that foreign trade certainly remains most important, “but for a populous developing country like ours, domestic demand is the main force for pushing economic growth.”
More investment in infrastructure should put a large mass of capital into circulation, $1,200 billion in spending is projected through 2001, which, in turn for the next couple of years, should provide the high growth rate needed to absorb the workers laid off by state-owned companies undergoing restructuring.
Among the priorities, the paper cited the urbanization process, a first after decades of the central government trying to stem the flow of migration into the cities.
So if in this way in the next few years China manages to expand its domestic market, this, in the next decade, could greatly help the regional recovery.
Moreover, such domestic development is also necessary in the face of growing American irritation over a trade deficit that is expected to touch $60 billion this year. It is not possible for the U.S. to sustain the pressure of this deficit for much longer, especially if the euro were then to actually establish itself as the second international trading currency, and this could happen with a strengthening of the euro.
Here is an accumulation of risky details for the US. If prices in ten years are set in euros as well as dollars the U.S. Treasury calculates a loss of $30 billion a year. A trifle, but add this to the fact that Frankfurt will try to finance the commerce in euros, which will result in a shift from $500 billion to $1 trillion, and the fact that at the same time the U.S. trade deficit will touch $300 billion in 1999 while the state budget deficit is stably over $1 trillion.
These facts are behind the outburst by Japanese Justice Minister Shozaburo Nakamura, who in January accused the U.S. of having an inflated economy in essence financing its excessive consumption with a government deficit and using its political-military levers to offset unwelcome effects of others’ trade success. A clear reference to the fact that several times in the past the U.S. has imposed measures on Japan to open its markets.
The argument can be overturned by explaining that in reality the U.S. finances other countries’ industrial expansion with other people’s money; in fact, they grow because they export precisely to the U.S. and the U.S. does not close its domestic market.
But in essence, the Asian financial crisis, the entry of the Euro, the new direction of travel of the Chinese economy, and the increasing pressure the U.S. is under from its trade and budget deficits seems to be tending toward the beginning of a shift in growth patterns and geostrategic models in which Asia is the big space to maneuver and where the strategic shift in the Chinese economy can play a key role.
The soft-war
After the hot war, the cold war we must today prepare for the soft war. In 1996, foreign sales of entertainment and software products had totaled $60.2 billion, more than any other American industry. In the meantime, that amount has increased, and in addition, the export of products with a content that is not primarily cultural, such as Coke, Pepsi Cola, McDonalds hamburgers, for example, carries with it, and is successful, because of the strong cultural value of the product. Coke is certainly good to drink, but it is also true that with it one drinks a model of life, a piece of American culture.
These new products have two sides. On the one hand they carry with them an “ideology,” which should not be thought of in the old terms of communist versus capitalist ideology, but of a complex system of cultural values with a certain political content. On the other hand they have standard production costs and infinitesimal reproduction costs, so that selling on a very large scale multiplies profits infinitely. In other words, the main cost of a film is its production, but the cost of reproducing it on film, cassette or digital disc is practically zero, so that a larger number of reproductions of a film on cassette etc. requires absolutely marginal investment, compared to the initial production, and is practically all profit. The same is true of software and all other products that can be reproduced electronically.
The debate developing around the world about the knowledge-based economy and the importance of the cultural industry in a very broad sense creates a global tension in and for markets. It becomes central for every company and every country to be able to access a broad market that is as uniform as possible.
The United States is extremely interesting because of this, Europe is less so because it is divided among a dozen languages. India is also interesting, but not fundamental, because there too there are language (Indo-European in the north, Dravidian in the south) and religious (Hindu and Muslim) divisions… China, with its unity of language and culture, is ideal. It represents the largest potential market in the world with its 1.3 billion people, and with the domestic effort to expand domestic consumption it seeks to turn this potential into reality as soon as possible.
Regardless of limitations in terms of Malthusian projections of development, the Chinese economy is expected to grow at a whirlwind pace for the next 70 to 80 years (and perhaps more) to reach a per capita GDP close to that of advanced countries. But already in the next two decades China will become the single largest market in the world in so many products, and it certainly could become so easily for cultural products, which precisely have low cost of reproduction. Just the existence of this trend in this country makes China the focal point of development for all companies around the world. It is not possible to know whether China will stop development, but certainly no one can or will afford to stay out of this market. It is a bit like what is said about the Internet: today many people are losing money on it, it is not clear when and how they will begin to make money on it, but the potential costs of staying out of this development tend to be much greater than the losses of being in it today anyway.
This may be true in general terms and is much more so for the culture industry.
This implies that global control is done through the use of force, certainly, but also through an industrial cultural force, which has purely economic aspects and ideological aspects, of assimilation and also promotes global communication.
The aspect of communicating as clearly and transparently as possible is, among other things, essential to the functioning of global markets, so in this case there is an almost magical integration between the need for information exchange, the need for new industrial developments, the efficient circulation of money and resources, and ideology. Moreover, the substantial victory in the ideological debate between East and West by the West in the Cold War shows how ideology was part of that conflict, and that the American ideological drive was an advantage for the West. After all, the Chinese know that as Sunzi says the first rule of warfare is deception, that is, an ideological process, of capturing, winning persuading the mind, before comparing arms.
The analysis of the strategic consequences of this very powerful cocktail is beyond the scope of this essay and China’s role. Here suffice it to say that given the new nature of this cultural industry China for the reasons mentioned above is central.
If we then add up the various factors, the political ones (China’s increased weight with the Asian crisis) the economic ones (the potential to become with the development of the domestic market in X years the engine of East Asian development) and that of current industrial trends we see that there is a concentration of the various countries of the world on China, since all may have an interest in burdening it China in the near future may be destined to have increasing political and strategic weight.
This situation potentially creates an infinite centripetal tension with respect to the whole world, but also centrifugal, because many in the world may have an interest in dividing up this huge market.
Globalizing China
Here again there is an internal and then an external aspect. As for the internal China the purpose is strategic, to save the unity of the country on the one hand, but the means today, as 70 years ago when, the country was in the midst of civil war is ideology. In fact, the culture industry does not live without an unregulated environment, without strong political safeguards. Just as the market works better than the planned economy, so does the culture industry work better where there is no rigid protection of what you may or may not think about.
Then China needs to renew its ideology, liberalize its control of the intellectual world if it wants to participate in the new race of the culture industry. As we have seen, the stakes are threefold: hold an industrial, ideological advantage, and secure against centrifugal pushes.
Li Shulei proves in great detail that Mao’s ideological work was essential in leading the Chinese Communist Party to victory. Then Mao was successful because he defeated the pro-Soviet orthodox and that this operation of his was historically determined. That is, the real lesson to be learned from Mao is that he used the right tool at the right time. So as the times change you have to change the tools as well otherwise you are defeated. Li Shulei does not deal with the current industrial-cultural-strategic issue but certainly sets the stage in the right way for China to deal with this problem. Today China needs different ideological controls if it wants to participate in this global challenge.
If it does not do so, the strategic and ideological advantage gnawed away today will quickly vanish and the centrifugal pushes that existed at the beginning can be re-triggered. And indeed more.
Because in the meantime global interest in this market with unique conditions will have grown. Then either the government can hold it together (which is more attractive on the other hand for everyone) or areas of influence and fragmentation of the country may be recreated.
If China on the other hand succeeds in renewing its ideology, maintaining in the coming years the strategic advantage it has gained and improving its economic and financial structure, then we will begin the next millennium truly having to set our eyes primarily on this country, which could exert a centripetal pull like never before.
Obviously to prevent this natural centripetal pull from a market of this size and condition from creating friction and conflict Beijing will have to be very careful and not irritate anyone. Too many are already frightened in the world by a China that is just too big.
