Looking at things from China, the year of the Metal Rat 2020—which started with a state of siege after the announcement of the massive disaster of the first epidemic of the modern world—is about to end well. Beijing can look at a series of its victories and the disarray of its main opponent and competitor, the United States.

China managed to bring under control the Covid epidemic and restart its economy, while the rest of the world and the US botched the response hurt their production, still faltering.

Moreover, after the US four years ago dropped free-trade agreements with Asia and Europe, which would have de facto isolated China, in the past couple of months Beijing secured politically important trade and investment deals with both Asia and Europe. These are now putting Washington in an awkward position. Also, in 2018 the US flopped in securing a massive bilateral trade treaty with China, and Washington took almost two years to move back to the idea of a multilateral strategy.

Finally, the Year is of Rat is ending with the apparent frenzy of the USA, facing historically unprecedented challenges – an insurrection fomented by a president who is winding up his mandate and who is being impeached for the second time, the nation bitterly divided and no clear path ahead.

Is such a clumsy country really a challenge to China? Maybe not so much, some in Beijing may think. These are not superficial mistakes but stem from deep unsolved contradictions and fissures dating back to the time of the Civil War 150 years ago. These fissures are now fueled by a new cultural mix in the country where the old WASP (White, Anglo-Saxon, Protestant) backbone is becoming a minority, where there are too many drugs and too many guns, where there are bad public schools and bad universal health care, decrepit infrastructure, and no plan to recover from it all. Moreover, while China had its bold international program, the BRI (Belt and Road International Initiative), and the idea of American idea of Globalization is stumbling, the US had no plan to help the development of the American continent, Africa, or Eurasia.

American ideals—fair democracy, respect for others, liberty, a chance to make a fortune—looked shattered by the attack on the Capitol and the so far stilted response. What do you do if it was treachery committed by President Donald Trump and his followers? There must be consequences, but this would further split the country. If there are no consequences, what will happen? There are no easy answers anywhere. Many call for unity, and want the nation to heal, but the yawning gap between the two parties doesn’t look like it will improve anytime soon.

The Chinese can look at their country and see that it’s just the opposite: Improving schools and health care, gleaming infrastructure, no guns and few drugs, and a more cohesive sense of national unity with a Chinese dream of a good life for every Chinese and every foreigner who wishes to share the dream. What is there to fear in Beijing as it waits for the next US president, Joseph Biden, to take a new approach to China?

But then perhaps there should also be a different assessment of the situation around China.

***

The Cold War ended with two dominant, overlapping big theories about the future that we should expect for the world. One was about the clash of civilizations and the other was about the end of history, which were derived from seminal books by Samuel Huntington and Francis Fukuyama.

One theory, Fukuyama’s end of history, claimed that with the end of the long struggle against communism and totalitarian regimes, history would unfold smoothly following the full-fledged development of capitalism, the market economy, and liberal values. The other theory, on civilizations by Hungtinton, asserted that future conflicts would arise from different cultures and civilizations opposing one another and mainly fighting against the dominant civilization, the Protestant Anglo-Saxon one.

The present friction between the United States and China could confirm both theories: China is a totalitarian regime, heir to some extent to the Soviet one, and it’s a very different civilization compared to the white Anglo-Saxon one.

However, this framework may prove useless as a way to really understand what is going on with China and what has been happening in the past 30 years. In fact, the experience of the wars of the United States in Central Asia and the Middle East tells us that even if Huntington’s and Fukuyama’s models were true, they don’t give us any positive solution to present political fissures.

In fact, the Anglo-Saxon model of democracy is difficult to export wholesale.

In the past two decades, the cases of Afghanistan, Iraq (under military attack by the Bush administration in the hopes of transplanting democracy there), or even Egypt (where a domestic revolution groomed anti-democratic sentiments but was ultimately salvaged by a pro-Western military coup) have proved this. Democracy is not like tap water from a well that you can dig and turn on or off. It depends on extremely complex cultural, social, and systemic assets that make it possible.

Moreover, differences in cultures and civilizations are extremely hazy and hard to pinpoint. Southern Italy, now firmly conceived within the Western world, once upon a time was labeled, with Greece, the Near East. This mental placement gave then the name Middle East to the Arab world, which stretched up to Morocco, physically located ostensibly west of Great Britain.

Yet even if we were right in thinking in these terms, and Italy was indeed Eastern, what would that add or subtract to the understanding of the world and attempts to reconcile major differences? Moreover, totalitarianism may be a real and useful label, but at the end of the day, Saudi Arabia is a staunch American ally, and possibly is less liberal and democratic than Iran, which periodically holds fairly free elections and is home to a vibrant cultural scene.

Having said that, that doesn’t mean that we are in a night where all cows are black. Important differences do exist and cause massive issues that are now revolving around China.

The real issue seems to be the fact that the US for a few decades forgot politics. As master strategician Clausewitz said war is only the continuation of politics through other means. The famous statement underlines that politics is the important element, to which war is a “deviation”, in fact through politics the US won the Cold War. In 1990, right after the fall of the Berlin Wall president Bush fought the first Gulf War with an unprecedented and unsurpassed alliance that lined up virtually everybody against tiny Iraq.

In this alliance there were the USSR, China, even Iran and Syria. All these countries were not important to fight the actual war but were fundamental to start to build a new world order. That is: Bush realized that just as the USSR was being defeated a new world order had to be constructed on the past ashes bringing together everybody, including old enemies like the Soviets or the Iranians. It was the same thing the USA did with Germany, Italy and Japan after WWII. Bush was applying this experience to the post Cold War era. This important lesson was soon to be forgotten after a couple of years, in favor of the facile idea that market and democracies would pour in naturally once the evil of “tyranny” was defeated. This conception forgot that modern free market capitalism emerged only in the 18^th century after long years of development, and it remains a weak plant in need of constant gardening, otherwise it can go wild.

A broader look at China

Still, we may want to take a broader, more skeptical view of things. With a couple of easy labels, we could say that civilizations can stay apart but have to learn to talk to one another, and authoritarian regimes become globally dangerous as they grow in economic and political size, conditioning other liberal systems. With this we might want to try to understand the deep reasons whereby each country works within a certain system, as we are not in the business of bringing paradise to earth as totalitarian regimes thought of doing in the past century. Then, although countries can carry on speaking their own languages, these languages have to be fully understandable to one another; otherwise miscommunications and defensive, aggressive behaviors will replace everything.

Some now may confuse their wishes with a solid reading of reality when it comes to China. The Chinese government has proven time and again capable of fast reaction and great ingenuity, although its reactions and its ingenuity don’t work the same way as in the United States or Europe. Almost one year ago we wrote^[1] that China should use this opportunity of Covid to start its own Renaissance or it could succumb to the consequences of the plague.

Evidently, that was what Beijing did. In a few months, Beijing managed to turn this huge calamity into a massive geopolitical victory. Basically, China managed to get Covid under control and restart its economy while the rest of the world and most of the Western world are still in the throes of it. This doesn’t mean that the Chinese system is better than the Western one or vice versa, or that the game is over. But certainly, it should tell the United States and Europe that China is far more complex than a few easy labels.

This success comes after 40 years of constant results. In four decades, China went from being one of the poorest countries in the world to one of the richest; from one of the most backwards technologically, to one of the most advanced.

This certainly didn’t happen just because Beijing did it all on its own. This was also largely due to massive help of the United States, which 40 years ago granted China an unprecedented privilege: to export to the United States with very low tariffs and the possibility of Western technological transfer to China. Furthermore, until recently, the United States gave China a free pass on media scrutiny, basically expecting China to evolve in the “right direction.”

This didn’t happen without strife and difficulties. The US honeymoon with China ended with the 1989 crackdown on the student movement in Tiananmen but the relationship lumbered on with the agreement on China’s admission to the World Trade Organization. However, about 20 years ago, with the Cox report, the United States voiced its discomfort about China. China was accused in massive detail of IPR (intellectual property rights) theft by Chinese companies in the 1990s, and this discomfort was growing into massive friction at the beginning of the George W. Bush presidency.

It culminated in the EP3 incident, when an American surveillance plane hit a Chinese fighter and then crash-landed on the Chinese island Hainan. After that, the US and China looked as if they were set on a collision course. However, at the last minute, it all took a different turn. After September 11, 2001, America largely convinced itself that the main enemy was the extremists in the Muslim world and not China.

With that, since 9/11 China had a few years of grace to readjust and prepare for when the United States would come back knocking on its door demanding changes. China ignored and forgot about this very close call. At the 2002 Party Congress, then Party Secretary Jiang Zemin should have completely stepped down, and with him all of the old generation.

They should have given full power to Hu Jintao, and Hu Jintao should have started economic and political liberal reforms that would gradually bring China in line with the Western world and decrease the level of friction with the dominant power, the United States. Totally engrossed in its own internal dynamics and the logic of its own power struggle, China didn’t.

Jiang Zemin held onto power, liberal reforms were carried on at a much slower pace than needed, and a cumbersome political decision-making system took root where people from the Hu Jintao era and the people from the Jiang Zemin era coexisted in a murky way, sharing power, and increasingly losing contact with the outside world and forgetting the big picture.

US misunderstanding

At the same time, the United States can’t think that China is simply a clone of the old USSR and that China stopped in a time warp in the early 1990s. In China 1.4 billion people have improved their lives as never before in Chinese history. The Communist Party has about 90 million members—that is, practically one in every 15 people is a party member.

That makes the party totally merged with the population. During the Qing dynasty, with a population of 300 million people, there were about 100,000 officials. If we multiply that by 10, counting all their retainers, we arrive at one million people. And even if we multiply this by 10, which is an incredible number, including the families and clients, we would reach 10 million. That would still be one in 30, half of the official-to-people density of the Communist Party. Plus now the Communist Party has at its disposal unparalleled technology to reach out to every single Chinese individual, something that never happened in Chinese history.

This happens on the backdrop of a massive social transformation. Chinese people are vastly literate, and for the first time they all share a spoken, not only written, language. Common people are flocking to universities, with millions taking the national entrance examination, the gaokao. Chinese universities are improving in quality. For common Chinese people, studying is a privilege and they feel blessed by it.

Millions of Chinese study Western classical music and learn foreign languages. Their healthcare is poor but is also improving as is their pension system. The Communist Party pledged to cover one billion people with basic healthcare and basic retirement coverage in 10–15 years, and given the party’s record, people trust this will happen.

Nothing like this is happening in America or in Europe, where the quality of basic schools is decreasing as is investment in education. Healthcare and pension systems, the two pillars that convinced the Western world that capitalism could take care of social needs better than communism, are crumbling. And the Covid crisis underlined these difficulties.

Of course, this is also due to development. China is developing whereas America and Europe on average have plateaued, and they have issues about where to go from here. China has less of this problem because it can more easily follow the pattern of past Western experiences.

Chinese people moreover are among the biggest savers of the world, saving about 50% of their income. They put their money into banks, which are state owned, and the banks indirectly tax these people by rewarding the savings with interest rates below the inflation rate, maybe one or two percent. Then they lend the same money on the market at much higher rates.

These savings, the difference in interest rates, the trade surplus, and the administrative barriers to free trade and full convertibility of the renminbi create a huge cushion for the Chinese economy. This has made it possible for Beijing to accumulate a huge amount of internal debt in the past 12 or 13 years, possibly over 40 trillion dollars, without causing a financial crisis. The Chinese financial system is de facto isolated from the world and financed by export surplus and savings at little or no cost for the state. This system is at the moment in no danger.

The Covid crisis made the Chinese economy stronger, its exports grew bigger, and there was no capital flight of savings, if ever that was possible with the administrative rules that exist.

This all creates a system by which top-down decisions can be enforced, and it’s also evidence of the consensus the Communist Party gained in the past decades. This cannot be underestimated, and in fact the Covid crisis—a sudden turn of events followed by sudden reaction—proved the full capability of the system to muster popular support in the face of an external challenge.

This doesn’t mean that the Chinese structure is invincible or without faults. The fact that the party feels the need to enforce strict control signals its fears and weaknesses. But it is not all arbitrary authority. There is a complexity that proves the system is far more resilient than some easy foreign propaganda may concede.

Then, were the ones who wanted to fight China in the late 1990s right, and has the US lost too much time? Perhaps it’s not so. Twenty years ago, the Chinese were about ten times poorer than now. They had little or nothing to lose but their poverty. Dying in a war would not have been too difficult.

Now, with a nominal income half that of the developed world and the purchasing power parity of the US, many fear losing their hard won wellbeing. That is, if the government doesn’t keep its promise of continuous improvement, it loses legitimacy and life becomes more difficult, which 20 years ago was a negligible threat. Moreover, families could be extremely reluctant to sacrifice their only children, their little emperors, on the altar of national glory for this welfare. It’s more likely they’d blame the government that led them into conflict, whatever the reasons.

Preparing for worse

The Chinese are now preparing for the eventuality of being decoupled from the rest of the world. As described at the last Central Committee meeting, the idea of dual circulation is that China will carry on exporting and trading with the world as long as the world is willing to. But China is already preparing to expand its domestic demand for a possible decoupling. As David Goldman wrote time and again, the real challenge for America and the Western society vis-à-vis China is in offering a new development system that learns from the strong points of China.

The Western world has to have better healthcare and better educated people in the future, because this is the basis for long-term growth and human capital. If kids are sick and go to bad schools, the future of the country is already set for doom.

Besides, there are also issues that China has to consider on its own. If China were a more open society, with a more democratic and transparent system, and if China didn’t have so many border issues with its neighbors, its problems would not be as urgent as they are now.

Certainly, there is a concern around China about its rise and the difference of its “civilization.” But these are enhanced by the different political system and its assertiveness on its borders. In a way, China then creates a complex algorithm that makes it look even more threatening because it is successful and resilient, yet different and assertive. If China had been less successful in its system, it would not look as menacing. With all things equal, its assertive foreign policy, its authoritarian political system, and its success in controlling Covid scares the world even more.

China seems oblivious to the effect it has on the Western world, and sometimes even boasts about it, which is effective for internal purposes, propaganda, but it is salt on the Western wounds. Then as the United States and Europe may not fully understand the mechanisms, complexities, and effectiveness of China, so China seems to not understand the effect it has on the world.

This mix is a recipe for disaster. The recent calls in the West for politicians to calm down and to step away from the ongoing collision course actually tell the exact opposite. They underscore the fact that most Americans and most Europeans firmly believe that a collision with China is almost inevitable if the brakes are not applied.

In fact, even if a trade agreement was reached between the United States and China, without touching the Chinese political system and Chinese assertiveness on its borders, this could create a situation whereby a clash by military means could be more, not less, probable. This is because political differences, military assertiveness, and civilization issues are of paramount importance in deciding peace or war. Europe until World War I was far more integrated between different states than China with the rest of the world now. Most kings and aristocrats were closely related, and yet Europe fought bitterly in endless wars.

Trade agreements are useful but they are not a vaccine against military clashes, which move on their own. Conversely, China seems to believe that a trade agreement with Europe or America could be an antidote to the poison of war, and with this antidote, it can carry on with its own political system and its assertive behavior with its neighbors. This may be a very wrong evaluation.

On the other hand, America may wait for the collapse of China behind the “hateful” Communist Party and would therefore miss the strength and the solidity of the present Chinese system. The United States, if it wants to avoid war and win the comprehensive confrontation with China, has to take different initiatives and deeply reform itself to match and surpass China’s achievements. Short of these two initiatives, the path to a military clash that would short-circuit the complex dynamics could grow closer.

In fact, some in China and in the United States may think that a military clash between the two is better now than tomorrow. From the Chinese side, people may think that clashing with the United States now, before it has effectively built a military alliance, could be better because it would scare some neighbors into turning toward China in an alliance or at least into neutrality. In America some people may think a clash now before China grows too big and too technologically advanced would be better.

In both countries, people may also think differently, favoring the postponement of a military clash. In China, some may want to grow even stronger economically. In the United States, some may want time to build a global alliance. In both cases this thinking proves that the military option is still very present in the minds of decision makers, and then once you have the option, you may want to exercise it.

It should be necessary to take radical steps to forfeit this military option and integrate China into the world. This can happen only by China rethinking its past two decades, and the need to be more like the rest of the world. Democracy can grow in China because—unlike war-torn Iraq and Afghanistan or the poor and illiterate masses in Egypt—the Chinese have enjoyed peace and growing wealth, are more cultured, and—as examples in South Korea, Japan, and Taiwan prove—their “civilization” is pliable to Western democracy. How to get there is an issue and there are huge risks^[2], but possibly there is no alternative.

The latest developments in the US could spin future engagements of China in different directions. America is finding a new purpose in drawing a line on Trump’s abuses of power. If that country fights perceived tyranny at home it will fight it also abroad.

^[1] http://www.settimananews.it/informazione-internazionale/doom-or-renaissance-china-after-plague/

^[2] http://www.settimananews.it/informazione-internazionale/the-cost-of-victory-chinese-interest-rates/