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Sinophobia: China viewed from the USA and... the USA viewed from China
China's "reducation" camps for Muslims
The Effects of the Trump Trade War on China: Waking up the Giant.
China's Anniversaries and how the Tiannamen Square massacre shaped today's China
China's Struggles
Does China steal?
What's Wrong with Huawei
Do not Wake up the Sleeping Dwarf
Malaysia and Chinese colonialism
Articles on China before 2019

  • (april 2019) China's Struggles
    Since 2012, when Xi Jinping (Jinping Xi if you write the family name after the given name) assumed power in China, the Communist Party has increased its presence and interference in every aspect of Chinese society. The media are no longer allowed to criticize any aspect of China's life. Censorship is rampant on social media. All Western social media are carefully banned. Increasingly, it is also difficult for VPNs to get through China's "Great Firewall".

    During the 18th National Congress of the Communist Party of China in 2012 both departing president Hu Jintao and newly appointed president Xi mentioned corruption as an existential threat to the Communist Party. In January 2013 Xi, speaking at the Central Commission for Discipline Inspection (CCDI), asked for the cleansing of "tigers and flies", i.e. of corrupt officials.

    At the time, Xi's anti-corruption campaign was widely perceived in China as having the secondary objective of removing Xi's enemies. Tsinghua University political scientist Wu Qiang told the Guardian that anti-corruption campaigns were being used to conceal political struggles inside the Communist Party.

    In reality, the anti-corruption campaign had started a few months earlier. Zhijun Liu, also know as "Great Leap Liu", had been promoted Minister of Railways in March 2003 with the mandate to build thousands of kms of modern high-speed railroads, but he had turned his ministry into a state within a state, funding it with graft. The Ministry of Railways had become the second most powerful ministry in China, second only to the People's Liberation Army. In February 2011 Liu was fired over allegations of corruption and the state media began a campaign to discredit him. The state-run Global Times even accused him of maintaining 18 mistresses (not bad for a 58-year-old man). In April 2013 Liu was arrested and has been in prison since, and the Ministry of Raiways was dismantled, leading to the creation of the state-owned China Railway corporation (At the trial Liu read the usual confession, and the prosecutors reported that "Liu had a very good attitude in confession and a strong desire to repent," according to China's news agency Xinhua). Liu's mistake may have been to try to bribe his way into the Communist Party's central committee. The Communist Party reminded him and everybody else that the Communist Party is off-limits from outside influence.

    Since then, the Communist Party has purged Xi's rival Bo Xilai, security chief Zhou Yongkang as well as three close associates of Zhou Yongkang (Ji Wenlin, deputy governor of Hainan, Li Dongsheng, deputy minister of public security, and Chuncheng Li), the director of the General Office of the Communist Party (Ling Jihua), former Kunming party boss Zhang Tianxin, Guangzhou's mayor Qingliang Wan, Xu Caihou, former vice-chairman of the central military commission (the most prominent military figure to be purged in decades), two party chiefs of Yunnan, namely Bai Enpei (arrested in 2011) and then his successor Qin Guangrong (arrested in 2019), and two vice-chairs of the Central Military Commission of the army (Xu Caihou and Guo Boxiong).

    In 2013 the Communist Party published "Document Number Nine", demanding that all party officials redouble their efforts to root out democratic ideas and values (see the translation here or better here). Here are the seven sins singled out in Document Number Nine: constitutional democracy; human rights; civil society; the free market; freedom of speech; historical revisionism (denying that communism improved China's conditions); and questioning the economic reforms. In 2014 Beijing responded calmly to pro-democracy protests in Hong Kong (compare with the 3,000 people killed in 1989 in Tianamen Square), but at the time i wrote that, by re-annexing Hong Kong, China inadvertently imported a virus, the virus of democracy (see The Democracy Virus). Xi spoke of "the worst security environment China has ever faced". The Communist Party enacted the National Security Law and announced the program for a computerized "social credit score", similar to the credit score used in the USA but expanded to monitor the social activities of citizens. That's when the whole nation, including (and perhaps especially) the enterpreneur class, started feeling the heat. In April 2015 Gao Yu, a 71-year-old Chinese journalist, who had been allowed for 16 years to criticize the Communist Party on both domestic and Western media, was sentence to house arrest for allegedly smuggling "Document Number Nine" out of the country (she is still under house arrest).

    According to the government-owned Global Times, between December 2018 and February 2019 the Chinese authorities have shut down more than 140,000 blogs and deleted more than 500,000 articles. In typical Maoist fashion, bloggers often disappear only to reappear saddened by their actions, apologizing on television and promising to "communicate values with more positive energy".

    The speech that Xi gave in January 2019 to the Communist Party represents the culmination of this process (that many view as a new Cultural Revolution, although that sounds far fetched). Xi identified seven major risks for China (which really means "for the Communist Party"): In concluding. Xi demanded tighter control of China's young people (many of whom never knew Mao, who died 43 years ago, and not even Deng, who died 22 years ago) and especially on the Internet (which is not really the Internet in China, since most of the services that we associate with the Internet). In 2017 (at the end of the 19th Party Congress) the Communist Party paid an unusual tribute to Xi: hiw stern views was enshrined in the Communist Party's constitution, something that had not happened since Mao ("Xi Jinping Thought on Socialism With Chinese Characteristics for a New Era").

    China is being transformed into a high-tech police state: your face is continuously photographed and all your movements (buses, trains) require that your id be entered in a database. Combined with China's vast telephone, video and Internet surveillance network, this greatly accelerates the capability of investigators to track down who did what.

    One can argue that these Orwellian policies betray insecurity: personal insecurity by Xi at the helm of the nation, and collective insecurity by the Communist Party, which may feel that it is losing its grip on a much more educated and modernized nation than it was in Mao's and Deng's times. In July 2017 the nation got a rare view into internal dissent when a popular politician, Sun Zhengcai, the youngest member of the politburo, was charged with corruption and sentenced to life imprisonment, but a few weeks later a top official, Liu Shiyu, accused Sun Zhengcai of plotting with the disgraced Bo Xilai and Zhou Yongkang to overthrow Xi (quote: "plotted to usurp the party's leadership and seize state power"s).

    Xi, the son of one of Mao's early followers, was widely perceived as the compromise candidate of all the founding families of communist China, and he often seems to recycle the old ideological mottos that he learned as a child from his father and from his father's friends, old Stalinist and Maoist slogans; but this may have alarmed those who got rich when that ideology was abandoned.

    In August 2018, Tsinghua University law professor Xu Zhangrun published an essay of 10,000 (Chinese) characters titled "Our Dread Now and Our Hopes" on Unirule that spread for a few days over the Chinese social media (summarized here in English). The essay criticizes the personality cult surrounding Xi and the abolition of term limits for the position of China's chairman. Xu was eventually suspended in March 2019, but that means that someone protected his job for seven months.

    It could also be, quite simply, that the Communist Party wants to provide stability at a crucial time. China's history is a history of documents, not speeches, but Xi is often using speeches, not documents, to broadcast his views. From the beginning, external observers have been struck by how much Xi replays the old Maoist slogans, but also by the way he positions Mao's communist revolution not as a breaking point with the past but as a continuation of 5,000 years of Chinese civilization. That's a marked difference from Mao's hatred of Confucius and all ancient Chinese dynasties. Xi views a straight line leading from Confucius to Mao and now to himself. The other thing that is notable about his speeches, especially the latest one in January 2019, is that he is slowly but steadily removing Deng from collective memory. When i told Chinese friends that Xi never mentioned Deng in a long speech about the history of China's economic reforms, my friends initially didn't believe me and went to read the whole transcript. It was highly unusual.

    At the same time that China has been cracking down on "Western influences" the Communist Party has been intent on restoring the primacy of state-run firms. When Deng began the economic reforms, most firms were still government or military firms. China's boom was driven, instead, by the private firms that were allowed to blossom during the 1990s and 2000s. The most famous abroad are the Internet giants: Tencent, founded in 1998; Alibaba, founded in 1999; and Baidu, founded in 2000. Their entrepreneurs were not only tolerated but even nurtured by the state, protected from foreign competition. It became obvious already in the 1990s that the private sector was driving growth and that state-owned enterprises were inefficient. However, the last few years have seen a renewed effort by the Communist Party to favor state-owned companies over the private sector. As the economy slows, the state decides who has to feel the pain, and in general the state-owned enterprises are the ones shielded from the pain, whereas the private sector is left to fend for itself. In fact, the private sector's percentage of GDP has shrunk for the first time in 30 years. Additionally, many firms have been forced to add officials of the Communist Party to their board of directors. These trends have alarmed China's entrepreneur class that is now increasingly trying to move money and family abroad. Hence the strict capital controls that China has imposed in recent years. A recent report on the happiness index of the super-rich hit a five-year low. Xi felt that he had to personally reassure the private sector multiple times (see for example this Xinhua article). But this doesn't seem to reassure the business class, whose feeling is that Deng-era economic reforms are slowly being undone to return to a more rigid communist system. For example, in February 2019 Chen Tianyong, a Shanghai entrepreneur, fled to Malta, leaving behind his real-estate empire, and published a 28-page article titled "Why I Left China". A running joke in China is that Trump is the only one who can save China from communism because his "trade war" may force the Communist Party to enact long overdue reforms instead of rolling back the reforms of the past.

    It is not clear how much of what is happening in China is due to Xi's personal opinions. First of all, Xi is neither an elected official nor a real dictator: he is elected by the communist party, and nobody quite understands the way the party works behind the scenes, but he is accountable to those who appointed him. There is a big difference between Putin and Xi: Putin created his party, Xi was created by his party. The fact that Xi felt the need to accumulate ten titles may betray weakness, not strength. After all, Deng Xiaoping didn't have any title. He didn't need one: he was so powerful that there was no need to have a title. In particular, he was never the chairman of China.

    Right after he became the supreme leader of China in 2013, Xi launched an ambitious pro-market reform program, which sounded as "neo-liberal" as anything ever attempted in China. His 60-point "Decision on Several Major Questions About Deepening Reform", announced at the 18th Central Committee's Third Plenum meeting in November 2013, promoted market forces from a "basic" role to a "decisive" role, and these terms have powerful meanings in communist jargon; and called for government to retreat from its influence on the allocation of capital, energy and land (the main resources that tightly controlled by the state). At the time, a leading financial planner of the Communist Party, Yang Weimin, interviewed by the government-owned People's Daily (the mouthpiece of the Communist Party), called Xi's "Decisions" a leap forward even more epochal than Deng's famous "southern tour" of 1992. This was all the more impressive because it came right after the global financial crisis that could have been used to dispute the positive role of free markets. Six years later, virtually none of those reforms has been implemented. In fact, Made in China 2025 almost completely reversed the role of government. Some Western analysts (the "hawks") think that the "Decisions" were just a ploy to fool the West into thinking that China was converging towards the liberal democratic model when in fact it was plotting to move away from that model. Another possibility is that Xi is not the "supreme leader" but simply the man who executes policies decided by the party, and different factions have different ideas on which policies to adopt. It could be that initially Xi had orders to continue the path of reforms but quickly the hardliners prevailed and caused a dramatic u-turn.

    When China abolished the second term for the position of chairman, Western media assumed that Xi has appointed himself president for life, but this is not written anywhere. The only thing that has been written is that Xi may (may) rule for more than two terms. This has the advantage of demotivating anyone who was playing the strategy of waiting for Xi's second term to end.

    Maybe the party wanted someone who could regain control of a country that, during Hu's second term, was rapidly falling into an anarchy eerily reminiscent of China's ancient past (Chinese empires tend to disintegrate into feuding kingdoms, and the Soviet Union ended up precisely that way when it liberalized both economy and society).

    On the contrary, Xi could be in a precarious position: now that he has all the power and not even a term limit, he is expected to deliver.

    Xi has launched two massive programs, one in foreign policy and one in domestic policy. The "One Belt One Road" (OBOR) initiative is an infrastructure plan to link China, Central Asia, the Middle East, East Africa and now also Europe (after Italy signed up) through a series of railways, roads and ports. The "Made in China 2025" initiative is a national plan to turn China into a high-tech powerhouse that could compete with and even surpass the West.

    China has certainly spent a lot of money on both initiatives, but so far the returns are dubious. Initially, OBOR seemed to succeed on the political sphere, by expanding China's influence beyond its neighborhood. China needs natural resources, lots of them, to keep its economy running. China is surrounded by friends of the USA (Japan, Taiwan, South Korea, Afghanistan, Myanmar) and by traditional enemies (India, Vietnam). Combine these two factors and you realize that China's fear of encirclement is justified. OBOR breaks that "siege" and opens land and maritime routes to the natural resources of the Middle East, of Central Asia and of Africa. However, the investment in OBOR has stretched China's foreign-exchange reserves. It has also caused a backlash in countries where governments signed unfair deals with China (whether because they were incompetent or because they were bribed). Protests against Chinese investments have erupted in Bangladesh, Kazakhstan, Kenya, Sri Lanka and Ecuador. See Malaysia and Chinese colonialism. In the long run, OBOR may or may not provide Chinese corporations with a freeway to faraway markets, but in the short term it is a significant cost, which adds to the bad investments made by China in supporting the failed governments of Venezuela and North Korea (China's loans to Venezuela are estimated to be $60 billion, and Venezuela has no way to repay them).

    To make things worse, at the same time that OBOR partners in the west are getting worried about China, China has angered neighboring countries with an aggressive policy in the Chinese Sea. His actions stand in sharp contrast with the actions of his predecessors Jiang and Hu, who were low-profile leaders. China has also a unique way to misunderstand the world's public opinion. When large demonstrations against dictator Maduro shook Venezuela, China didn't miss the opportunity to support the dictator while most of the world (more than 100 countries) supported the opposition. Besides projecting a sinister image on the whole of Latin America, China also appeared to be simply following Russia (not the behavior of a world power but rather the behavior of a satellite).

    In between OBOR to the west and the Chinese Sea disputes in the east, there is India. China has never been popular in India. India resented China's invasion of Tibet, which happened when India had just become independent and didn't have the means to influence the outcome (and India is still home to millions of Tibetan refugees, including the most famous one, the Dalai Lama) and in 1962 fought a war against Mao's China over a Himalayan territory. Trade between China and India is now wildly unbalanced, with India flooded with cheap Chinese goods. There is hardly a day when an Indian newspaper doesn't publish an anti-Chinese article. If there is one country that has been alarmed by China's rise to the east and to the west, that country is India, which has almost the same population of China.

    Whatever the merits of OBOR, there is an aspect of it that is embarrassing to China: most countries demand investment in US dollars, and China itself demands repayment of debts in US dollars. This doesn't bode well for China's ambition to make its currency (the remimbi) an international currency. In November 2015, the International Monetary Fund awarded the remimbdi the status of "reserve currency", just like the euro, the Japanese yen, the British pound, and the US dollar. But the remimbi still accounts for only 2% of international payments compared with 40% in dollars. That is embarrassing. Poor countries are more likely to accept the currency of tiny Switzerland than of giant China. Obviously, this is not what one expects of the world's new superpower. The Chinese themselves like to save money in US dollars, and rich Chinese send money abroad, as the "Panama Papers" revealed. In fact, the Chinese were the biggest group of clients for Panama's law firm Mossack Fonseca, almost 30% of its clients, including Xi's brother-in-law. The credibility of the remimbi as an international currency is still rather low.

    When it was announced in 2015, "Made in China 2025" was largely ignored in the West, but China's repeatedly claimed that it was about to catch up and even surpass the USA until the USA started listening. The consequence is that now the USA is the middle of a "Chinese scare". See Sinophobia: China viewed from the USA and... the USA viewed from China. And not only the USA: apprehension has spread from the European Union to Australia). Deng's China was humble: we are a poor country and need to work hard to lift ourselves out of poverty. Xi's China is bold: we are the new world superpower. Obviously, neither the West nor the neighbors felt intimidated by Deng's China, which was actually viewed as a benevolent power by most of the developing world, whereas now both the West and the neighbors feel intimidated by Xi's China. The problem is that "Made in China 2025" requires China to do real innovation, just copy other people's ideas, and so far China has been very good at copying and applying innovation coming from the West, but incapable of real innovation. Chinese universities simply teach US textbooks, big corporations mostly copy technology from the West, and the vast majority of startups are born to simply copy a Western product and adapt it to the Chinese market, sometimes simply translating the user interface into Chinese. Most Chinese entrepreneurs who visit Silicon Valley don't want to hear about long-term research projects: they want to hear about new startups with hot products, with the clear intention of copying it for the Chinese market. This model has worked so well that it will be difficult to change it. China is slave of its own success. Fundamental research is just not in its genes. It's the classic vicious loop of regions that don't have the innovation gene: "if nobody has done it yet, there must be a reason". Both scientists and investors know this well. In August 2018 when Hu Angang, an economist close to president Xi and an ardent cheerleader of "Made in China 2025", claimed that China had passed the USA in science and technology, a group of scholars from Tsinghua University, Beijing's most prestigious universities, publicly demanded his resignations, an act rarely seen in communist China: they felt that he was misrepresenting the situation and instilling a dangerous misunderstanding of China's real status. (Read Hu's book "China in 2020: A New Type of Superpower"). Whatever the reality of China's high-tech industry, the West read a lot more into "Made in China 2015" than the Chinese themselves read into it. In fact, Trump's trade war may have legitimized it beyond the wildest dreams of the Communist Party (see The Effects of the Trump Trade War on China: Waking up the Giant). China graduates ten times more STEM students than the USA: what are those students supposed to do, just cheap shoes? Of course they are supposed to work on all sorts of advanced technology, with or without an official government plan. China's mistake was to make a big deal of something that is happening naturally. China seems to have recognized the danger of emphasizing its ambitions and, in the second half of 2018, "Made in China 2025" virtually disappeared from Chinese news outlets. The state-run Global Times felt the need to downplay "Made in China 2025" explaining that it is no more than the Chinese version of Germany's "Industry 4.0" initiative (launched in 2012). Too late: the European Chamber published an alarming study and the USA began multiple investigations on China's alleged theft of intellectual property. (See Does China steal?)

    Western paranoia about "Made in China 2025" is probably wildly exaggerated. The intentions were certainly good, but the implementation is sometimes farcical. China is one of the few countries in the world whose citizens cannot use any of the high-tech platforms of 2018: Google, Facebook and Twitter are banned in China as are websites like Slideshare and (occasionally) Wikipedia. The damage done to scholars and students is not trivial. These are the websites that scholars and students routinely use for their research and to share knowledge with other scholars and students. There is a lot of junk on the Internet, but there is also valuable knowledge about science and technology. This deprives Chinese students and scholars of an important source of knowledge. Chinese scholars are no better off than Madagascar's scholars. I was one month in Madagascar and i could access the Internet with decent speed every now and then. In China i can rarely access the Internet with the same speed because i have to use a VPN to view any of the important websites, and China is even cracking down on VPNs. Most Chinese don't have a VPN because you need a VPN to download a VPN, which means that you can only do it when you are abroad. If you consider "real" Internet access, mainland China is not much more advanced than Madagascar. It just has a lot of cash, thanks to the export-oriented economy invented by Deng 40 years ago. Mainland China can throw cash at any project and hope that out of its billions of dollars and thousands of (very smart) engineers something good will come out of it. Expatriate students and scientists who return from abroad are very valuable to China because they learned something that is difficult to learn by staying within China: somehow it hasn't occurred to the Chinese bureaucrats that the easiest way to solve the problem is not to hope that Chinese expatriates return to China, but to allow its citizens the same Internet access that advanced countries have. In addition, the waste is sometimes colossal. While corruption has been largely tamed by Xi's anti-corruption (and long overdue) campaign, the same campaign has made many bureaucrats fearful of not satisfying the demands of the party, i.e. it has put pressure on mid-level bureaucrats to invest (or to pretend to invest) their money in the goals of "Made in China 2025" but often with no clue on how to do it in effective ways. China is a country whose native universities, since Mao's times, produce obedient servants, not creative innovators, and whose technology parks have trouble attracting foreign experts (who wants to work in a country where you can't even check your Gmail email and your Whatsapp text messages?) The combination of Internet censorship and education style seems designed to produce highly educated and very smart expatriates who emigrate to places like Silicon Valley and contribute to increase the scientific gap between the West and mainland China.

    China is paying a huge price for not taking seriously the need for basic research. For 40 years mainland China was happy to use the West as its research center, free of charge: let the Westerners experiment and then we'll copy (and sometimes even improve) their inventions. The West (and Japan) invented the Internet, e-commerce, the smartphone, email, text messaging, mobile payment, the sharing economy, the search engine, social media and so on. China simply copied, adapted and sometimes improved. China invented nothing for the simple reason that it didn't even try: the whole system was conceived and designed as a "D" system to exploit the West's "R & D". Communist bureaucrats pretended to support research but they never did. They had little interest in advanced projects that could to fail and, if successful, would deliver results only in a decade or two. They focused on exploiting the results of Western research for immediate benefits. The global effect is that China has remained totally dependent on the West for advanced technology, always ten or twenty years behind, and virtually non-existent in science: China has 1.4 billion people, of which millions graduated in science and mathematics, but only won one Nobel prize in science, Youyou Tu. Compare with tiny Israel, whose population is 8 million, that won seven. The most famous Chinese in the world who did win a Nobel Prize is considered a criminal in China: the Dalai Lama (China annexed Tibet as one of its provinces and the Dalai Lama has to live in exile because he is the heir to the old rulers of Tibet). This fact, incidentally, doesn't encourage great minds to move to China: you could be the next one branded as a criminal instead of a role model.

    No wonder therefore that in April 2018 ZTE almost went bankrupt when the USA banned the sale of advanced chips to it. No wonder that China cannot make airplanes to compete with Airbus and Boeing. The much vaunted Chinese investment in Artificial Intelligence (A.I.) is almost entirely directed to deep learning, a kind of A.I. invested in 2006 in Canada. China's massive investment in AI has led to a deluge of Chinese papers on deep learning, but those papers are rarely cited by others. Quote from an Elsevier study: "this surge in the number of papers produced has drastically reduced quality, with China scoring lower than Europe and the US based on the influence of published research." The study, using the "field-weighted citation impact (FWCI)", found that the USA (that has no national program for A.I.) is still the most influential region in A.I. scoring just under 2, with Europe (that also doesn't have a national program) scoring slightly under 1.5 and China not even 1."

    Therefore both OBOR and "Made in China 2015" stand on shakey foundations. And they may have caused international problems for China: OBOR is causing a backlash against China in the third world and "Made in China 2015" is causing "sinophobia" in the West. And they are both very expensive.

    That takes us to the next issue: government debt. In what amounts to a rare glimpse into internal bickering of the Communist Party, in 2018 an article by Xu Zhong, an economist at China's central bank, criticized the government for excessive spending. (See also this article by Yasheng Huang of MIT Sloan School of Management on how OBOR creates risky debt).

    China is experiencing one of the largest credit bubble ever in the history of the world. The fiscal sustainability of this bubble is questioned by just about every economist in the world.

    Officially, China's government debt is "only" $5.2 trillion, equivalent to about 47.6% of GDP. That's peanuts compared with the debt of the US government which, under Trump, has skyrocketed to more than 100%. The difference is that China's government debt is an abstraction: China is a communist country in which the government is both the lender and the borrower, in which government-owned banks lend money to state-owned enterprises. Therefore, like all numbers in China, it is not clear what that 47.6% is about. That's why the Institute of International Finance (IIF) estimated China's "real" debt to GDP at 300%. China's government generally spends a lot more to steer the economy than the USA or the European Union or Japan. For example, when the 2008 financial crisis hit the USA and then Europe, the USA pumped $152 billion into its economy. At the same time China, which wasn't even too affected, pumped $600 billion into its economy (that was much smaller than the US economy at the time). Chinese economists are worried about its rapidly aging population, a result of the "one child policy". The pension system is inadequate and underfunded. For a while, the one-child policy meant that each child had "six wallets": the parents and four grandparents. In the near future it will mean that each worker will have to support two parents and four grandparents. As household debt increases (see later), the pension becomes indispensable.

    The government forces China's banks to lend money to the businesses that follow the government's strategic policies, such as the national program for A.I. and the "Made in China 2025". Corporate debt has reached the staggering figure of $18 trillion, almost double the gross national product and even greater than the gross national product of the USA (in 2017 China's corporate debt was 160% of GDP compared with 73% in the USA). That money has been spent mainly on domestic infrastructure and real-estate development. The domestic infrastructure is definitely being used but real estate may have already reached the point of over-capacity (hard to tell because Chinese families keep buying no matter how high the prices go). The banking policies also encouraged the manufacturing sector to borrow cheap money to increase production of goods, and a study by the Cheung Kong Graduate School of Business (2018) shows that China's manufacturing sector over-produced: it made more goods than its domestic and foreign markets require. Even scarier is the debt that ordinary families are accumulating.. Household debt now stands at about six trillions (53% of GDP). That is nothing compared with the USA, but the rate of increase is worrying: according to Bloomberg, China's disposable income has increased at an average rate of 10% annually, versus a 20% increase in household debt. Bottom line: Chinese household, corporate, and government debt all have skyrocketed since the 2008 global financial crisis. (See China Power's article Does China face a looming debt crisis? for more data).

    The money pumped into the economy by China's government has generated a real-estate bubble that is eerily reminiscent of the Japan in the 1980s and of the USA in the 2000s. Home prices have increased more than 200% in some cities since 2015. In 2015 HSBC calculated the total value of residential housing as a percentage of GDP: China's ratio was 3.27 times GDP. Japan's bubble peaked in 1990 at 3.7 times GDP. The US bubble peaked in 2006 at 1.75 times before crashing in the Great Recession of 2008-10. China's GDP per capita is still only a fraction of GDP per capita in the USA or Japan: $17,000 in 2018, compared with $43,000 in Japan and $60,000 in the USA. Nonetheless, the bubble kept going in 2016, 2017 and 2018.

    Too many foreign experts have said too many times that China's is not sustainable, and, yet, China is still around, and growing.

    See also:
    Sinophobia: China viewed from the USA and... the USA viewed from China
    The Effects of the Trump Trade War on China: Waking up the Giant.
    China's Anniversaries and how the Tiannamen Square massacre shaped today's China

  • (april 2019) Sinophobia: China viewed from the USA and... the USA viewed from China

    (GDP at PPP - 2019)

    Until about 2017 i was frustrated that the West was ignoring the technological rise of China. The West was still treating China like a developing country (it is not even part of the G7, not even of the G8 that includes Russia, whose economy is eight times smaller than China's). I felt that it was disrespectul towards China and for a few years i witnessed how the USA was congratulating itself for its innovation (which was really mostly Silicon Valley and Boston) while China was catching up and even surpassing it (see my lengthy slide presentation on Chinese Art & Science that you can download for free).

    Finally, the West (or, at least, the USA) has realized that China has been quietly becoming one of the most technologically advanced places in the world. But now i am worried that the West, especially the USA, may exaggerate the reality and, via a mixture of envy and anxiety, may plunge into anti-Chinese paranoia ("sinophobia"?). Case in point is a report published by Stanford University, titled "China's Influence & American Interests". The fact that it refers to the USA as "America" already tells you something about the competence of the authors (America is a continent that includes Canada, Mexico, Brazil, Argentina, etc, and also the USA); but that report reflects concerns and fears (and stereotypes) that are rapidly spreading through US society, media and political class. See below for an analysis of the Stanford report.

    I think there are at least three reasons for this growing sinophobia. The simple one is that Trump is generally doing what serves Putin's interests (See Why Trump Decided to Abandon the Nuclear Treaty with Russia and Why Trump Slapped Sanctions on China) and pointing the finger at China distracts from the real threat, which is Putin. But China's president Xi also bears a huge responsibility for the change in the world's perception of China: Xi started projecting China as a new colonizing power (militarizing islands in the Chinese Sea and launching the One Belt One Road initiative), and a power that will rule supreme in 2025 (the now famous "Made in China 2015" plan launched in 2015 when nobody was paying attention). Third, many in the West are irked that the Chinese experiment didn't fail. China is a one-party system. It is the "big-government" nightmare of right-wing politicians. According to them, big government always fails. China, instead, has staged the biggest and longest economic miracle of the last 100 years while Western democracies were mostly stalled in relentless political bickering and gridlock.

    It is pointless to name China's One Belt One Road initiative, certainly a plan by China to expand its reach around the world, as a source of anxiety for the USA: nobody forced the USA to get out of the Trans-Pacific Partnership (TPP) and hand China a major geopolitical victory. See Let's make China great again.

    China's spectacular and rapid transformation from a poor (even starving) agrarian society to an intimidating high-tech superpower goes counter almost all the prediction of Western gurus (politicians, economists, historians, self-taught bloggers and random TV "experts"). Defying all the reigning theories, China managed to do in 30 years (in one single generation) what took England more than 200 years (from the "Glorious Revolution" of 1688 to the empire's apogee in 1914) and took the USA 140 years (from 1776 to 1916, when its GPD passed Britain's).

    It did so without causing the world too much pain. China has almost 20% of the world's population but only 6% of the world's water resources and 9% of the world's arable land. Any other empire of the past that started in similar disadvantageous situations had to resort to violence, invasion and plunder. The old European powers, in particular, had to employ colonialism, imperialism, slavery and unfair trade with colonies to finance their economic development. During its economic expansion, the USA fought wars against the "Indians" (Native-Americans), Britain, Spain, Germany, Vietnam, Korea, Iraq and Afghanistan, and invaded several Latin American countries or supported bloody coups, in addition to the slave trade, its own civil war, and all the proxie wars of the Cold War, notably the ones in the Middle East. All previous powers relied on warfare to feed their economic growth. Not China. Since the beginning of Deng's reforms that transformed China, China has only fought a very brief war with Vietnam. Its economic miracle has been achieved through international trade.

    (Now, in 2019, one can argue that China is creating a new form of imperialism. For example, India could argue that China buys raw materials from India and sells to India manufactured goods, exactly what colonial power Britain was doing until 1948; but that's for another article. See for now Malaysia and Chinese colonialism).

    When China came out of the Maoist nightmare, it had little or no direct experience of capitalist practice. By comparison, India had more than 200 years to learn from English capitalism. So did all the other European colonies of the world, from Dutch Indonesia to French West Africa. Nonetheless, none of these countries matched China's growth, nor did countries like Brazil and Argentina that became independent approximately when the USA did and were spared the horrors of the two world wars. The theory that India didn't industrialize rapidly because it had a huge reservoir of cheap labor (who needs machines when you can hire hundreds of workers for very little money?) doesn't work anymore because China had an even larger base of cheap labor.

    Note also that China tried at least four times to industrialize and it failed consistently until the Communist Party, under the control of Deng Xiaoping, launched the economic reforms of 1978. Qing China tried after the second opium war, a decade before Japan's Meiji Restoration (commonly considered the turning point for Japan), but that failed. Then it tried again after the Xinhai Revolution of 1911 that deposed the Qing dynasty and installed the first (non-communist) republic. That failed too. Mao's "Great Leap Forward", inspired by the Soviet Union's communist model, failed too. The context certainly matters: the world was wildly different in 1978 than it was in 1957 than it was in 1911 than it was in 1860. But it is not clear why the world of 1978 (Cold War, minimal commerce outside the Western alliance, oil crisis) would be more conductive to a giant developing country like China than the world of, say, 1911. What was truly different in 1978 was that there was someone in full control of the nation. In 1860 the Qing monarchy had only limited control over the country. In 1911 Sun Yatsen's republic was weak like all newborn states. In 1957 Mao had just fought a civil war until 1949, fought the Korean war in 1950, invaded Tibet and Xinjiang in 1950, launched the mass trials against "counterrevolutionaries" in 1951, opened the vast network of "laogai" (labor camps) in 1954, and launched the "Hundred Flowers Campaign" to liquidate political opponents in early 1957. China was hardly stable. In 1978 China, instead, was controlled by an efficient and reliable Communist Party.

    (Controversial footnote: i personally think that we underestimate religions when we compare the fate of nations. Religions shape minds and shape behavior. The Islamic world is a mess because it is Islamic just like southern Europe is poorer than northern Europe because one is Catholic and the other one is Protestant. And India is Hindu and Muslim. And China was Confucian until 1911. India didn't get rid of its religions, China did.)

    In retrospect, it is funny to remember how many times the West lectured China on how to manage economic development and how many times China rebuked the West and did exactly the opposite. China is not a market economy. China is a one-party system that mainly allocates resources (land, capital and energy) to state-owned enterprises, which are in turn protected by the party from foreign competition. And it is certainly not a democracy. There are very few countries that are less democratic than China. But the West ended up with the global financial crisis of 2008, whereas China ended up with 30 years of continuous economic boom. The West kept reminding China that all the major economies are democracies, which is still true: more than 75% of the world's GDP is generated by the European (19%0, Anglosaxon (32%), Indian (3%), East Asian (10%) and Latin American (7%) democracies. China (which now accounts for 15% of the world's GDP) is the exception to a rule that seemed proven beyond any doubt. The West's free-market proponents assume that China's post-Mao economic boom has occurred only to the extent that the country moved away from communism. The theory is that government officials cannot be as efficient as the market at picking winners and losers. Governments, so the theory goes, end up hurting the most valuable sectors and firms of their nation when they interfere with the market. Central planning by a one-party system (especially if that party calls itself "communist") cannot possibly lead to economic growth, let alone to innovation. Surprise: it did just that in China.

    (A panel at Stanford with George Schulz and other economists during which they explained what it takes to create prosperity, forgetting that China did just the opposite of what they prescribe and it achieved the biggest economic miracle of the last century).

    One problem with the theories of Western analysts is that they often confuse the cause and the effect. The effect of the British and then American industrial revolutions was to create a democratic regime. The "Glorious Revolution" of 1688 followed, not predated, the emergence of the commercial capitalist class (in fact it came right after the three Anglo-Dutch wars that established English supremacy over international commerce). The USA was born capitalist when it wasn't yet a working democracy. The "Asian tigers" (Japan, Taiwan and South Korea) were not democratic at all at the end of World War II when their economic miracles began. China wisely understood the difference between cause and effect that Western analysts missed.

    Western analysts also tended to misunderstand what had happened in Russia, despite the fact that it was pretty obvious: the collapse of the Soviet Union created chaos, not prosperity, and abandoning the inefficient state-owned factories of the Soviet era (through an inept privatization program) turned Russia into an exporter of natural resources with little or no manufacturing skills. The causes were freedom and democracy, the effects were economic recession and industrial regression. China, instead, understood correctly. China (wisely) chose not to abandon the inefficient state-owned factories of Mao's times but instead repurpose them for international trade. The Chinese Communist Party remained in control of all major firms and one can say that it still is today (the Chinese equivalent of a corporation's board of directors consists of Communist Party delegates).

    China did learn something from the West: the importance of infrastructure. Britain's wealth came from the commercial routes of the empire (and before that from the railroads and steamships of its own island). The USA's wealth came from the railroads, the rivers, the canals and eventually the freeways and the air routes that criss-crossed the nation. China correctly understood that the size of a nation's market is not given by the nation's population and not even by its wealth: it is its infrastructure that determines the size of its market. Therefore China invested massively in electricity, transportation, and telecommunications. In both the British and the US case, the state was crucial: without the English monarchy's determination to support at all costs English commerce (often through wars and even piracy) England's industrial revolution would have petered out quickly, as it did in other places; and without the US government's determination to enforce an international order that mainly benefited its business the US economy would not have developed as it did. Therefore China learned the correct lessons from looking at what had happened in the world and the conclusion was simple: a form of socialism that is basically state-driven capitalism; and definitely under one and only one party.

    (See China's Anniversaries and how the Tiannamen Square massacre shaped today's China for my opinion on what triggered Deng's economic revolution).

    Incidentally, China learned one more thing from the West: the importance of stealing technology from the reigning power. Britain invented very little before the 18th century: it mostly stole the inventions of other countries. The USA shamelessly stole technology from Britain during the 19th century, besides the technology that Britain itself had deployed in the colonies. Therefore the West's lectures to China about "IP theft" fall on deaf ears. (See Does China steal?).

    China is also aware that, despite all the talk about the free market, US innovation has been mainly driven by the military: the computer, the GPS, the semiconductor industry, the Internet and so on were all born as "defense" projects. To this day most long-term research in the USA is funded by DARPA.

    People like me who complain that today's China doesn't have any great philosopher, scientist, writer or musician forget that the USA didn't have any great philosopher, scientist, artist or musician until the 20th century, and had its first great writers in mid-19th century. The great philosophers were in the German-speaking world, the great musicians in Italy and in the German-speaking world, the great scientists in France and Britain, etc. Worse of all was California, and even worse the San Francisco Bay Area, the future site of Silicon Valley. That's another case where China correctly understood the difference between cause and effect. The English industrial revolution with the rise of the steam-powered factory and the US industrial revolution with the rise of the assembly line were mostly the effect of slow step-by-step innovation driven by entrepreneurs with little academic education. Only later did science catch up. Ditto for Japan's and Korea's industrialization that started when these countries had very little theoretical science (but a very capable and aggressive business class).

    China's ideology is not a true ideology as much as an empirical discipline. China learned from its own history (the rise and fall of dynasties, the humiliations suffered at the hands of foreign powers); from the Soviet Union (freedom led to disintegration and decline); from India (what a filthy under-developed mess the largest democracy in the world looks like, compared with clean high-tech disciplined China); from the "Arab springs" (that led to anarchy and terrorism); and now from the West (Brexit, the gridlock during the Obama years, and the endless Trump scandals).

    See also China's New Era (a History Lesson for Westerners) and a History Lesson on Prussia (for the Chinese) where i compare China's miracle to the miracle of Prussia two centuries ago.

    So where does sinophobia come from?

    Let's start from the obvious points. There is certainly an asymmetry in "access" between the two countries. Chinese journalists can do anything they like in the USA and write any kind of report about the evils of the USA (it is not difficult, as we in the USA specialize in writing about our own evils). On the other hand, the list of non-Chinese media that are banned from China is very long: BBC, New York Times, and so on. Worse: foreign journalists and historians do not have access to Chinese politicians, often do not have access to Chinese archives, and, if they write anything that China doesn't like, they may never be allowed to enter China. Any Chinese journalist can interview politicians who disapprove of the current president. Even if you could find a Chinese polician who disapproves of China's president, it would be impossible to even meet with such a person, let alone work on an interview. China's national TV station in English (China Global Television Network), established and funded by the Communist Party, is available anywhere in the world: the whole world can listen to China's version of the facts. On the contrary, no Western station is available in China: the Chinese cannot listen to the Western version of the facts.

    There is asymmetry also in ethics and laws. China can do in the USA a lot of things that the USA cannot do in China, from investment to competition.

    China's famous "Great Firewall" bans Google, Facebook, Twitter, and dozens of Silicon Valley companies from competing in China against China's own social media. But those Chinese social media are perfectly free to compete in the USA against US social media. Chinese tourists, students and business people who travel to the USA can use China's WeChat, whereas foreign tourists in China cannot use Google, Facebook, Whatsapp, etc. This is clearly unfair. Google was fined by the European Union and Facebook is under attack in the USA for not protecting privacy and not fighting disinformation, whereas Baidu and WeChat (that routinely censor information) are not under such pressures (in fact the Chinese government uses their data to access private information and spread disinformation): Western governments are not exactly helping Facebook and Google, whereas the Chinese government protects and de facto nationalized their rivals. Less publicized, but possibly even more damaging, are the limitations imposed on foreigners in the lucrative fields of telecommunications, transportation, construction, and media, while Chinese investors are free to invest in the corresponding US fields.

    Incidentally, the asymmetry in freedom of speech is allowing China to rewrite history. Westerners cannot defend their version of the facts on Chinese media (let alone in Chinese), whereas fans of the Chinese Communist Party (whether paid or not) can defend the official Chinese version of the facts on Western media (in English, French, German, Italian, etc). The result is that in China very few people dispute the official version of the facts, whereas in the West even the most obvious facts of communist China's past and present are under constant attack. A Chinese communist can write what she wants on Facebook or Reddit, whereas a Western anti-communist cannot write anything on Wechat or Weibo, and the Chinese public has no way of knowing what gets written on Facebook or Reddit because they are banned in China. But this is not a problem unique to China: this asymmetry has always existed between the countries with freedom of speech and the countries with no freedom of speech.

    There is no question that the USA's "open" behavior towards China has not been reciprocated by China, which has remained as "close" as necessary in order to protect its national businesses and its regime. In fact, when my Chinese friends ask me about the "trade war" between China and the USA, i reply that China started it when it banned Google. Why did successive US presidents accept China's behavior? Economically, it made a lot of sense: the USA escaped inflation thanks to cheap Chinese goods, and, in the globalized economy, US corporations got more competitive thanks to offsourcing a lot of manufacturing to China. Last but not least, China has been buying a lot of US debt. If you meet a staunch anti-Chinese in the USA, ask him/her whether s/he ever bought US bonds: most likely no. China is the biggest creditor of the USA, owning more than $1 trillion of US bonds.

    Now let's move to the view inside China. There is very little crime. The streets are clean. There are 20,000 kms of high-speed railways. There are brand new subways in all major cities, and not just one line, but many lines. Mobile payment is commonplace: even street vendors accept Alipay and WeChat payments. The bureaucracy is fairly efficient and friendly. Last but not least, the middle class has experienced real improvements, unlike the middle class of the USA, thanks to a growth rate that is unthinkable in the West (Trump hailed a growth rate of 4%, which was actually just 3%, when China was lamenting a decline to... 6.5%). Hence the average Chinese citizen would ask: "Where's the problem?"

    After two successive air disasters involving a Boeing 737 Max 8 airplane, China immediately ordered its airlines to ground all such planes; the USA didn't. Which government do you trust better for your safety?

    There is another view from China that is important, the view of the leadership. The leadership notices a different kind of asymmetry with the USA. China has no soldiers or warships deployed anywhere the USA. The USA, on the other hand, has military bases or allied military forces in South Korea, Japan, Taiwan, Singapore, Afghanistan, Mongolia, plus air carriers in the Chinese Sea, plus a nuclear treaty with India. Basically, China is completely surrounded. Imagine if China had soldiers and warships deployed in Canada, Mexico and the Caribbeans... Which is the only country ever to have dropped nuclear bombs on civilian populations? and that deployed the first computer virus as a weapon (Stuxnet, to neutralize Iranian centrifuges)? Who is more likely to be using satellites to spy on the other, given that the USA has three times more satellites than China despite having one fourth of the population? Who has invaded two countries since 2001 (Afghanistan and Iraq)? Who has killed hundreds of civilians in at least six countries using drones (Afghanistan, Pakistan, Libya, Syria, Yemen, Somalia)? The list can go on and on. There is no question that the USA has been way more aggressive than China around the world. And who pulled out of the Paris Agreement on climate change? Add to this list the fact that mainland China considers Taiwan a runaway province, and the only reason it hasn't yet invaded it is that the USA protects it: imagine if Arizona declared independence and China sent troops to protect it. In June 2019, at the Shangri-La Dialogue in Singapore, China's defense minister Wei Fenghe gave a simple explanation for mainland China's attitude towards Taiwan: what did US president Abraham Lincoln do when the southern states decided to secede from the USA?

    These days, China clearly resents being lectured on democracy. The Chinese system has mostly produced competent leaders, a fact that cannot be said of Western democracies (especially presidents George W Bush and Donald Trump, not to mention the Brexit farce and the endless Italian saga). Trump owes his political fortune, largely, to noncollege voters (white voters with no college degree favored Trump over Clinton by a 62% to 32% margin), whereas China's leaders are all highly educated. Trump made his fortune with casinos and TV shows, whereas the Chinese leaders ran cities and provinces of tens of millions of people. Which system produces the most competent leaders? All my Chinese friends are convinced that Xi would win democratic elections, whereas Donald Trump lost by three million votes. Congress has an even lower approval rating than Trump, and, yet, nobody resigns or is fired. Corruption is rampant in Congress and in the White House (see The Trump Scandals). The Supreme Court is not elected. California has the same number of senators as tiny Delaware. And so on. It is not so obvious to the Chinese which is the more democratic country.

    China also resents being lectured on human rights. Many political dissidents have been free to write documents against the regime, and they are still alive and free, and most of them still have their jobs (they won't get promoted, for sure, but better than in Russia where they would be corpses). Xu Zhangrun, the Tsinghua University professor who in August 2018 published a lengthy anti-Xi essay kept his position until March 2019 (he is currently suspended, but alive and well). Political killings have been extremely rare since the fall of Mao: the victims of political purges are sentenced to prison, which is often house arrest, they are not shot or hanged (for example, Gao Yu, a journalist who has spent her life criticizing the Communist Party when she's not under house arrest, or Bo Xilai, Xi's main rival, who is still in a federal prison). Compare with the murders of prominent Putin enemies in Russia (for example journalist Anna Politkovskaya and former spy Alexander Litvinenko, both assassinated in 2006, or human-rights activist Natalya Estemirova and anti-corruption attorney Sergei Magnitski, both assassinated in 2009, or the mysterious "suicide" of Russian tycoon Boris Berezovsky in 2013).

    Outrage at the ubiquitous surveillance system in China? The US was the first country to fingerprint foreigners.

    Yes, there are "reeducation camps" for Muslims in Xinjiang province (China just published a white paper in English titled "The Fight Against Terrorism and Extremism and Human Rights Protection in Xinjiang") but these are neither Hitler's extermination camps nor Stalin's gulag. So far we only know of one person who was "killed" in the camps (and it is not clear how he died), and there is certainly some kind of physical torture (see for example this testimony); but compare with the 200,000 killed by Putin in Chechnya (Xinjiang is a restive Muslim province just like Chechnya in Russia). For mysterious reasons, the Western press rarely talks about torture in Russia despite what documented in the report by the European Court of Human Rights and despite easily verifiable cases of torture (see for example "7 Jehovah's Witnesses Brutally Tortured in Russia" just to mention the most recent one). The USA defends Israel that has been keeping millions of Palestianians prisoners in a narrow strip of land, deprived of all civil rights (Gaza is de facto the largest concentration camp in the world). China, therefore, doesn't feel it is doing anything that others haven't done before, especially since in this case it is singling out what it considers the most likely perpetrators of future terrorist attacks. Meanwhile, the USA has been assassinating Muslims all over the world, mostly using drones, with no trial: we'll never know why someone was killed and whether the evidence was strong enough to justify the drone strike. Imagine if China or even Japan decided to kill a US citizen with no trial, and imagine if Mexico used a drone to kill a US citizen inside the USA! The number of innocent civilians killed during these strikes is unknown but estimated to be over 1,000. The USA also supports regimes like Saudi Arabia that fare much worse in human rights (at least women in China have equal rights). Trump even called North Korea's dictator a "honorable man": that's a dictator who has killed an uncle and a brother. Since nobody is perfect, China resents being singled out: if you want to defend the human rights of Muslim minorities, talk about Chechnya to Putin first; if you want to defend the human rights of political opponents, talk to Saudi Arabia about its thousands of political prisoners; if you want to grant autonomy to a restive Muslim population, talk to Israel first; and so on. And if you want to defend the rights of people in general, talk to the USA that routinely assassinates people with drones all over the world. Only one country in the world has explicitly complained about the concentration camps: Turkey. No other Islamic country has dared to openly criticize China. Russia did not, Trump did not (never mentioned the issue once), and the European governments were hipocritical as usual, welcoming Chinese investment while slapping China on the wrist (Italy didn't even slap at all).

    As far as we know, those reeducation camps are not extermination camps: they are meant to "brainwash" Muslims to be more loyal to the country than to their religion, especially the literal version of it. China correctly wonders why is this any different from Western schools in which children are routinely indoctrinated to respect the law of the land and to reject violent ideologies. China does not view the West as very successful at taming violent Islamic movements. For example, repeating that Islam is a peaceful religion and that there is nothing wrong with being a Muslim doesn't seem to have helped France avoid terrible terrorist attacks. China is not willing to try the same strategy and see if it works with its own Muslim population, which is mainly located near the border with Afghanistan and Pakistan. From China's point of view (not only the leadership but also the general population), reedducating the Muslims of that province is very similar to educating children in school.

    Ethical concerns rank very low in the Chinese mind: ordinary people as well as politicians will justify a blatant injustice against a group if it leads to improvements in the well-being of the vast majority. The goal is not to be "righteous" all the time. The goal is to make sure that the nation as a whole gets better all the time. That's why the Chinese still admire Stalin more than Russians themselves do. Starting with Krushev, Russians gave Stalin an ethical judgement. The Chinese have always judged him based on how much he did for his nation, the Soviet Union. The fact that he murdered millions of innocents is irrelevant, just like the fact that Mao murdered millions. What the Chinese hold against Mao is the fact that the Great Leap Forward and the Cultural Revolution caused great damage to the Chinese nation, not that millions were persecuted. Mao is revered as the man who created the current Chinese empire, including his forceful annexations of Tibet (all of today's Xizang province plus regions annexed by the provinces of Qinghai, Gansu, Sichuan and Yunnan) and of East Turkestan (now renamed Xinjiang). The Chinese leaders would never do to Mao what Krushev did to Stalin. The Chinese blame Krushev and Gorbachev for the decline and fall of the Soviet Union. They admire Putin who is rebuilding it. They now admire the dictator of North Korea (who used to be mocked on social media) because he outsmarted the US president. The methods are not important, the results are. Unity is a virtue, hence dissidents are frequently frowned upon if not despised by ordinary people: whether the dissident is right or wrong is not as important as the unity of the nation. This attitude rejects "abstract" values like "truth", "justice" and even simple empathy. Modern materialist China is very different from ancient moralist China.

    At the same time China's state-driven economy is more Confucian than communist, and its citizens are probably influenced by 2,500 years of Confucian thinking in accepting it passively. Each imperial dynasty since ancient times has prided itself in organizing vast infrastructure projects (like the Great Wall and the Grand Canal) by drafting thousands of people who were supposed to obey and not argue. Thoughout the history of China the crucial sectors of the economy (including commerce) have been controlled by the state while allowing ordinary people to conduct their business and to rise through the hierarchy (according to a much more meritocratic system than anything in monarchical Europe). The Communist Party doesn't need to use extreme violence to impose its model on the nation because its current post-Mao model is much more traditional than its ideologues would like to admit. The Communist Party of the Soviet Union had a much more difficult task with a Russia population that had no tradition of loyalty to the state because the state had never done much for them.

    And, by the way, China's much reviled (in the West) "social credit score" system is nothing new for the Chinese people. For those who missed the news: the Communist Party announced in 2014 the intention of assigning a score to each citizen based on how well the citizen behaves in several areas, the original one being financial (equivalent to the "credit score" of the USA) but soon expanded to social behavior ("State Council Notice concerning Issuance of the Planning Outline for the Construction of a Social Credit System"). When the score is low, the citizen is denied jobs and even flights or and train tickets. The score is definitely low if you are not able to pay your debts or if you have committed a crime. It has been extended to businesses. The Communist Party intends to use artificial intelligence to also check what people are writing on social media such as WeChat and adjust the score according to its own criteria of what constitutes "good behavior". The West (including me) views this as a "Big Brother" kind of mass surveillance. But something similar to this social credit score has always been part for centuries of traditional life in China, especially in rural communities. Citizens have traditionally helped the state perform this kind of pervasive surveillance in return for security and, again, for a chance to rise up the ranks of the meritocracy. (For mysterious reasons, the same US citizens who find China's social credit scoring system abhorrent are perfectly happy that, in their country, private companies decide their credit score and that the Department of Motor Vehicles decides, without appeal, whether they are good or bad drivers based on how many times a police officer caught them making a traffic violation, which largely depends on luck, as my good friend Ross can testify - he got two speeding tickets in one year and i got none when in fact i exceed the speed limit way more often than him).

    As hard to swallow as it is, the fact is that the Chinese people trust their government better than Westerners trust theirs. "Democratic" governments used to be accountable only to a tiny section of the population, the ones who had the means to understand what is going on and/or who had the means to influence public opinion. Over the last 30-40 years, Western governments have become much more transparent and accountable. An army of journalists and lawyers watches over their every step. Historians have published countless books that revealed disturbing facts about past governments. Parliaments feel more empowered to scrutinize the leaders. In theory, these factors are leading to more and more democratic systems. For example, originally the European Union was not created democratically: the voters of the various European nations were asked to rejoice at the news that their enlightened leaders had achieved a historical feat, a little bit like when the Roman emperor returned to Rome in triumph after winning a war that he had decided to wage without consulting his people. Now Europeans demand referendums on European Union matters. The effect of this democratization, however, is to empower people to doubt the politicians and the experts. For example, each referendum within the European Union (not only the "Brexit" referendum) has weakened the union. The USA, where presidents had to resign and have been impeached, the public is constantly bombarded with scandals and conspiracy theories. The general rule seems to be: when government becomes more transparent, public trust in its institutions plummets. China's government is not transparent at all, and the psychological effects on its population are exactly the opposite: the Chinese trust their government in all matters, from security to economics. The rule seems to be that, sadly, the more a government allows people to see what it is doing, the less people trust it. That's another fact that the Chinese Communist Party has learned from watching the West.

    China feels that it has accomplished a lot. Not only it created a system that its citizens love, but it has become a global competitor. They are unlikely to change model. For example, buying technology and copying it is a model that has worked so well that nobody in China wants to change it, and they even resent any talk of being forced to change it. China feels that it is entitled to "stealing" from foreign firms because it provides well-being to its population: what's wrong with a process that makes people more prosperous? It is hard to explain to a modern Chinese (who, individually, are very hospitable towards foreigners) that stealing from foreign firms is a crime.

    (I must admit that i am of two minds when it comes to intellectual property. The "shanzhai" movement in Shenzhen was the closest thing to Silicon Valley, characterized by an open-source attitude and rapid prototyping, yielding collective bottom-up progress. One is tempted to tell other developing countries to imitate the shanzhai movement. But it was made possile by the fact that back then China was not enforcing IP laws at all: the shanzhai "inventors" were shamelessly ignoring foreign and even domestic IP in their "anything goes" frenzy. So are IP laws good for developing countries or are they a form of imperialist pressure to keep poor countries poor and under-developed forever?)

    Ditto for the political model, the one-party dictatorship that has worked so well in providing security and service to citizens: pressures to open up to multi-party democracy are interpreted as an attempt by foreign powers to sow discord and cause yet another implosion of China.

    Back to sinophobia. It looks like the USA, if not the whole West, is now revising the world order. After the terrorist attacks of 2001, the main threat were the jihadists, followed by some rogue states (Iraq, North Korea, Iran and Syria), then Russia, then China. Now the order has been reverted by many US and international observers: the main threat to the USA is not terrorists (which are now mostly viewed as criminals, not particularly different from the many psychos armed by the NRA who commit mass shootings in the USA), and it is not rogue states (whose ability and motivation to attack the USA is viewed as greatly reduced), but it is the two adversarial powers, Russia and China, both of which have greatly expanded both their military and their geographical reach. And not so much Russia, which is now protected by the US president in person, but China. It is telling that few US politicians spent time commenting on Russia's new hypersonic weapons announced by Putin in december 2018, the Kinzhal missile and the Avangard glide vehicle, whereas several politicians were alarmed by the Dong-Feng 21 missile (also known as the "carrier killer") and the DF26 (also known as the "Guam Express") introduced by China, missiles of the kind that Russia has had for decades.

    But there is also a new "world order" viewed from China: 1. The US foreign policy is dictated by lobbies, mainly the military industrial complex (that constantly needs excuses to build more weapons), the oil lobby, and the Israeli lobby (that constantly wants the USA involved in the Middle East, and now specifically targets Iran); 2. China's only foreign policy fear is that South Korea absorbs North Korea and becomes one big ally of the USA right there in China's background; or, worse, that North Korea becomes a friend of the USA (the way Vietnam is doing); 3. As the USA becomes less of a reliable ally (especially after Trump killed the Trans-Pacific Partnership or TPP), East Asia is quickly realizing that its future fortunes are tied to its stable neighbor China not to the distant and messy USA. The USA, increasingly run by unstable, erratic and/or gridlocked regimes, looks like a banana republic compared with China's stable, reliable and fast-paced regime.

    The USA would do well to be more "phobic" about its own structural shortcomings than on sinophobia.

    Yi Wen: "The Making of an Economic Superpower" (2015)
    Gordon Chang: "Fateful Ties: A History of America's Preoccupation with China" (not the idiot with the same name who wrote "The Coming Collapse of China" in 2001)
    Elizabeth Economy: "The Third Revolution: Xi Jinping and the New Chinese State" (2018)
    David Lampton: "Following the Leader: Ruling China, from Deng Xiaoping to Xi Jinping" (2014)
    John Carlin: "Dawn of the Code War: Inside America's Battle Against Russia, China, and the Rising Global Cyber Threat"
    Michael Pillsbury: "Hundred Year Marathon"

    P.S. The report "Chinese Influence and American Interests: Promoting Constructive Vigilance", jointly issued in November 2018 by the Hoover Institution at Stanford University and the Center on US-China Relations at Asia Society, urged US governments, organizations and individuals to engage in "constructive vigilance" to counter a systematic program by China to influence US organizations, institutions, firms and individuals.

    One of the cardinal points of the report is that China exports censorship: it suppress dissenting voices abroad. First of all, it intimidates its own citizens abroad, who know that they can face retaliation when they return home and may also fear for their families. Secondly, China restricts visas for US scholars who want to study modern China (and who are likely to criticize what they will discover, or at least likely to refuse to praise what they will discover). This way China intimidates not only its national scholars but also foreign ones. On the contrary, Chinese scholars and tourists can travel freely in the USA, and are free express any negative opinion both in the USA and back home in China. This asymmetry clearly favors China's image in the world.

    Concerns about the activities of the Confucius Institutes that China opened inside Western universities dates from at least 2012 and is absolutely legitimate. The Confucius Institute bans the very use of the words "Dalai Lama" (let alone any visit by the Dalai Lama), bans any discussion about the independence of Tibet and Taiwan, bans any discussion of China's militarization of the Chinese Sea, bans any discussion of the "reeducation" camps in Xinjiang, and bans any discussion about the many politicians purged by the Communist Party. A Confucius Institute is automatically a force on campus to erase from campus activities a lot of facts about China.

    The report then discusses how China uses money to shape the research agenda of universities. If a department wants a donation from China, it certainly cannot invite the Dalai Lama or a Taiwanese politician to speak. It is unknown how many university professors accepted this tacit requirement.

    The report charges that the Chinese government targets all ethnic Chinese in the world, all of which are pressured to contribute to China's greatness or be treated like traitors at home. I find this one hard to believe. I have no evidence that it is true. It may be true that the Chinese-American community is vulnerable to China's blackmail, but most Chinese-Americans can provide very little of value to China (very little that China doesn't already know). A very tiny percentage can indeed be a valuable "spy" for China, but China could as well recruit blonde blue-eyed Iowans or Texans by using the old fashioned method: money. One has to be careful not to return to the traditional bigotry of the US population against Chinese immigrants.

    According to the report, China is actively lobbying US politicians and pressuring the news media. Here the report is not fair because it implies that ONLY China does those things when in fact every major country does them, to some extent or another. For example, a similar report on Israel's efforts to influence US government and public opinion would be ten times thicker, including the names of certified spies. Why is Israel considered a friend and an ally whereas China is considered a threat to national security if they do the same things to influence our government and media? The report says "During his time as ambassador, Zhou Wenzhong boasted that he had visited some 100 members of Congress". But nothing is said of how many members of Congress received visits by the Saudi ambassador or the Polish ambassador. The statement doesn't even tell us if he was ambassador for 2 years or 20 years: 100 members of Congress in how many years? And which members did he visit? If they were all in districts that export goods to China, what is wrong with it? A fair report would start with a survey of how countries look for ways to influence our government, how they try to appropriate US technology, how they try to recruit spies in the USA, and then one can place Chinese actions in this context.

    The report is instead too gentle on other issues.

    China is refining its program of mass surveillance in the age of the Internet. The Internet makes a difference. Today, China's surveillance is limited to what its citizens write on Wechat and Weibo, but tomorrow it could expand to what all citizens of all countries write on all social media: it is not terribly difficult for China to create "bots" that will read all posts by all people on all social media, and then create a "social credit score" for each individual of the planet, rated according to the Communist Party's criteria. Then this score will determine how China treats you when you apply for a tourist or business visa or when your firm wants to do business in China. It could be that some day the Chinese social credit score will become so important for foreigners that many foreigners will voluntarily start using the Chinese social media and write appropriately about China for the simple reason of increasing their social credit score over competitors or for the purpose of obtaining a Chinese scholarship. Some day the social credit score may ban from entering and/or doing business in China all individuals who do not abide by Chinese values.

    The other point is that all countries in the world are already under pressure to delegitimize Taiwan. Any country that wants to do business with China has to severe its diplomatic ties with Taiwan. This is likely to be just the beginning. The day may come when India will have to surrender the Dalai Lama if it still wants to sell textiles to China and receive aid from China. China may slowly change the history of the world, pressuring people and organizations to remove from history books and websites what it doesn't like about Mao or its current leaders, and changing facts such as the history of Tibet or erasing facts such as the massacre of Tiannamen Square.

    See also the study by the Berlin-based Mercator Institute for China Studies or MERICS, "Authoritarian Advance: Responding to China's Growing Political Influence in Europe" (2018). Quote: "Beijing aims to present its political concepts as a competitive, and ultimately superior, political and economic model. Driven by these motivations, Beijing pursues three related goals. First, it aims to build global support on specific issues and policy agendas. This includes fostering solid networks among European politicians, businesses, media, think tanks, and universities, thereby creating layers of active support for Chinese interests. Second, China seeks to weaken Western unity, both within Europe, and across the Atlantic. Third, Beijing pushes hard to create a more positive global perception of China's political and economic system as a viable alternative to liberal democracies."

    P.S.: The United Front has attracted attention for its work to influence (and sometimes blackmail) Chinese communities living outside China. Some good background studies:

    TM, ®, Copyright © 2019 Piero Scaruffi All rights reserved.
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  • (march 2019) The Effects of the Trump Trade War on China: Waking up the Giant.
    This is a pivotal moment for China. Not because of a decision made by the Communist Party but because of a decision made by the USA. In April 2018 the USA banned US firms from providing technology to Chinese conglomerate ZTE, because ZTE had (indirectly) sold that technology to Iran, contravening US sanctions against Iran. ZTE's smartphones depend on chips from Silicon Valley and from Qualcomm, and on software from Google. ZTE, that employs more than 40,000 workers in China, almost went bankrupt. The ending was humiliating for China: to avoid bankruptcy, ZTE accepted a US monitor, fired most of its old directors and executives, and replaced them with a new board of directors and management picked by the USA.

    For about 40 years China has used the West as its research lab, free of charge. China let the West experiment with new technologies, and then adopted the winning ones, and adapted them to its market. By focusing its human and financial resources on the "application", China has managed to develop an efficient digital and physical infrastructure, from mobile payment to high-speed trains. But China remained de facto an economic colony of the USA (see my 2012 article China is a colony of the USA).

    In April 2018 China suddenly realized the limitations of that model. I call it the "Sputnik moment" of China. China depends on other countries (not only the USA but also Taiwan, Germany, Israel) for the fundamental technologies that its "applications" require. Therefore in 2018 China began a dramatic switch towards research. After all, China graduates ten times more STEM students than the USA, and that is certainly a huge advantage, although it has very little immigration of brains from other countries, unlike the USA that (despite silly immigration laws) still receives brains from everywhere, including from China.

    The Trump trade war is having two effects that are not publicized in the West: 1. It further motivates China to do the research that it had traditionally offsourced to the West and that it is now capable of doing at home; 2. It has increased China's motivation to repatriate as many expatriate Chinese students and scientists as possible offering them all sorts of incentives; 3. It is a gift to the Chinese Communist Party, convincing the Chinese public that China under the Communist Party is indeed becoming a fearsome superpower, respected in the world, catching up in tech and science, and even surpassing the USA in many fields. "Made in China 2025" was largely ignored as propaganda by the Chinese public until Trump's trade war made it popular and gave it credibility. Trump indirectly legitimized it beyond the Communist Party's wildest dreams.

    If the trade war escalates, China can wage a trade war with weapons other than tariffs. It can play the "nationalist card" so that it becomes unpatriotic for Chinese citizens to buy Apple' s smartphones, eat McDonald's burgers, drink Coca Cola or wear Nike shoes. US expatriates in Shanghai and Shenzhen already feel that their business is draining up, as the Chinese counterparts are suddenly reluctant to pay foreigners, especially US citizens. (This is not counted in the trade deficit because it is not a transfer of goods, but it accounts for billions of dollars transferred from China into the USA). China can restrict Chinese tourism to the USA, a billion-dollar business that has been growing rapidly. Chinese students can be encouraged to apply to other countries instead of US colleges and universities, and that would be another billion dollar business lost. (Chinese students are already encouraged by crime statistics alone to find alternatives to US colleges and universities). China could also limit the sale of "rare earth" minerals that US manufacturers need to make smartphones, cars, nuclear reactors, medical equipment and airplanes.

    In foreign policy, China could help North Korea avoid US sanctions, sign treaties with Iran and start a military escalation against Taiwan.

    But the worst thing that China can do to the USA is precisely what Trump wants it to do: China could stop following, copying and relying on US science, and start investing in its own fundamental research. Today nobody (certainly not Chinese citizens) thinks that China is any match for the USA: Silicon Valley alone is 20 years ahead of China in almost all new technologies, and the USA as a whole (Boston, Seattle, Chicago, New York, New Jersey and so on) is a formidable powerhouse of scientific research and technological innovation. China has humbly accepted this and focused on developing a more limited science and technology, a strategy basically about commercializing and popularizing US innovation. For example, Huawei, widely considered the greatest success story to come out of China, is a world leader in 5G, but it uses "coding" technology invented in Turkey and at MIT. In a sense, the fact that China limited itself to "copying" the USA and its allies benefited also the USA. The Soviet Union was indeed a superpower because it did NOT just copy the USA: the Soviet Union had satellites and astronauts before the USA did, the Soviet Union had some of the greatest mathematicians and physicists of the 20th century, and so on. China has none of this: so far it has been happy to let the USA dominate the world of science and technology. China's success stories are measured in billions of dollars (revenues) not in innovation. Huawei, Alibaba, Tencent and Baidu simply repackage US inventions for the (vast) Chinese market and make a lot of money. But they cannot boast a single university that can match the likes of Stanford, Princeton, MIT, etc; and they cannot boast any industrial research lab that can match Google's, Microsoft's, IBM's, etc. China's reaction to US hostility could be precisely to do what the Soviet Union did: start investing in its own fundamental research. The Soviet Union was only partially successful in challenging US supremacy in science and technology. It did succeed in space technology (to this day Russia is still launching spaceships and maintains a space station, years after the USA stopped launching manned missions) and in weapons (to this day Russia is the only country in the world that can match the US military arsenal), but it failed in many other fields, from semiconductors to software. Turning China into a new Soviet Union is not a terribly wise strategy: China graduates one million STEM students per year (for those of you who watch Fox News instead of studying, STEM = Science Tech Engineering Math) and Chinese students tend to be among the best in the world.

    The effect of China's switch towards research will have international implications because those effects are further compounded by another tragic Trump decision: he decided to pull out from the Trans-Pacific Partnership (TPP), a masterpiece trade deal designed by Obama to integrate the economies of East Asia and North America. The TPP would have created the largest free-trade region in the world and... it excluded China. Luckily for China, Trump killed the TPP. (See Let's make China great again). China had already launched its One Belt One Road (OBOR) initiative to build land and maritime links with Central Asia, the Middle East, Africa and Europe, and its OBOR suddenly acquired a much bigger relevance in a post-TPP world. Obama pushed back against rising Chinese political power by trying to build a critical mass against Chinese international power with the TPP, and China got sincerely concerned of being cornered and isolated by the USA in Asia; but Trump, by canceling the TPP, has weakened the USA so much in Asia that now China senses a unique opportunity to get rid of the USA for good in Asia. Now it is China that is cornering and isolating the USA, with footholds even in Latin America. China's investment in Latin America has helped drive an economic boom that "doubled the size of Latin America's middle class and dramatically reduced poverty." (Ted Piccone's "The Geopolitics of China's Rise in Latin America"). Compare with the USA's actions in Latin America that, for decades, helped drive Latin American countries into poverty and dictatorship. China is trying to get 15 countries to join in the Regional Comprehensive Economic Partnership (RCEP), a free-trade agreement similar to the TPP but that will not include the USA. It will include the ten member states of the Association of Southeast Asian Nations (ASEAN) and six Asia-Pacific states (Australia, China, India, Japan, South Korea and New Zealand).

    OBOR is indirectly a way to export China's technology. So far this meant ports and railways. In the future it could mean semiconductors and robots (and possibly advanced weapons). It is a way to globalize China's firms. Even the bigger ones have so far largely relied on the domestic Chinese market. OBOR is a way for the government to force them to globalize while subsidizing the effort. OBOR exports China's infrastructure at a time when China's own infrastructure cannot grow any further at the same pace of the past.

    There's another gift from Trump to China: the science and tech world of the USA (mostly based in "blue" states) is under war fire by the Trump government, while the science and tech world of China is protected, financed and promoted by the Chinese government. China senses a unique opportunity to catch up with and maybe even surpass the USA in science and tech.

    Napoleon famously advised the West about China: "Do not wake up the sleeping giant". It took an idiot (or saboteur?) like Trump to do what generations of world politicians had carefully avoided to do.

    TM, ®, Copyright © 2019 Piero Scaruffi All rights reserved.
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  • (march 2019) China's Anniversaries and how the Tiannamen Square massacre shaped today's China
    China's Communist Party is preparing grand celebrations in October for the 70th anniversary of Mao's victory over Chang Kai-shek and his founding of communist China. However, 2019 is also the 100th anniversary of the "May 4" student protests of 1919 (the birth of Chinese nationalism), the 60th anniversary of the Tibetan uprising and massacre of 1959, the 10th anniversary of the Muslim riots in Xinjiang, and, last but not least, the 30th anniversary of the Tiananmen Square protests and massacre (that began in April 1989 and was crushed in June). The Tianamen Square anniversary will be kept silent in China. Not a single word will be uttered on the official media and any reference to it will be promptly erased on social media. In fact, the vast majority of Chinese citizens wouldn't know what it is about: the memory of the massacre has been scientifically erased from the younger generations. But the Tianamen Square massacre was much more important than Mao in shaping today's China. Today's China is not the China of 1988. Something important happened after 1989, and it wasn't necessarily planned.

    External observers (which includes everybody, not only Westerners) often underestimate how divided the Communist Party of China has always been. One could argue that the Communist Party has never reached consensus on anything. Mao himself hardly had the full approval of his party when he launched the Great Leap Forward and the Cultural Revolution (many in China give him the benefit of the doubt about the latter, suspecting that it wasn't his idea at all). Deng Xiaoping's purge in 1966 and Lin Biao's death in 1971 were spectacular demonstrations of the divisions within the party. So was of course the arrest of the Gang of Four after his death, the four who in theory had inherited power from Mao in 1976, and so was the third Plenum of the 11th Party in 1978 during which Deng Xiaoping's reformist and modernizing ideology defeated Hua Guofeng's old-fashioned socialist ideology, turning Deng into the most powerful man in China.

    It is important to realize what Deng's original goal was: modernizing, not turning China into a democratic and capitalist country like Western Europe and the USA. The opening of the Chinese economy happened at a much slower pace than most imagine. Deng's reforms (enacted slowly from 1979 on) granted citizens the right to start their own business but didn't change the traditional perception of the "merchant" class and of greed. The one thing that Confucius and Mao had in common was to vilify greed. Confucius was more interested in family values and Mao in social values, but they reached the same conclusion: greed is evil. Chinese citizens were encouraged to produce for the good of the nation, not for their own wealth, and this greatly reduced their motivation to invest in business. Zhao Ziyang, appointed prime minister by Deng in 1980, was the leader of the economic modernization program, but his goal was to "modernize" China, not to turn it into a capitalist country. A little bit of capitalism was the tool to modernize, not the goal.

    Deng was hardly a liberal thinker either. There is little evidence that he favored democratic ideas. Democratic ideas, or simply an aspiration to more freedom of speech, preexisted his reforms. Following the death of Mao's right-arm man Zhou Enlai in 1976, viewed as more reasonable than Mao, there were widespread demonstrations that the army eventually crushed in April. Then in September 1976 Mao himself died and Hua Guofeng ousted the "Gang of Four" (led by Mao's widow Jiang Qing). There followed more demonstrations against the Communist Party. While Deng was engineering the economic reforms, a grass-roots movement started writing controversial opinions on the "Democracy Wall" of Beijing. Far from encouraging freedom of speech, Deng approved the arrest of Wei Jingsheng (in March 1979), the intellectual who had written the most popular pamphlet, known as "The Fifth Modernization". In 1979 Deng was also busy with a brief border war with Vietnam and the one-child policy.

    Note for those not familiar with Chinese history: the history of Western history is a history of great speeches (from Caesar's "Alea iacta est/ "The die is cast" to Churchill's "Finest hour") whereas Chinese history is a history of great documents (from Confucius' "Analects" to Deng's "Uphold the Four Basic Principles").

    The liberalizer within the Communist Party was the new secretary general, Hu Yaobang, who in 1980 began by admitting Mao's atrocities in Tibet and in February 1980 delivered a six-hour speech on Sha Yexin's play "If I Were for Real". He critizes the play but the fact that a top politician spent six hours discussing a work of literature inspired writers and artists. In May 1981 Hu stopped criticism of the film "The Sun and the Man" directed by Peng Ning, who in 1979 had authored a pamphlet about "artistic democracy", a film that was based on the novella "Kulian" by the writer Bai Hua. In June 1981 Hu became the party chairman replacing the disgraced Hua Guofeng. When Deng launched a vicious campaign against the same Bai Hua for a film titled "Portrait of a Fanatic" (1982), even before it could be shown to the public, Hu saved Bai Hua's career (and possibly life) by personally siding against Deng. While Hu was seen in the West as a man appointed by Deng, he was more likely the head of an anti-Deng faction. De facto, this episode split the Communist Party in a hard-line faction led by Deng and a liberalizing faction led by Hu. The hard-line faction was responsible for crushing the October 1987 insurrection in Tibet. And one month later they forced Hu Yaobang to resign from the post of general secretary of the Communist Party. Deng replaced him with Zhao, whose economic reforms were rapidly bringing benefits from the country (in 1984 Zhao had expanded to 14 the "special economic zones"), while appointing the hard-liner Li Peng as premier of China in place of Zhao. In April 1989 the disgraced Hu died. He had become a symbol of freedom for thousands of young people: students started gathering in the Tiananmen Square of Beijing to mourn and commemorate him. How that slowly became a country-wide pro-democracy movement is a mystery, since there were no social media and the Chinese at the time (especially poor students) didn't have enough home telephones to spread ideas quickly over long distances. It is hard to tell how many ordinary people understood and approved the protests, but there are stories of bus drivers blocking the streets as the tanks were advancing on the square. Deng, however, had little patience for the protesting students, especially after crushing yet another Tibetan insurrection in March. The West underestimated how close China came to a real revolution. The Communist Party felt that it was very close to losing the power. It could have collapsed the way Eastern European communists were collapsing (the Berlin Wall fell a few months later).

    This is what happened behind the scenes. On June 2, two days before the military crackdown on Tiananmen Square nine of the country's top leaders The June 2 Politburo Standing Committee meeting, and particularly the words of leader Deng Xiaoping, "Deng argued that force would end the unrest but only economic reform could prevent it in the future " June 4 military crackdown was almost certain by June 2, the survival of Deng's economic reforms was not. Combination of liberal-minded economics with at-all-costs authoritarianism On June 1 the Communist Party sent every member of the Politburo a report titled "On the True Nature of the Turmoil", redacted by the hard-liner Li Peng and his staff. The report accused the demonstrators of being Western-backed agents hired to stage a coup against Communist China. Most likely everybody knew that this was false, as probably many members of the party had their own sons or nephews in the square, but the message was clear: this was a military matter, and intervention by the army was therefore justified. The following day Deng summoned the top leaders of China to discuss Li Peng's report. Li Peng's main supporter was former president Li Xiannian, who had been Hua's chief economic adviser. In 1978 Li Xiannian had introduced a Ten Year Plan to modernize China's manufacturing industry that Deng killed a few years later with his own reforms. Li Xiannian also disapproved of Deng's choice of Zhao. In 1988, just one year earlier, Li Xiannian had been convinced to retire, and replaced as president by Yang Shangkun (who had been purged like Deng during the Cultural Revolution and rehabilitated by Deng in 1978). There was certainly no love lost between Li Xiannian and Deng. Li Peng simply wanted to crack down on the demonstrations, but Li Xiannian was also blaming Deng's economic reforms for bringing about the demonstrations. Linking the protests to economic liberalization was perhaps correct, and it would have probably cost Deng his job. But Deng prevailed: at the meeting he approved Li Peng's military plan, and pretended to agree that China was facing a Western conspiracy, but at the same time he defended his own economic reforms. (The transcript of Deng's speech can be found in both John Garver's "China's Quest" and Gideon Rose's "Tiananmen and After") There were only two dissenting voices: Zhao and Yang Shangkun. They both argued that there was no need to send the army, but they were voted down by Deng and the others. Yang Shankun was given the unpleasant duty to order the military to clear Tianamen Square with the tanks. Zhao Ziyang, who had tried to negotiate with the students, was removed as prime minister (it didn't help that he was busy fighting an anti-corruption campaign). The army killed an estimated 2,600 protesters in Beijing alone.

    The West underestimates how scared the regime was of the Tiananmen Square protests and how influential they were in shaping Deng's next move. Deng realized that the Communist Party was doomed unless it could find some kind of distraction for the masses. In 1989 Taiwan's per capita GDP was $7,500 while mainland China's per capita GDP was $350: more than 60% of the people of mainland China lived in extreme poverty. In 1990 China accounted for only 3% of global manufacturing output. Deng's economic reforms had been big news because they came after Mao's brutal communist orthodoxy, but they had accounted for very little. Tiannamen Square convinced Deng that "greed" could become the new opium to control the Chinese masses. After 1989 he became serious about turning China into a (one-party) capitalist system. For example, In 1991 Deng's protege Jiang Zemin, mayor of Shangai, launched an ambitious plan of economic development in his city.

    There was still an obstacle to Deng's plans: the widely respected Li Xiannian, who still thought that Deng's reforms were the cause of the Tianamen Square protests. But Li Xiannian died in June 1991 and his influence waned in a few months. In January 1992 Deng left for the "southern tour", probably the most famous trip of a Chinese politician since Mao's "great march". Deng spent almost one month evangelizing in places like Shenzhen and Shanghai about the merits of "socialist market economy", i.e. economic liberalization; not quite capitalism, because almost the entire economy was still controlled by the state, but also not communist at all.

    In 1993 Jiang Zemin, the brain and muscle behind Shanghai's economic miracle, was appointed president of China. And in 1994 China's GDP started growing at an annual rate of 10%, the highest in the world.

    Tiannamen Square was important for changing the Communist Party's attitude towards greed. Deng literally changed Chinese civilization that for more than two thousand years had been hostile to commerce, business and accumulation of wealth. Today the Chinese are a completely different people from the Chinese of 70 years ago, of a century ago, of a thousand years ago. They are so frantically busy with business activities that, even if they wanted, they have no time to criticize the Communist Party; and no reason after all: their country has become much richer since Tianamen Square.

    Deng's philosophy has remained the central dogma of modern China: let people get rich but never allow people to doubt the Communist Party. Modernization has failed to democratize China for the simple reason that political opening was never the goal. Modernization always and only meant economic opening. The core value of the nation is still the preservation of the party. Deng famously said that it doesn't matter whether a cat is white or black as long as it catches the mouse. That was not true: the cat has to be a member of the Communist Party.

    Those who compared communism to religion were partially right. Chinese communism is not a religion (very few people believe that Marx and Lenin were right, and the official mantra is that Mao was only right 70% of the time), but the Communist Party is in many ways similar to the Catholic Church that, over the centuries, always acted, first and foremost, to preserve its power. The Catholic Church is the oldest institution in the world, still exerting power over a billion people. China's Communist Party may have learned more from Rome than from "Das Kapital".

    TM, ®, Copyright © 2019 Piero Scaruffi All rights reserved.
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  • (march 2019) China's "reducation" camps for Muslims.
    In March 2017 Kazakhstan-based activists Qydyrali Oraz and Serikzhan Bilash (a naturalized Kazakh citizen born in the Chinese region of Xinjiang) started the organization Atajurt to protect ethnic Kazakhs detained in Chinese concentration camps. A flow of refugees was bringing news from the Chinese province of Xinjiang, largely Muslim, where such camps had been set up to "reeducate" the Uighur (Turkic-speaking) population of that province. China initially denied the existence of the camps, just like it has always denied that the local population is opposed to Chinese rule. Amnesty International and other organizations tried to drum up public opinon in the West, but no Western politician was in a position to start a quarrel with China in the middle of the Trump scandals and of the Brexit mess. It was Turkey to take the lead, when the news surfaced in February 2019 that a popular musician (Abdurehim Heyit) had died in the camps. China promptly produced a video of the musician to prove that he is alive, but nobody has been able to interview him. Turkey demanded that China close the concentration camps.

    Under pressure, in March 2019 the Chinese government admitted to the existence of the concentration camps but claimed the legitimacy of its "deradicalization program". China's State Council Information Office published a white paper titled "The Fight Against Terrorism and Extremism and Human Rights Protection in Xinjiang". (click to download the white paper).

    Chapter 1. is titled "Xinjiang Has Long Been an Inseparable Part of Chinese Territory" and twists history (and all the maps you can find in Chinese museums themselves) to prove that East Turkestan has always been Chinese, which is obviously false (they speak Turkic, don't they?) On the contrary, some Chinese territory was historically part of the khanates that ruled that region, so it's the Uighurs that could claim Chinese territory, not viceversa. Ironically this white paper, which distorts, fabricates and falsifies the history of Xinjiang, blames Uighur separatists for "distorting, fabricating and falsifying the history of Xinjiang".

    Part III, "Violent Terrorism and Religious Extremism Are Grave Abuses of Human Rights", is interesting because it details all the terrorist attacks carried out in this restive Muslim territory... attacks that in the past China often denied or minimized. I quote from the white paper:

    "On February 5, 1992, while the whole of China was celebrating the Spring Festival, a terrorist group planted bombs on a No. 52 and a No. 30 bus in Urumqi, blowing up the 2 buses, killing 3 people and injuring 23 others. On February 25, 1997, "East Turkistan" terrorists caused explosions on a No. 2, a No. 10 and a No. 44 bus in Urumqi, destroying the 3 buses, killing 9 and causing serious injury to 68. On July 30, 2011, two terrorists hijacked a truck at the junction of a food street in Kashgar City, stabbed the driver to death, drove the truck into the crowd, and then attacked the public with their knives. In this incident, 8 were killed and 27 injured. The next day, knife-wielding terrorists randomly attacked pedestrians on Xiangxie Street, Renmin West Road, killing 6 and injuring 15. On February 28, 2012, nine knife-wielding terrorists attacked civilians on Xingfu Road, Yecheng County, Kashgar Prefecture, resulting in 15 deaths and 20 injuries. On March 1, 2014, eight knife-wielding Xinjiang terrorists attacked passengers at the Kunming Railway Station Square and the ticket lobby, leaving 31 dead and 141 injured. On April 30, 2014, two terrorists hid in the crowd at the exit of Urumqi Railway Station. One attacked people with his knife and the other detonated a device inside his suitcase, killing 3 and injuring 79. On May 22, 2014, five terrorists drove two SUVs through the fence of the morning fair of North Park Road of Saybagh District, Urumqi, into the crowd, and then detonated a bomb, claiming the life of 39 and leaving 94 injured. On September 18, 2015, terrorists attacked a coal mine in Baicheng County, Aksu Prefecture, causing 16 deaths and 18 injuries... On June 29, 2012, six terrorists attempted to hijack Flight GS7554 from Hotan to Urumqi following the example of the September 11 attacks. On October 28, 2013, three Xinjiang terrorists drove a jeep carrying 31 barrels of gasoline, 20 ignitors, 5 knives, and several iron bars onto the sidewalk on the east of Tiananmen Square in central Beijing." So we were always right in saying that these things happened. We even learn of attacks that had been carefully hidden from the Western media: "On April 5, 1990, incited by the East Turkistan Islamic Party (also known as Eastern Turkistan Islamic Movement, East Turkistan Islamic Party of Allah, East Turkistan Islamic Hezbollah), a group of terrorists with submachine guns, pistols, explosive devices and grenades, mustered over 200 people to attack the government building of Baren Township, Akto County, Kizilsu Kirgiz Autonomous Prefecture, kidnapping 10 people, killing 6 armed police officers, and blowing up 2 vehicles. From February 5 to 8, 1997, this organization again perpetrated the Yining Incident. In the riots 7 people were killed and 198 injured, including civilians, public security officers and armed police officers, 64 of whom were severely wounded; more than 30 vehicles were damaged and 2 houses were burned down. On July 5, 2009, the "East Turkistan" forces inside and outside China engineered a riot in Urumqi which shocked the whole world. Thousands of terrorists attacked civilians, government organs, public security and police officers, residential houses, stores and public transportation facilities, causing 197 deaths and injuries to over 1,700, smashing and burning down 331 stores and 1,325 vehicles, and damaging many public facilities... On August 4, 2008, terrorists drove a stolen dump truck into the back of a queue of armed frontier police at drill on Seman Road, Kashgar City, and threw homemade grenades, leaving 16 dead and 16 injured. On April 23, 2013, when terrorists were found making explosives at their home in Selibuya Town, Bachu County, Kashgar Prefecture by three visiting community workers, they killed them on the spot and then attacked local government staff and police coming to their rescue, resulting in 15 deaths and 2 severely injured. On June 26, 2013, terrorists launched attacks at the police station, patrol squadron, seat of local government and construction sites of Lukeqin Township, Shanshan County, Turpan Prefecture, resulting in 24 deaths and 25 injuries. On July 28, 2014, terrorists with knives and axes attacked the government building and police station of Ailixihu Town, Shache County, Kashgar Prefecture. Some then moved on to Huangdi Town where they attacked civilians and smashed and burned passing vehicles, causing 37 deaths and 13 injuries and destroying 31 vehicles..." The irony of course is in the choice of words. When you have "Thousands of terrorists", usually it is called a "popular uprising".

    The white paper also provides ammunitions to the critics of China's human-rghts record:

    "Since 2014, Xinjiang has destroyed 1,588 violent and terrorist gangs, arrested 12,995 terrorists, seized 2,052 explosive devices, punished 30,645 people for 4,858 illegal religious activities, and confiscated 345,229 copies of illegal religious materials." Then the white paper describes the concentration camps in which about one million Muslims are being detained and "reducated". Quote: "The centers adopt a boarding school management system, and are staffed with instructors, doctors and personnel for logistic services and management to provide trainees with a normal study and life routine. Trainees can have home visits on a regular basis and can ask for leave to attend to private affairs. The centers are equipped with indoor and outdoor sports and cultural facilities and regularly hold such activities. The centers fully respect and protect the customs and habits of trainees of different ethnic groups, care for their mental health, offer psychological counseling services, and help them solve real-life problems. " Happy conclusion: "Thanks to these preventive measures, Xinjiang has witnessed a marked change in the social environment in recent years. A healthy atmosphere is spreading, while evil influences are declining... People have a much stronger sense of fulfillment, happiness and security..."

    If you know Mao's history, you can easily recognize the function of prisons under Mao. Mao, who was a communist ideologue before being a president, didn't want prisoners to rot in jail forever, nor did he want them shot. Mao wanted them to truly repent and write lengthy confessions. Mao's goal was to prove that communism is better than any other regime. He wanted his opponents to admit it sincerely. That sometimes required lengthy sojourns in gulags, but not death. Take the case of Puyi, the last Qing emperor, considered a traitor by both Chiang Kai-shek and Mao for collaborating with the Japanese invaders. At the end of World War II, Puyi fled to the Soviet Union. When the Soviet Union extradited Puyi to Mao in 1950, Mao didn't execute him (unlike what the Italians did to Mussolini or the French did to Laval). Mao kept him in a prison for several years until Puyi truly became a communist and wrote an "autobiography" in which he admitted that communist China was much better than imperial China. Then Mao released him and Puyi lived the rest of his life as an ordinary citizen, first as a street sweeper and then as a gardener. Jean Pasqualini, who was a prisoner of Mao's China for "counter-revolutionary activity" and was forced to redact a 700-page confession before being released to France in 1964, wrote this of Mao's gulags in his book "Prisoner of Mao" (1973): "Prison is not prison, but a school for learning about one's mistakes"

    That's precisely what the camps for Uighurs are.

    My savvy Chinese friends have a simple two-pronged rebuttal.
    1. Xinjiang borders on Afghanistan and Pakistan. Do we (Westerners) really want to risk the chance of creating yet another Afghanistan that will then become yet another intractable problem? Don't we (Westerners) ever learn anything from our own history? They do have a point: all the mistakes made in Afghanistan and Iraq could have been avoided if Western leaders had studied history. The West's strategy in the Islamic world was a combination of doing nothing to prevent the rise of Islamic fundamentalism and then of doing too much to repress it. Having failed in our own strategy, we are not credible when we criticize China's strategy.
    2. The USA has killed tens of thousands of Muslims all over the world (directly in Iraq and Afghanistan and through drone strikes in Lybia, Yemen, Somalia, Pakistan), has overthrown two regimes, has kept illegal prisons in Iraq and elsewhere, has tortured suspected terrorists, still keeps a dubious prison in Guantanamo, supports Israel's racist policies in Palestine, and just recently ignored the gruesome murder of journalist Jamal Khashoggi by Saudi Arabia. Why all the fuss about China's Muslims who are simply detained and "reeducated" to prevent them from becoming radicalized? China's behavior is a far cry from all the atrocities committed by the USA and its allies. The West, unfortunately, is no longer in any position to lecture China.

    TM, ®, Copyright © 2019 Piero Scaruffi All rights reserved.
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  • (february 2019) Does China steal?
    Of course it does. A nation (of 1.4 billion people) that has never won a Nobel Prize in science, but has still managed to become a high-tech superpower is suspicious by definition. Besides, everybody does. But that's a false narrative. China is not becoming a high-tech superpower because it has stolen a few industrial secrets here and there. If it were that easy, every country in the world would be a tech power.

    First of all, a bit of background on Chinese espionage. The main culprit here should be George W Bush, who is responsible of many disasters in US history. Under his watch, China was rushed into the World Trade Organization in 2001 with little or no scrutiny of its practices. Following China's ascension to the World Trade Organization, its exports grew 30% per year from 2001 to 2006, but it was already well documented that China was embarking on a methodical program of economic espionage. James Lewis, director of the technology policy program at the Center for Strategic & International Studies, said: "IP theft has been part of the opening with China from the start" When in 2003 Cisco sued Huawei for numerous patent infringements that allowed Huawei to compete against Cisco with cheaper Internet switches and routers, the Bush government, distracted by its wars of conquest in Afghanistan and Iraq, did little to raise the alarm (Huawei eventually admitted guilty).

    Fast forward to December 2018 when both John Demers, assistant U.S. attorney general for national security, and the FBI testified before the US Senate. Demers said of China: "The playbook is simple: rob, replicate and replace... rob the American company of its intellectual property, replicate that technology and replace the American company in the Chinese market, and one day, in the global market"; and the FBI testimony was titled "China's Non-Traditional Espionage Against the United States". A few months earlier, former NSA director Keith Alexander had declared on a right-wing TV program that Chinese theft of US intellectual property amounted to "the greatest transfer of wealth in history".

    These conclusions were based on a few well-documented cases: the theft from Westinghouse of designs for power plants (2010), the theft of software for wind turbines from American Superconductor (2011), the theft of DuPont's formula for a white pigment (2014), the theft of technology for building nuclear reactors from Florida Power & Light and the Tennessee Valley Authority (2017), etc.

    The problem is that the technology stolen in each of these cases was not as big a deal as the headlines makes you think. The software stolen from American Superconductor regulates a specific aspect of the wind turbines, not the whole machinery. The stolen Westinghouse designs were only about the pipes of the power-generation facilities. The DuPont formula is for a white paint that can be easily simulated with other formulas. All these events were certainly criminal and certainly damaged the US firms, but they are a far cry for an existential threat to the USA.

    Most of the "Chinese spies" that have been arrested so far were innocent. Xiafen "Sherry" Chen, Xiaoxing Xi, Guoqing Cao, and Shuyu Li were all falsely accused of spying, but later all charges were dropped.

    Peter Navarro is largely responsible for shaping the view that China constitutes an existential threat to the USA. Navarro is likely incompetent on the subject because he doesn't speak Chinese and has rareby been in China, but this fact didn't stop him from writing three books on China and producing the documentary "Death by China". Navarro said on another right-wing TV program: "China is robbing our technology blind". Navarro is now Trump's director of the Office of Trade and Manufacturing Policy. Somebody who knows him well said "If Trump wasn't the biggest asshole in Washington, Peter could be".

    If one sets aside anecdotal evidence and looks at the data on royalty payments, China does not fare too badly. According to the OECD data, in 2017 China's royalty payments to the world were $27.2 billion, compared with the USA's $40 billion: as a percentage of GDP it was almost the same amount.

    Nonetheless, a 2017 report by the independent Commission on the Theft of American Intellectual Property concluded that "IP theft" (which includes violating patents, copyrights, trademarks, and stealing trade secrets) cost the USA between $250 and $600 billion annually and that China was the main culprit.

    China, however, is not alone. For example, in 2015 a South Korean company was found guilty of stealing proprietary DuPont information about a body armor material. In 2018 a National Counterintelligence and Security Center report listed Russia next to China in economic espionage activities (Russia's economy is eight times smaller than China, so, as a percentage of GPD, Russia's economic espionage could be more significant than China's). Duncan Clarke's piece "Israel's Economic Espionage in the United States" in the Journal of Palestine Studies (Vol. 27, No. 4, 1998), published by the University of California Press, tells the story of how Israel has conducted economic espionage since its creation in 1948.

    Let me be very clear: military espionage is not only widely practiced by all powers, and in particular by the USA, but basically excused by international law. That's why the 2014 case of Su Bin, caught stealing plans for the C-17 and the F-22 warplanes, would not be shocking if it weren't for China's reaction (Su Bin was arrested in Canada and, to dissuade Canada from extraditing him to the USA, China arrested two Canadian citizens, Kevin and Julia Garratt, who had nothing to do with spying - read their book "Two Tears on the Window") (For the record, Su Bin was extradited, tried and convicted in 2016 but then released in october 2017). When in 2017 admiral Dennis Blair and general Keith Alexander wrote in the New York Times (august 2017) that China has stolen documents about the F35 fighter, the Patriot missile system, the Aegis combat system and so on, they shot themselves in the foot: the USA does the exact same thing to Russia, China, and countless other countries. The CIA is not illegal, nor are the Russian and Chinese counterparts. Israel itself has always maintained spies in the USA, from Jonathan Pollard in 1985 to the 2012 scandal reported by the Associated Press. Articles about Israeli spying on the USA have a way to disappear from websites (all the webpages that had excerpts from it now give the error message "Page Not Found", including the original story on the AP website, and the AP report followed a report in Insight magazine that used to be at but no more), but you can still read about in in this piece written by former NSA counterintelligence officer John Schindler in 2012.

    Economic espionage, on the other hand, is illegal under international treaties signed by both the USA and China: if you want to be part of international trade, you need to comply with rules and regulations that forbid the theft of intellectual property. Reports of Chinese theft of I.P. surfaced already under George W Bush but the first president to take action was Barack Obama who in 2015 forced China to comply with the rules. IP theft declined dramatically... until Trump became president. In 2016 the CEO of the CrowdStrike cybersecurity firm stated that the 2015 agreement was "the biggest success we've had in this arena in 30 years"; but, by the end of 2017, Dmitri Alperovitch, CrowdStrike's cofounder, had to correct himself: "There's been a massive pickup in the last year and a half". In 2017 China's economic espionage had resumed unbridled. The Section 301 Report (march 2018) confirmed this as did Peter Navarro in person.

    However, many of us who are familiar with Chinese government and business practices suspect that the "transfer of wealth" has taken place in a different way, and mostly a legitimate one; that maybe we have to blame more the greed of Western capitalists than the wickedness of the Chinese communists.

    Eager to infiltrate the large Chinese market, Western manufacturers sometimes sell one of their machines to a Chinese firm... and that is the only one they will ever sell. China has millions of very smart engineers, plus millions of workers who didn't graduate in engineering but are very capable of understanding how a machine works. It doesn't take long for a Chinese firm to reverse engineer the machine and build a similar one. Western firms to do this to each other all the time, otherwise Intel, Xerox and Ford would not have had any competitor. Whether this infringes on a patent is always hard to determine if the machine is rebuilt from scratch.

    When China opened its market, Western firms rushed to sell it cars, trains, computers, telephones, airplanes, power plants and so on. China typically attached a requirement that Chinese firms be allowed to "co-produce" the product, typically by making the parts at competitive costs, i.e. saving the Western firm on production costs. Western firms accepted. But, 30 years later, it is obvious that Chinese firms moved quickly up the supply chain: once they learned how to build the parts of a car, they also learned how to build the whole car. The transfer of know-how mostly took place without any need to recur to IP theft. In fact, IP theft can be a lot less effective than simply learning by doing. When you make a photocopy of a diagram, you don't train the workers who will have to implement it. When you work with a Western firm, you train thousands of workers. This is routine in China: any foreign firm that wants te have access to the Chinese market is asked to make concessions in technology transfer. China trades market for technology.

    China acquired know-how about trains from Siemens and about nuclear power from Toshiba and Westinghouse. For example, CTE is the main Chinese company that builds rail tunnels. Initially, it rented the advanced GPS-guided tunnel-boring machines made by Germany's Herrenknecht. CTE eventually set up China Railway Engineering Equipment Group in Zhengzhou, purchased some German designs and reverse engineered others, and it even hired top German engineers. Then (around 2008) CREEG started producing its own tunnel-boring machines and in 2012 started exporting them to Israel, India, Singapore, Vietnam and Malaysia. In 2013 it purchased (purchased, not stole) the tunnel-boring technology of another German firm, Aker Wirth. There was nothing illegal about the way China became the main manufacturer of these highly sophisticated machines.

    Last but not least, China has the best students in the world (just check the statistics of the ethnic groups of top students in US universities and colleges) and it is very good at learning from freely shared knowledge: conference talks, journal articles, and open-source software. You don't need to steal Google's secrets in order to build a deep-learning system: just study the scientific literature. In many cases Chinese universities and firms acquired Western technology by simply studying Western publications. A significant contribution to the Chinese high-tech industry came from returning scientists who attended Western universities and worked in Western laboratories. Don't blame it on China if the USA makes it difficult for top foreign students and scientists to find a job in the USA. And don't blame it on China if the US government is more interested in rescuing the coal mining industry and natural gas industry than in improving STEM education and creating high-tech jobs.

    China uses a variety of policies to acquire foreign technology (one should add at least the massive financial investments in foreign firms), and only a tiny fraction of these policies fall under "espionage". In many cases the acquisition of foreign technology resulted in Chinese firms becoming the leaders in the field, i.e. displacing the very foreign firms from which the technology was acquired. It is widely believed that half of the technology now in the hands of Chinese entities originally came from foreign firms, but this doesn't mean that it was stolen: it was mostly acquired legally. If you don't like it, blame foreign greed and stupidity, not Chinese wisdom.

    The real question is why other countries don't do the same to Chinese firms. The nationalist narrative that China steals IP is predicated on the assumption that the West has valuable technology and China doesn't. But that is no longer true, and it hasn't been true in a while. The Jan/Feb 2019 issue of the MIT Technology Review had a special issue on Chinese technology and never mentioned IP theft. Quote: "Our writers examine China's progress in autonomous and electric vehicles, microchips, nuclear power, high-voltage grids, space exploration, quantum computing and communications, and gene editing." No matter how advanced China is, the "technology transfer" seems to happen only in one direction: from the world to China. There are several reasons for this and it will be difficult to change them. First of all, the USA is suspicious of any high-tech product coming from China. China would gladly sell millions of Huawei phones to the USA if the USA only allowed Huawei to sell them. When a Chinese company won contracts to build subway trains for Boston, Chicago, Los Angeles and Philadelphia senators such as Mark Warner, vice-chairman of the Senate Intelligence Committee, warned against Chinese using the subway cars to spy on the USA, and Shawn Dooley, a Republican lawmaker, launched a campaign to block the sale for fear that China may eventually launch cyberattacks on the transportation network. In October 2018 the USA enacted a new law, the Foreign Investment Risk Review Modernization Act (FIRRMA), that indirectly limits investments by foreign countries in US firms because it increases the degree of scrutiny of any such deal. It is widely assumed that the main reason to enact such law is to guard against growing Chinese investment in the high-tech industry of the USA; but don't blame the Chinese is they stop investing in the USA.

    Chinese students in the USA can study about technology that US firms cannot sell to China because of US restrictions on such sales. The same Chinese students are discouraged from staying in the USA by ridiculous immigration laws and now also by xenophobic sentiment among Trump voters. Therefore they go back to their country carrying in their brains the know-how they learned in US universities, while the US firms that build products based on that know-how will not be allowed to sell them to China. Don't blame it on China.

    Last but not least, the USA should study its own history. During the 19th century the USA had no major scientist but it rapidly caught up with Britain, that had introduced all the fundamental theories. Mostly, the USA "stole" British ideas, and in most cases it did it in ways that were legal if not too ethical. The USA in the 19th century and China in the 21st are more similar than US historians would like to admit.

    Finally, the radical right-wing Trump associates who are accusing China of "stealing" should explain why they don't target Russia and India the same way. India is as much as a target of the 2018 Special 301 Report by the USTR as China is. And, as any kid who has ever illegally downloaded music and videos from the Web knows, most of the websites that steal IP are hosted in Russia. The damage to the music and movie industry of the USA has been estimated in tens of billions of dollars. And yet no Trump associate seems concerned about Russians stealing IP from the USA. Of course, one reason is that Russia's GDP is one tenth of China's GDP, i.e. Russia is a failed state. If so, why not say it loud and clear: Russia is a failed state that can never rival the USA economically (if it wants to rival the USA, Russia has to use other means, such as disrupt presidential elections to get a Russian puppet elected president).

    See also The Effects of the Trump Trade War on China


  • (february 2019)

    Let's also clarify What's Wrong with Huawei.
    Huawei, founded in 1987, was one of the very early Chinese high-tech companies. It was founded by a former officer of the Chinese People's Liberation Army and it has maintained close ties with the Chinese government. Huawei has become the second-largest smartphone seller behind Samsung and before Apple. It also makes telecommunications equipment that is used all over the world (except the USA) and, in particular, it has become a leader in 5G technology, the technology that is replacing the current mobile-phone networks. In other words, its chips could soon be deployed in every country of the world to handle all mobile-phone communications. There is no question that Huawei's engineers are among the smartest in the world and that Huawei's story is an amazing success story.

    There are three legal cases that often get conflated: a warrant for the arrest of a specific Huawei executive; an indictment against the whole of Huawei for theft of trade secrets; and warnings from multiple international agencies about the cyber-security of Huawei's 5G technology.

    Donald Trump's administration had nothing to do with the warrant to extradite Huawei's CFO, who also happens to be the daughter of the founder. The investigation was started under Obama and it simply took time for the FBI to gather the evidence required for such an international warrant. Canada simply obeyed extradition treaties it has signed, regardless of Iran sanctions. Huawei's CFO (not the whole company) committed a crime that is not what most Chinese think it is. She is not charged with violating the US sanctions against Iran. She is charged with bank fraud. She lied to a New York bank about Huawei's involvement in a Hong Kong company that used the New York bank to do business with Iran. Huawei is free to violate the sanctions, but the US bank is not, hence she caused the bank to commit a crime, and that's defined as fraud. It's like me swearing to you that it is not a crime to do what you are about to do but knowing that i am causing you to break the law of your country.
    The indictment against Huawei for theft of trade secrets is a different story and stems from a separate investigation (also started under Obama) into how Huawei engineers stole T-Mobile proprietary technology, notably about a robot named Tappy. Quote: "Huawei engineers violated confidentiality and non-disclosure agreements with T-Mobile by secretly taking photos of Tappy, taking measurements of parts of the robot, and in one instance, stealing a piece of the robot so that the Huawei engineers in China could try to replicate it." The FBI investigated and concluded that this was a "company-wide effort".
    Nothing the USA has done in these two cases is unusual. Plenty of non-Chinese companies and executives (including US ones) have been prosecuted the same way for similar alleged crimes. There is plenty of politics behind the "Huawei paranoia" in the Senate, but so far i have seen no political motives behind these two criminal cases. The evidence that Huawei's CFO lied to the New York bank seems to be solid. If an ordinary US citizen had done the same thing (lying to a bank causing the bank to violate the law), without the means to hire the kind of attorneys that Huawei has hired, that citizen would already be in jail.
    The problem is that Trump himself undermined the criminal case in a December 2018 interview with Reuters. To the Chinese (and not only the Chinese), Trump's statement that charges could be dropped in exchange for concessions by China in the trade talks proved that the case is indeed politically motivated. Trump's own words put Canada in an odd position: now Canada, in uphelding its laws against China's pressure, is risking a political conflict with China over a case that the whole world thinks is politically motivated. Canada is not receiving support by anybody after Trump made that statement. As Michael Zeldin noted, this is precisely the way things work in China: the president can tell the judges how to rule on a case; and therefore Trump's actions encouraged China (and the whole world) to think that there is no difference between the (non-existent) rule of law in China and in the USA.
    Finally, Huawei's 5G technology has been singled out by several governments as a "threat". The US government has provided no evidence that there is anything wrong with it, so that's just propaganda and maybe a bargaining chip in the trade negotiations. But the USA is not the only country to be concerned. Australia and New Zealand have both vetoed the usa of Huawei's equipment in 5G networks. In january 2018 the French newspaper Le Monde Afrique published a report according to which the African Union's computers were hacked for five years by China. In january 2019 Poland arrested Weijing Wang, a Chinese employee of Huawei, on allegations of spying for China (Huawei promptly fired the employee claiming that he acted on his own). In march 2019 Britain's National Cyber Security Centre issued a report that warns against using Huawei's 5G equipment simply because it is not cyber-secure enough. The British watchdog has repeatedly complained with Huawei about security flaws (that could be exploited by any hacker, not just Chinese spies) and Huawei has so far failed to find remedies. This has nothing to with espionage and a lot to do with sloppy design and sloppy practices. In other words, Huawei's products are cheap because Huawei took short cuts in building them. But the bottom line is that, so far, no evidence whatsoever has been produced to justify the discrimination against Huawei's 5G technology: not a single chip has been found in any way "corrupted" to serve as a tool for espionage. So far, the evidence is that Huawei, quite simply, has the best 5G technology in the world. It is also a bit embarrasing for countries like Australia and Britain to claim that Huawei's chips are dangerous: countries like Australia and Britain have plenty of bright engineers who can easily check what Huawei's chips do.

    See this paper by Christopher Balding and Donald Clarke about who owns Huawei: the founder (Ren Zhengfei) only owns about 1%. The "employee shares" in Huawei are actually not owned by its employees at all.

    TM, ®, Copyright © 2019 Piero Scaruffi All rights reserved.
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  • (january 2019) Do not Wake up the Sleeping Dwarf
    Napoleon famously advised the West about China: "Do not wake up the sleeping giant". If China is a giant, then Taiwan is certainly a dwarf: 23 million people versus 1,400 million in mainland China. Nonetheless, i think that Napoleon's warning fits Taiwan as well as the giant mainland.

    In January 2019 Xi gave a speech that sent shivers down the spine of Taiwanese citizens. He spoke of coercive unification. Traditionally, both mainland China and Taiwan have spoken of peaceful unification. However, an increasing number of Taiwanese see Taiwan as an independent country, and the rise of Xi has probably done little to reverse the tide. A 2009 poll found that 49% of Taiwanese don't consider themselves Chinese. A 2017 poll found that 84% of young Taiwanese don't consider themselves Chinese. Taiwan was shifting towards "peaceful coexistence" with communist mainland China, not "peaceful unification". Xi's speech, possibly a reaction to these surveys, was greeted largely with silence in Taiwan, despite the direct threat.

    The reason for Taiwan's silence is that an escalation would be riskier for Taiwan than for China. The economics has changed. And the USA has changed. Today it is hard to believe that in 1990 tiny Taiwan had a GDP that was almost half the GDP of much larger China ($170 billion vs $400 billion). Today, China's GDP is about than 20 times bigger than Taiwan's. Back then, Taiwan had advanced technology whereas China didn't even have personal computers. Today, China is a world leader in artificial intelligence and many other technologies. China now has 1,500 missiles aimed at Taiwan. Taiwan has limited "security clearance", which means that the USA does not transfer the kind of high-tech weapons that it transfers to Israel. This didn't matter when mainland China didn't have sophisticated weapons but now China has them. Furthermore, the Taiwanese army is largely a volunteer force, not the highly professional People's Liberation Army of mainland China.

    The second factor that explains Taiwan's prudence is that the USA has changed too under Trump. For almost 40 years, Taiwan relied on a treaty signed with the USA, the Taiwan Relations Act of 1979, according to which the USA pledged military assistance in case of a military attack against Taiwan. Trump's speeches have not been any less disturbing for Taiwan than Xi's speech. Trump has projected the image of a cynical immoral leader who would sell just about anything for the right price, a wildly different image from the principled (anti-communist) country that the USA was when it signed the Taiwan Relations Act.

    Xi's speech was just the latest move in a slow, patient chess game. China has been enforcing a unilateral definition of Taiwan's status, demanding the developing countries of the world to accept it. It is now only the USA and the European Union that still recognize Taiwan as a legitimate entity. Everybody else, if they want to do business with China, had to severe diplomatic ties with Taiwan. In a sense, China has been building a Great Wall in the Pacific Ocean around Taiwan. If democracy wins all over the world, future generations will be shocked to read that peaceful and democratic Taiwan was discriminated at the United Nations because most countries sided with a much less democratic country, mainland China. But, in history, economics always prevails over principles.

    At the same time, China has slowly enacted a program of "legal" annexation. The Taiwanese who travels to China is treated like a Chinese citizen with a particular status, not like a foreigner. Increasingly, Taiwanese will have to obey Chinese laws if they want to visit or do business in mainland China.

    Mainland China, even if it managed to get around the US ships, is unlikely to attack Taiwan because of the international repercussions: the Taiwanese government would flee abroad and would immediately declare independence, the USA and the European Union would recognize it, a major crisis would ensue in the United Nations and potentially break it apart, many developing countries would get scared of China and distance themselves from the new imperialist power, and Japan would probably go nuclear to avoid being the next victim. If Taiwan manages to prolong the conflict, the whole world will be rooting for the underdog. This is a huge price to pay for mainland China.

    I don't think that the young Taiwanese would start a real civil war because they have not been raised to think about war: they have been raised to think about technology and business. As long as China accords Taiwan the same rights to use Google, Facebook, etc that Hong Kong has, i think the one thing that China doesn't have to fear in Taiwan is door-to-door guerrilla warfare.

    Nonetheless, there is also another, unspoken, reason not to attack Taiwan: no matter how smaller the Taiwanese army is, there is still a chance that the mainland would be defeated, and this would become a national humiliation of the kind that China hasn't experienced since 1860 when an Anglo-French expedition force destroyed the summer palace of the Chinese emperor. The combination of the Hsun Lien naval combat system (basically a smaller version of the Aegis system deployed by NATO, Japan and Korea) and the Tien Kung system (that can intercept Chinese missiles at ranges of about 200 kms) plus the long-range early-warning radar system Pave Paws that the USA maintains in central Taiwan, is enough to make Taiwan more impenetrable than Iraq was to the USA in 2003. And the lesson of Iraq was that it was terribly difficult for the US air force to destroy Iraq's mobile missiles, of which Taiwan has hundreds: 400 long-range surface-to-air mobile missile launchers, at least 1,000 short-range surface-to-air mobile missile launchers, 400 mobile antiaircraft guns, and 12 mobile cruise missile launchers. (See for example "The Emerging Military Balance in East Asia" by Michael Beckley of Harvard and Tufts universities in the International Security journal vol 42 No 2 of 2017, and the book "The Chinese Invasion Threat" of 2017 by Ian Easton, a fellow at the Project 2049 Institute).

    Therefore a Chinese invasion of Taiwan is unlikely both because it is unnecessary (Taiwan is slowly being annexed in other ways), because it would negatively affect China's foreign relations, and because, quite simply, it won't be easy.

    The real concern is that Taiwan may react to Xi's speech and to Trump's speeches by embarking on its own military program: Xi theatens to use force (to annex Taiwan), and Trump threatens not to use force (to defend Taiwan). The two threats are equally alarming for Taiwan.

    Taiwan has certainly watched intently the developments on the Korean peninsula. The silly and murderous North Korean dictator is getting a lot of respect from the US president (who even called him "honorable"). Why would such a silly and brutal dictator of such a poor and failed country get such an honor? Because he is armed with nuclear weapons. Taiwan gets zero respect from communist China and little from the US president. One simple reason is that it is not armed with nuclear weapons.

    It could be that one of mainland China's many mistakes in regard to Taiwan was to demand the expulsion of Taiwan from the United Nations. Taiwan is the only major country not represented in the United Nations because China, one of the five countries that has veto power, does not recognize it as an independent country. But this means that Taiwan is under no obligation to comply with international nonproliferation treaties or nuclear control regimes since the United Nations recognizes mainland China as the country that has signed those treaties. It is mainland China itself that forbids the United Nations to sign such treaties with Taiwan.

    Taiwan does not possess nuclear weapons, but historically it did possess a nuclear weapons program. Taiwan's nuclear program dates back to 1964, when mainland China tested its first nuclear device. China's test was not a surprise for outside observers, but it was still Taiwan's nightmare come true. The Taiwanese bomb program began in 1967, using the Chung-Shan Institute of Science and Technology's Institute for Nuclear Energy Research as a cover. Apparently, Ta-you Wu (the most famous Chinese physicist, who fled mainland China when Mao seized power in 1949) initially succeeded in dissuading Taiwan's dictator Chiang from building a bomb, but Taiwan acquired a heavy-water nuclear research reactor in 1969 from Canada. This reactor went critical in 1973, and Taiwan, using heavy water from the USA and uranium from South Africa, started producing weapons-grade plutonium (Chiang died in 1975). Taiwan's nuclear weapons could have been mounted on its missile Tien Ma, which had a range of 1,000 kms, not enough to strike Beijing but enough to strike Shanghai. In 1988 one of Taiwan's nuclear scientists, Hsien-yi Chang, deputy director at Taiwan's Institute of Nuclear Energy Research, defected to the USA and revealed the full scope of the program (it is debatable whether he was hired by the CIA or not). US president Reagan, eager to keep friendly terms with mainland China while he was fighting the Cold War with the Soviet Union, ordered Taiwan to shut down the program. See David Albright's and Andrea Stricker's "Taiwan's Former Nuclear Weapons Program" (2018).

    Since then Taiwan has pursued peaceful nuclear research and in January 2014 Taiwan's president and US president Obama renewed an agreement for peaceful nuclear cooperation. Nobody doubts that Taiwan could build a nuclear bomb in a relatively short time, depending on how much plutonium it is hiding. In 2012 Taiwan's National Chung-Shan Institute of Science and Technology acknowledged that it had developed the Yun Feng missile that can reach Beijing. Over the last two years there were reports in Taiwan and Hong Kong of new Taiwanese missiles: the Wan Chien air-to-ground cruise missile and the Hsiung Feng IIE missiles. If Taiwan developed nuclear weapons, it would be able to mount them on sophisticated missiles.

    The risk is that the combination of Xi's speech and Trump's speeches may cause a subtle but crucial psychological shift within Taiwan. The Taiwanese people have never been particularly fond of the USA. They want dignity, security, and prosperity; and for 70 years the USA has provided them. But a combination of Xi's arrogance and Trump's cynicism may be igniting a new wave of Taiwanese nationalism that could result in Taiwanese rearmament with the goal of becoming self-sufficient in defense matters and, last but not least, of being respected at least as much as North Korea is.

    TM, ®, Copyright © 2019 Piero Scaruffi All rights reserved.
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