A Prognosis of the Current Sino-American Malaise

The current relationship between the People’s Republic of China (PRC) and the United States has been described by reputable China scholars as the worst it has been since normalization in 1979.1 How bad can it get?  The easy answer to that question is, of course, no one can know the future. That granted, we focus here on three more empirically answerable but still relevant questions. First, just how bad is it now? Second, what are the main factors driving the two apart? Third, given current trends, to what state of affairs can current trends reasonably be expected to lead, ceteris paribus?

The State We Are In

The Sino-American relationship has always dwelt in that netherworld of countries which are neither allies nor adversaries. Nevertheless, a seemingly robust friendship has been built over the years on two pillars: strategic and economic. For the decade following the ice-breaking Nixon visit in 1972, it was based solely on strategic grounds: both sides needed each other, they thought, to help deter the Soviet threat. Since the onset of Soviet-American détente in the Gorbachev era, particularly after the dissolution of the Soviet Union in December 1991, this shared strategic threat vanished. China no longer needed US extended deterrence against a Soviet preemptive strike, and the United States no longer needed the China “card.” On the reconfigured post-Cold War strategic chessboard China’s geographic centrality gave it continuing strategic relevance that was, however, no longer deemed pivotal. With the rise of Deng Xiaoping and the inauguration of “reform and opening” at the 3rd Plenum of the 11th Congress in December 1978, China’s economic opening instead provided a new basis for cooperation. The economic relationship was complementary—China needed capital and advanced technology, the United States needed cheap consumer goods to hold down inflation, and bilateral trade and investment boomed. The American business community became so enthusiastically engaged in the China market that they mobilized to block Bill Clinton’s threat to withhold “most favored nation” status in 1993-1994 pending (unspecified) human rights reforms. This mutually profitable interaction accelerated greatly (albeit asymmetrically) upon China’s admission to the World Trade Organization (WTO) in late 2001, seemingly immunizing the PRC from any further threat of sanctions by establishing Permanent Normal Trade Relations. This not only facilitated a major reduction of Chinese trade barriers but accelerated domestic market liberalization. The objections of human rights advocates and ideological anti-communists were defrayed by the theory of political-economic convergence: just as advanced capitalism had adopted socialist attributes in the contemporary welfare state, so would China’s assimilation of capital and labor markets, corporate business organization, and Western consumerism eventually culminate in some form of electoral democracy, as it had in China’s East Asian neighbors.   

By 2018 both pillars had severely attenuated, prompting policy intellectuals to reconsider the key premises of the convergence model. While American relations with Russia nosedived in the wake of apparent interference in the 2016 election, China was no longer useful to balance Russia but Moscow’s staunch supporter. In Asia, China’s cooperation in sanctions enforcement had clearly been instrumental in bringing North Korea to Singapore to avow a commitment to a denuclearized peninsula, albeit amid US murmurings that in his summits with Kim Jong-un, Xi Jinping had encouraged a tough negotiating stance in support of a stage-by-stage process that slows denuclearization. At the same time China’s more assertive maritime claims and espousal of a new regional security order suggested a discomfort with the American presence in the region.2 By May 2018 China’s reclamation and militarization of the seven islets it occupies in a maritime thoroughfare pivotal to the security of East and Southeast Asia made it “capable of controlling the South China Sea in all scenarios short of war with the United States.”3 Thus, while the Obama administration’s 2015 National Security Strategy welcomed “the rise of a stable, peaceful, and prosperous China” and aimed “to develop a constructive relationship,” the Trump administration’s 2017 National Security Strategy states bluntly that “China…want[s] to shape a world antithetical to US values and interests.” China’s assumption of a “stake-holding” role in world affairs, long encouraged by Washington, has taken the form of not only claims for greater influence in existing forums such as the World Bank and International Monetary Fund but the formation of new ones to compete with the old, such as the Asian Infrastructure Investment Bank, the Silk Road Fund, and the BRICS Development Bank. The visionary Belt & Road Initiative (BRI) Xi Jinping unveiled in 2013, a trillion-dollar plan to build and upgrade highways, railways, ports, and other infrastructure throughout Asia and Europe designed to enrich the economies of China and assist 70 of its nearby trading partners, promises also to have a military dimension, not only to protect the Chinese corporations contracted to build the infrastructure. 

But surely, the thriving bilateral economic relationship, largest in the world (together they account for about 40 percent of global trade), takes any serious rupture of the relationship off the cards? Doubts have grown. The bilateral trade deficit had grown to about $375 billion by 2017 (by American count), the world’s largest bilateral trade deficit, elimination of which Trump has elevated to top priority. The April 2017 Mar-a-Lago summit gave new urgency to deficit reduction talks, but the bilateral deficit has since continued to climb despite a reduction of China’s overall trade surplus.4 China’s surplus comes of course from its export sector, around half of which is produced by foreign-invested enterprises or FIEs (particularly in high-tech), seemingly providing a sound footing for economic cooperation with the West.5 Yet Trump’s thunderclap announcement of trade sanctions in the spring of 2018 did not generate the chorus of protest from the FIE community that thwarted Clinton’s earlier attempt to utilize trade as human rights leverage. As China’s 2025 modernization plans preview, there is an ongoing attempt to curtail technological dependency on the West, and FIEs have faced bureaucratic and legal headwinds. In November 2013, there were 57,200 FIEs in China, but by November 2016 the number had shrunk by nearly 10 percent: among the firms that have closed or are relocating Chinese manufacturing sites are Nikon, Nitto, Samsung, Olympus, Omron, Adidas, Uniqlo, Foxconn, Intel, LG, and Nokia.6 Fixed capital investment by foreign companies shrank from $508.7 billion in 2011 to $214.6 billion in 2017, a reduction of 57.8 percent in six years. Although fixed capital investment continues to drive GDP growth in China, China’s fixed asset investment has been increasingly diverted into outgoing FDI, which has nearly tripled since 2011.7 Scores of bilateral negotiating forums have not yet brought the two closer to agreement on either China’s reconfigured East Asian strategic role or its mercantilist economic policies.

Despite these ominous political trends, socio-economically the relationship is quite close. Public opinion is not majority favorable but had ironically improved prior to the recent escalation of tensions, from 37 percent favorable in 2016 to 44 percent in 2017 (versus unfavorable 55 percent and 47 percent respectively).8 The United States hosted roughly 130,000 Chinese graduate students during the 2016-2017 academic year. Chinese direct investment in the US expanded dramatically to $46 billion in 2016, before a steep decline in 2017. In less than 10 years, spending from Chinese tourists in the United States has more than quadrupled to over $20 billion annually. Despite being dwarfed by Chinese imports, US exports to China (particularly agriculture and raw materials) had been growing faster than US exports to the rest of the world before the Trump tariffs.

Drivers of Discontent

There are two factors, neither of which alone is necessary and sufficient, driving the growing bilateral rift. The first is strategic, known colloquially as the Thucydides Trap or power transition theory.9 As Allison points out, 16 of 20 historical cases in which a great power was challenged by an upstart led to hegemonic war. Until around 2010, the United States did not perceive China as a threat because the gap seemed large enough to defer concern and because China was careful not to challenge American interests with its “taoguang yanghui” (hide brightness, nourish obscurity) and “peaceful development” rhetoric. The power transition theory is none too exact, leaving unclear not only whether hegemonic war will ensue (80 percent probability) but who starts the conflict and where is the tipping point. But the global financial crisis (GFC) certainly upended the global power balance with disconcerting swiftness. Beijing survived the crisis with a $586 billion stimulus package of loans to state-owned enterprises, salvaging the Chinese economy without a single year of negative growth. This had a major differentiating impact on the two economies. In 2007, before the crash, US GDP was $14.48 trillion, compared to China’s $3.49 trillion; in 2014 US GDP was 16.77 trillion while China’s was $9.24 trillion. In other words, China’s GDP rose from a mere 24 percent of US GDP to 55 percent in a mere seven years. China surpassed Japan in GDP in 2010, and by 2015 was more than twice as large (China: $10.4 trillion; Japan: $4.12 trillion). Its GDP was now also ten times the size of Russia’s, nearly five times larger than India’s (4.66 times richer in nominal terms, 2.20 times in PPP, as of 2015), and more than four times larger than the combined GDP of the ten ASEAN countries. This seems to have finally awakened American “Thucydidean” concerns. Take for example the South China Sea issue, which has pitted Chinese against Southeast Asian maritime territorial claims (particularly Vietnam’s and the Philippines’) ever since the Nationalist regime published its “cows tongue” map claiming some 90 percent of the sea in 1947. But the US position had always been one of strict neutrality, offering to mediate the dispute but declining involvement, lacking any territorial claim in the Sea. Thus, Washington raised no objection when China took de facto control of the Paracels following battles with Vietnam in 1974 and 1988, nor did it object to China’s stealthy occupation of Mischief Reef within the Philippines’ exclusive economic zone (EEZ) in 1994-1995.10 But the United States objected vociferously and in Chinese eyes encouraged indigenous resistance to China’s attempts after 2010 to assert Chinese sovereignty over Scarborough Shoal, and (unofficially) supported Manila’s bringing the case to an UNCLOS arbitration tribunal, to China’s vexation. China’s behavior had perhaps not changed so much as Washington’s reaction to it. Since 2015 this has taken the form of “freedom of navigation operation patrols” within the EEZs claimed by China around its reclaimed islets, in the teeth of Chinese warnings to desist.

The second necessary factor driving the bilateral rift is diverging developmental trajectories. Recent psychological research indicates that what is decisive in facilitating trust, more important than cost-benefit analysis, are such cognitive factors as identity; i.e., we trust those we can identify with.11 China’s spectacular rise fits the power transition scenario well, but, even so, the path to war is in Allison’s view only probabilistic.  The clearest recent example of peaceful power transition is that from Great Britain to the United States. The United States overtook Great Britain in GDP around the turn of the 19th century, but it did not diverge from the British developmental trajectory nor did it challenge Britain’s hegemonic power position. Rather, the United States intervened decisively in support of Britain in both world wars and retained a “special relationship” with Great Britain long after surpassing it. Only rarely has the United States diverged from this Anglo-Saxon in-group even after rising to a clearly hegemonic position after 1945.12

While one strain of current retrospection views Chinese and American developmental trajectories as divergent from the outset, this is a straight-line simplification of a highly unpredictable and shifting “stepping from stone to stone to cross the river.” The “reform and opening” policy inaugurated a period of far-reaching ideological and economic innovation, legitimated by Su Shaozhi’s 1979 proposition that the country was still at the “primary stage of socialism” when such capitalist features as markets were still functional. It was tactfully made very clear (particularly in the Resolution on Party history approved at the 6th Plenum of the 11th Congress in June 1981) that Mao Zedong’s emphasis on radical egalitarian collectivism that led to the disastrous Cultural Revolution had been a wrong turn necessitating a basic reorientation for the CPC to survive. What was now introduced was in the context a radical economic liberalism amid a restoration of stable bureaucratic authoritarian rule. Deng Xiaoping in his speeches at the time emphasized a “responsibility system” along with administrative and fiscal decentralization to lower levels. This stimulated a massive entry of new business entities, known as township and village enterprises (TVEs), partially owned or supported by governments at various levels, whose interest derived from increasing tax revenues and enlarged local employment. Typically, one of the founding entrepreneurs is a former government official, who hence shares substantial residual control rights with the sponsoring government. The incentive effect was considerable, and for more than a decade TVE GDP growth outpaced China’s more generously capitalized SOE sector. This effect was compounded when in the course of the revival of reform in the early 1990s cadres were permitted to quit their government positions and “plunge into the sea” [xia hai], i.e., to devote full time to these local ventures, which typically paid more than government salaries.

Although the primary focus of innovation was economic under Deng’s decree that the primary contradiction in Chinese socialism was backward productive forces, the political system also underwent reform in an endeavor to make it compatible with economic liberalism. The emphasis in recruitment and promotion shifted from “redness” to secular expertise, giving rise to a proliferation of cadre schools, and tenure and term limits were introduced to curb gerontocratic propensities. Although the Party has retained exclusive leadership, growing emphasis on efficiency led to functional differentiation culminating in the call for “Party-government separation” [dangzheng fenkai] and governments-enterprise separation [zhengqi fenkai] at the 13th Party Congress in 1987, even plans for an independent civil service. In its foreign affairs the reform regime stressed peace and development, reaching out to all countries that might be useful to China’s modernization. Following the Tiananmen protest and repression in 1989 the more ambitious of these reforms were scaled back or halted, allowing economic reform to continue while deferring political reform. But Jiang Zemin redefined the CPC as a “ruling” (rather than revolutionary) party, representing “advanced productive forces, advanced culture, and the interests of broad masses” as well as the classic proletariat.

After initial retrenchment following the Tiananmen shock, Deng Xiaoping revived economic reform in the face of elite resistance with his 1992 “southern voyage” [nanxun]. But political reform was necessarily reoriented from popular participation to a focus on recentralization and administrative efficiency. On the one hand, the marketization of prices was rushed to completion (at the retail level) in the early 1990s, and after the 15th Party Congress in 1997 privatization was aggressively promoted: urban housing was completely privatized even without a secondary private housing market, the PLA’s civilian industrial sector was privatized, and under the slogan "grasp the big, drop the small" [zhua da fang xiao], the medium and small SOEs were subjected to management buyouts, mergers, or forced bankruptcies. On the other, the decentralization of political power was sharply curtailed: whereas the 1983-1984 “one-down” reforms had reduced the number of cadres managed by the central organization department by two thirds, in 1990 the Party reverted to “two-down” and submitted new nomenklatura lists that raised the number of cadres on either the primary list (those directly appointed by the center) or the secondary list (subject to its approval). The financial apparatus and tax system were centralized, with four state commercial banks under the People’s Bank of China that set interest and exchange rates. The separation of Party from government was basically halted under the new norm of "coordination" [yiyuanhua], and "anchoring Party leadership in the government" [jiandang yuzheng].The previous emphasis on functional differentiation gave way to functional integration. Meanwhile China’s opening to the outside world proceeded apace: if capitalist relations of production were still a part of the primary stage of socialism, China’s economic interaction with other capitalist economies was also permitted, leading to China’s growing immersion in the global markets via trade, joint ventures, private investment in China by multinational capitalist enterprises, even outgoing FDI. This combination of the incorporation of capitalist economics and market opening was very encouraging to public opinion in the leading capitalist states, leading to the theory of ideological convergence. But it also had the unanticipated effect of implicitly undermining the ideological legitimacy of the CPC. Primary stage theory succeeded the now openly admitted failure of the Cultural Revolution, and the contrast was stark: the Revolution represented socialist ideals (albeit prematurely implemented) but was unsuccessful economically, while reform was economically successful but represented a step backward in ideology. Recall that to Mao Zedong China was on the threshold of the transition to communism, but now it lurched back to the primary stage of socialism.  There was talk of a “crisis of faith.” While the economy thrived in the Hu Jintao years, averaging nearly 10 percent annual growth rate despite a 2009 dip after the GFC, reform was perceived to have stalled. 

Chinese economic reform continues under Xi Jinping, but the trajectory has shifted from market liberalization in the 1980s and 90s to “socialism with Chinese characteristics”—the hybrid ambiguity of the Hu Jintao era gave way to a reemphasis on socialist identity. Yet to characterize this as a move back to Maoism would be somewhat misleading. The rhetorical emphasis on ideological orthodoxy and personality cult are redolent of Maoism, as is the global ambition, but the Xi economic model seems to be a composite of Leninism (with its emphasis on Party control of the “commanding heights”) and the developmental models of preceding high-growth East Asian capitalist economies, especially Japan and South Korea, which Chinese economists have studied closely.13 Xi Jinping was greeted in 2012 as a potential reformer, though what sort of reform was needed was still at the time controversial. At the 3rd Plenum of the 18th Party Congress in the fall of 2013, Xi Jinping introduced a raft of ambitious reforms aimed at making the market the “decisive” criterion for the distribution of resources while still giving the state sector a “commanding” role. The word on the street however is that Xi took no detailed interest in the 60 new reforms outlined at the plenum but delegated this to experts like Liu He, stipulating only before signing that the reforms not impact the state sector or weaken the CCP.14

During Xi’s first term the commanding role of the state sector clearly eclipsed efforts at market reform.15 The official slogan “min jin guo tui” (people forward, state recede) was reversed in popular parlance to “guo jin min tui.”16 The reasons have to do with industrial vested interests as well as perhaps with Xi’s own personal coming of age in a command economy (witness his discombobulated reaction to the 2015 stock market roller-coaster).  Zhu Rongji’s enterprise privatization had incurred criticism as “management buy outs” (MBOs) that benefited cadres at the expense of workers, so the state shifted to reforming rather than shuttering loss-making (“zombie”) SOEs. Beginning with Hu Jintao, the state took a more prominent economic role—SOE numbers actually increased.17 In the mid-2000s the state selected “strategic” sectors of the industrial economy, which were privileged in terms of financing and access to raw materials and fenced off from market competition. These were the major beneficiaries of the 2009 stimulus package and were also permitted to list on global stock markets and some (e.g., China Petrochemical, State Grid Corp. of China, CNPC) ranked in the early 2010s among the largest corporations in the world. But the SOEs soon became problematic. As they engaged in overproduction, causing global surpluses of steel, aluminum, and other commodities, their profit margins shrank relative to the private sector, and they incurred debt for which the state became liable. Yet Xi opted for reform rather than phase-out and even sought to expand the state-owned sector in several ways: he has continued fiscal stimuli as loans to SOEs for infrastructure construction to maintain 6 percent GDP growth (one in 2012 leading up to the 18th Congress and another big one in 2015), he has encouraged mergers and private shareholding in SOEs, he has encouraged big SOEs to “go out” [zou chuqu] and invest abroad; and finally, BRI relies primarily on SOE investment in infrastructure projects. Rather than take up the reform agenda after consolidating his authority at the 19th Party Congress (November 2017) and the 13th National People’s Congress (March 2018), Xi has opted to double down on state-led economic growth.

The substantive content of “Xi Jinping Thought” is spelled out in a “14-point Basic Policy.18 Its essence is that the CPC should directly command and control all other hierarchies (as reiterated in points 1, 11, and 14). “The leadership of the CPC is the most essential feature of socialism with Chinese characteristics. Party, government, military, civilian and academic; east, west, south, north, center, the Party leads everything,” as Xi put it, introducing a sweeping institutional shakeup in March 2018. Unnerved by the surge of flight capital, the Party-state must also control the private sector. It has asserted its right to buy shares in private firms and on the establishment of Party committees with seats on the boards of the larger private and foreign-invested firms, in effect blurring the distinction between public and private.19 When private conglomerates become too large, too indebted, or too autonomous they may be shut down via: 1) ”instructed” divestment, 2) regulatory takeover (e.g., Anbang Insurance, the HNA Group) , or 3) administrative “guidance” (e.g., the 2016 disappearance of Ye Jianming, erstwhile chairman of CEFC Energy Company, then listed 229th of the global 500 but heavily indebted.)  

Socialism with Chinese characteristics is a goal-rational system, its logic and internal discipline are justified by its ends. Xi Jinping has burnished his domestic legitimacy by unifying the nation around the grand goals of the “great rejuvenation of the Chinese nation” and the “China Dream.” The downsizing formulation “new normal” introduced at the 18th Congress appears only once in his 19th Congress Report. Goals logically entail planning. State planning has hence made a comeback—the five-year plans (FYP) continue, now dubbed “guidelines” [guihua] instead of plans [jihua] but still rigorously enforced,20 including targeted annual GDP growth targets.21 The 13th FYP (2016-2020) most notably is but the opening stage of an ambitious “Made in China 2025” plan to transform the country into a production hub for high-tech products like robotics, artificial intelligence, quantum computing, hypersonic cruise missiles, and new energy vehicles within the next few decades. But is not China, the “workshop of the world,” already an industrial powerhouse? China now produces more steel, aluminum, glass, and cement than the rest of the world combined. No, China relies too much on imported key parts, components, and production equipment, reducing its profit margins. Beijing has noticed that although it is the world’s largest exporter, China’s role in the supply chain division of labor has tended to be limited to relatively low value-added jobs such as assembly—the Apple iPhone being the best-known example. Thus, although China leads the world in volume of robot production, 75 percent of precision reduction gears, 80 percent of submotors, and 80 percent of controllers are dependent on imports. The import of key parts such as automobile transmissions has also increased sharply. The deficit in IT trade rose from $137.6 billion in 2011 to $193.3 billion in 2017. China wants a bigger part of the production network, a “red supply chain.”22 “Modern technology is the sharp weapon of the modern state,” says Xi Jinping, determined to rectify this through NIC-style industrial policy. Thus, the domestic market share of Chinese suppliers for "basic core components and important basic materials" is intended to increase to 70 per cent by 2025. “Made in China 2025” is a long-term strategic plan for advanced technological development that is conceived to be “self-reliant,” setting non-binding targets in three phases: Phase I (2015 to 2025), Phase II (2025 to 2035), and Phase III (2035 to 2045). The emphasis on self-reliance is no doubt partly because China was unnerved by such market gyrations as the AFC and the GFC (and domestic stock market crashes in 2008 and 2015), but partly also a matter of nationalist pride. As Xi Jinping put it in a speech celebrating the bicentennial of the birth of Karl Marx in 2018: “learning from the achievements of human civilization does not mean copying and imitating [bu dengyu zhaoban zhaochu]. China’s development has not replicated the development model of the West and has not repeated the old path of the West.”23 To be sure, this ambitious model ran into fiscal trouble even before the Trump trade dispute: the nation incurred a large debt burden with the $586 bailout package in 2009 and indebtedness has continued to outpace GDP growth, China’s heavy industries churn out massive overcapacity lowering the price of their products and precipitating trade friction, and the “China 2025” plan annoys China’s developed country trade partners by shifting from complementarity to competition . Yet the leadership forges ahead with seeming confidence.


China’s core identity remains “socialist.” This has never been denied, though it was downplayed during the early reform period while China instead played up its identity as a developing nation. As it becomes a great power it becomes more willing to wear its distinctive socialist identity, even once again to recommend it to other developing countries, and to point out flaws in the rival Washington consensus.24 China feels the need to do so domestically in order to deter its own populace from shifting their identification to Western liberal alternatives. This underlying identity reprise has shaped the Chinese developmental model in a more socialist direction, giving rise to a more mercantilist trade policy because economic interests are identified with the Chinese party-state rather than with the firm. This has an alienating effect on economic interactions, as foreign economic actors see Chinese actors as representatives of a collective rather than individual or firm interests, and Chinese actors are expected to view themselves likewise—even if they are foreign citizens, they are expected to identify with China.  Given the increasingly distinctive conception of Chinese identity and its gap with others, there is also a distinction between in-group and out-group normative rules and a corresponding diminution of trans-national trust. This embrace of an assertive socialist identity has increased with China’s economic and diplomatic success, and hence might be expected to continue and expand so long as China continues to enjoy such success. Of course, this is hardly inexorable, as we have seen China’s identity has been quite pragmatic and opportunistic throughout its development. National identity has proved remarkably tenacious over the years even as its content has transmogrified; it can be expected to consolidate and assert itself with success and adapt with failure.  

Quo Vadis? We have traced the current bilateral malaise to two factors, one power-political and the other cognitive, both of which are necessary and sufficient to account for the current distemper. How far can it go? On the power-political front the two are engaged in an undeclared arms race as China expands economically and territorially where it can do so with calculated risk. This is a more limited arms race than the strategic competition between the United States and the Soviet Union, indicating that neither has an interest in a nuclear exchange or views that as likely. The arms race is, thus far, limited to “A2/AD” capabilities; i.e., to China’s ability to prevent the United States from intervening in defense of its allies or its vaguely defined East Asian sphere of influence. The extended logic of this is a recurrence of low-level confrontations between naval vessels and aircraft and the danger of further incidents similar to the 2001 EP-3 aircraft collision, with attendant risks of escalation. China does have global supply lines and a growing interest in securing them by developing its naval and air power projection capabilities; so it is conceivable for Sino-American friction to develop beyond the Indo-Pacific region, but unlikely in the foreseeable future. What has been more concerning to American strategic thinkers is the political economic dimension of China’s strategy. The BRI not only holds the potential for further Chinese base development beyond Djibouti but the creation of debt traps for fiscally strapped participants, as it consists of loans rather than grants at commercial rates of interest. As of June 2017, for example, 44 percent of Myanmar’s national debt, 70 percent of the Maldives’, and 70 percent of Kenya’s foreign debt is owned by China. (Much of this information, as in Laos or Vietnam, is not public.) In Sri Lanka, a debt-equity swap has ceded to China control of the port of Hambantota for the next 99 years. In such cases one may speak of indirect rather than direct conflict, as it concerns competition for the allegiance of third parties. Here power-transition theory is still relevant in the sense that China’s perceived arrival at a dominant position in this global competition may be expected to arouse profound American anxieties.

If our conception of the dynamics of trajectory divergence is correct, China will continue along its divergent path for as long as it is perceived to be successful and deviate from it only if it appears to be failing (as it did for example during the GLF or the CR). China’s currently “assertive” ideological revitalization is in no small part a reflection of awakened awareness, since around the time of the Beijing Olympics, China’s surpassing of Japan, and the accession of Xi Jinping, of the power-political implications of its own momentous “rise.” The current Sino-American “trade war” is to some extent an expression of American anxiety about that rise and China’s ownership of it. The ongoing tit-for-tat invocation of tariffs by the two countries will damage both economies, which will be most damaged remains to be seen. But because of the symbolic implications of which side concedes first, it is possible that it may last for some time. The logical outcome of the competition is not a nuclear or even conventional exchange (barring accident or miscalculation), as both sides have been highly prudent in that respect; more likely however is a progression from the current “cool war” to truly “cold war,” as in the long Soviet-American conflict. In other words, trade war leads to the formation of two rival self-sufficient economic blocs, a global repolarization pressing other nations (the EU, Africa, Latin America) to choose sides.

1. See Elizabeth C. Economy, The Third Revolution: Xi Jinping and the New Chinese State (New York: Oxford University Press, 2018), and Suisheng Zhao, ed., China and US Relations Transformed (New York: Routledge, 2018).

2. See Xi Jinping’s speech to the 4th summit of the Conference on Interaction and Security-Building Measures in Asia (CICA), May 20-21, 2014, http://www.china.org.cn/world/node_7206254.htm

3. Admiral Philip Davidson, now US ambassador to Australia, in written testimony to the US Senate Armed Services Committee, cited in Asia Times, April 24, 2018, http://www.atimes.com/article/short-war-china-already-controls-south-china-sea-us-admiral/

4. The seven-month trade surplus with the US from January to July 2018 widened to $161.63 billion, compared to US$142.75 billion in the same period of 2017. 

5. Foreign companies account for less than 3 percent of the total companies in China, but they contributed over 50 percent of China’s foreign trade volume in 2017, 25 percent of profit, and 20 percent of China’s tax income. The private and foreign-invested enterprises accounted for 46.5 percent and 43.2 percent, respectively, of China’s foreign trade surplus in 2017, while state-owned enterprises (SOEs) accounted for only 10.3 percent.

6. Four major reasons why foreign companies have left China are: the real estate bubble, increases in operating costs, a decline in profits, and a devaluation of the Chinese currency.

7. China made $60.07 billion in investments overseas in 2011 vs. $170 billion in 2016.

8. Richard Wike, “Americans’ Views of China Improve as Economic Concerns Ease,” Pew Research Center, April 4, 2017 accessed at http://www.pewglobal.org/2017/04/04/americans-views-of-china-improve-as-economic-concerns-ease/. Note however that there are different polls with a confusing variety of numbers. See also Craig Kafura, “Washington Has Turned on China. Have Americans?” Pacific Forum, July 31, 2018 accessed at https://mail.google.com/mail/u/0/#advanced-search/subset=all&has=china-us&within=1d&sizeoperator=s_sl&sizeunit=s_smb&query=china-us/164f08810a7aa034

9. Graham Allison, Destined for War: Can America and China Escape Thucydides’s Trap? (New York: Houghton Mifflin, 2017).

10. In 1992 the Philippine government resolved to nationalize the US naval base at Subic Bay and the Clark Air Force Base, and the US promptly evacuated all American personnel permitting commercialization of the property.

11. Benjamin Barton, Political Trust and the Politics of Security Engagement: China and the European Union in Africa (NY: Routledge, 2018), pp. 9-27.

12. One still controversial turning point was the November 1957 US intervention in the Suez Crisis, when the US forced Great Britain and France (in concert with Israel) to desist from their military occupation of the canal after Egypt nationalized it in July 1956.

13. Sebastian Heilmann & Lea Shih, “The Rise of Industrial Policy in China, 1978-2012,” Harvard-Yenching  Institute Working Paper Series, 2013.

14. David Zweig, “Xi Jinping has consolidated power, but China is still waiting for the promised waves of reform,” South China Morning Post, April 5, 2018, http://www.scmp.com/comment/insight-opinion/article/2138140/xi-jinping-has-consolidated-power-china-still-waiting

15. US-China Business Council, “Economic Reform Scorecard,” China Business Review, March 7, 2016, https://www.chinabusinessreview.com/economic-reform-scorecard/

16. The background of guo jin min tui policy, reversing the greater market orientation during the Deng years, was the 1989 Tiananmen impact, further reinforced by the instability of global markets as demonstrated by the Asian Financial Crisis (1997-1999) and still more the Global Financial Crisis (GFC) in 2008, in both of which China survived better than its more marketized neighbors.

17. The number of SOEs declined from 191,000 in 2000 to 112,000 in 2007, but after the GFC bailout it began to climb again: 136,000 in 2011, 147,000 in 2012, 155,000 in 2013, and 167,000 in 2015.

18. “Ensuring Communist Party of China leadership over all forms of work in China; The Communist Party of China should take a people-centric approach for the public interest. The continuation of ‘comprehensive deepening of reforms.’ Adopting new development ideas based on science and for “innovative, coordinated, green, open and shared development.” Following ‘socialism with Chinese characteristics’ with ‘people as the masters of the country.’ Governing China with the rule of law. ‘Practice socialist core values,’ including Marxism, communism and ‘socialism with Chinese characteristics.’ ‘Improving people’s livelihood and well-being is the primary goal of development.’ Coexist well with nature with ‘energy conservation and environmental protection’ policies and ‘contribute to global ecological safety.’ Strengthen national security. The Communist Party of China should have ‘absolute leadership over’ China’s People’s Liberation Army. Promoting the one country, two systems system for Hong Kong and Macau with a future of ‘complete national reunification’ and to follow the One-China policy and 1992 Consensus for Taiwan. Establish a common destiny between Chinese people and other people around the world with a ‘peaceful international environment.’ Improve party discipline in the Communist Party of China.”

19. Lucy Hornby, “Communist Party Asserts Control over China Inc,” Financial Times, October 3, 2017, https://www.ft.com/content/29ee1750-a42a-11e7-9e4f-7f5e6a7c98a2  According to state media, among all 1.86 million private companies in China, 70% of them have established CCP cells or branches.

20. Beijing has only missed a GDP growth target once in recent memory, falling a smidgen short in 2014.

21. See Sebastian Heilmann & Oliver Melton, “The Reinvention of Developmental Planning in China, 1993-2012.” Also see Barry Naughton, “The Return of Planning in China: Comment on Heilmann-Melton and Hu Angang,” Modern China, Special issue, Vol. 39, No. 6 (November 2016), pp. 560-628 and 640-652, respectively.

22. See Douglas B. Fuller, Paper Tigers, Hidden Dragons: Firms and the Political Economy of China’s Technological Development (New York: Oxford University Press, 2016).

23. Chen Shuguang, “Shizhong buyu jianchi he fazhan Makesizhuyi,” Renmin ribao, May 14, 2018, http://theory.people.com.cn/n1/2018/0514/c40531-29985388.html 

24. The most profound recent analyses of national identity are to be found in Gilbert Rozman, National Identities and Bilateral Relations: Widening Gaps in East Asia and Chinese Demonization of the United States (Stanford: Stanford University Press, and Washington, DC: Woodrow Wilson Center Press, 2012); G. Rozman, East Asian National Identities: Common Roots and Chinese Exceptionalism (Stanford: Stanford University Press and Washington DC: Woodrow Wilson Center Press, 2012); see also Lowell Dittmer and Samuel Kim, eds., China’s Quest for National Identity (Ithaca, NY: Cornell University Press, 1993).