Will the “China Rising” Narrative run into the Reform Blues?

A recent post noted how well-connected state-owned enterprises in China were stymieing key economic reforms advocated by outgoing Premier Wen Jiabao and questioned whether the country’s new leader, Xi Jinping, would do any better given that the country’s 145,000 state-run companies are a gold mine of wealth and privilege for rent-seeking Communist Party elites.  Indeed, as media reports (here and here) about the extraordinary wealth accumulated by Wen’s and Xi’s own families demonstrate, the economic system is so riddled with nepotism that even these putative reformers are not without serious taint.

Amplifying this point is a just-published Bloomberg News report finding that the most influential families in the party’s power structure have amassed sizeable fortunes through their control of state firms.  According to the report, 26 members of these families ran or held top posts in state-owned enterprises that dominate the economy, and that three individuals either headed or still control companies with combined assets amounting to more than a fifth of the country’s annual economic output.

Reports like this make one wonder whether China’s new crop of leaders can ever muster the political will to reform the state-centric model of economic management that a new World Bank report warns will eventually derail the country’s high-flying trajectory.  Their success or failure will go a long way toward resolving the debate between those who contend that China’s hegemonic dominance is all but assured and those (like this blog — see here, here and here) who believe the sources of U.S. global power are more durable.  The coming decade or so will furnish some important tests about who’s right and who’s wrong in their predictions about the evolving world order.  Stay tuned.

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Will the Iraqi Endgame be repeated in Afghanistan?

The number of parallels is worrisome

Even as President Obama trumpets his plans to withdraw U.S. combat troops from Afghanistan in two years’ time, he also insists (though in a sotto voce way) that he wants to maintain a limited but long-term military presence focused on counter-terrorism missions and training Afghan security forces.  Of course, this is the same promise he made regarding the war in Iraq, only to beat a hasty exit a year ago.  A report this week by Reuters highlights the ramifications of how things played out in Iraq, including a marked loss of American influence with the government of Prime Minister Nouri al-Maliki coupled with growing Iranian clout; regional perceptions that the U.S. departure amounts to a strategic defeat; and U.S. companies frozen out of the expanding Iraqi oil sector.  Others (here and here) have noted the return of Al Qaeda following its defeat just a few years ago.

So is the endgame in Iraq a harbinger of things to come in Afghanistan?  The number of parallels is worrisome. Continue reading

Can Xi Jinping Revive the “China Rising” Narrative?

Whether he turns out to be the new Deng Xiaoping will say much about the contours of the evolving global order

A post earlier this week argued that China’s long-term prospects are more uncertain than the conventional wisdom holds.  The country’s new leader, Xi Jinping, is raising hopes that he is the man to tackle the daunting array of challenges the People’s Republic confronts.  But even if he is as reform minded as some believe, a new Wall Street Journal report illustrates just how herculean a task he confronts.

The five-day tour of Guangdong Province Xi just completed has many speculating that he is serious about pushing ahead with deep changes.  In his first official trip outside of Beijing since becoming Communist Party chief last month, he paid symbolic tribute to Deng Xiaoping’s landmark 1992 tour of the province that re-catalyzed economic reforms which had stalled in the wake of the Tiananmen Square protests three years earlier.  Xi’s father was Deng’s close associate and oversaw the establishment in 1980 of the special economic zone in Shenzhen that provided a gateway for foreign investment into China and transformed an obscure fishing village into a global manufacturing hub.

During his visit to Shenzhen, Xi laid a wreath at a statue honoring Deng and visited a private Internet company.  Echoing Deng’s liberalization program, Xi declared that “Reform and opening up is a guiding policy that the Communist Party must stick to.  We must keep to this correct path.”

Journeying on to nearby Guangzhou, Xi announced that “We can brook no delay” in pursuing reforms.  He added that “We need to have more political courage and wisdom, and not waste any more time.”

But it is still unclear how Xi intends to give substantive meaning to these words or what he actually means by “reforms.”  It also is curious that the state media gave minimal fanfare to his trip.  And even if he intends to push forward with more market-oriented economic policies, it is not certain the entrenched interests within the party that are literally profiting from the status quo (here and here) will give him much latitude.  At least one prominent expert on Chinese politics doubts it.

This point was underscored a few days ago in a Wall Street Journal report that well-connected state-owned enterprises were stymieing key economic reforms advocated by outgoing Premier Wen Jiabao.  According to the article, Wen had wanted to ease the rising problem of social inequality (here and here) by cutting back on the huge profits enjoyed by state-run companies but instead faced a powerful backlash.  Indeed, Wen personifies a two-fold cautionary tale: His irrelevancy during much of his premiership illustrates just how resistant the Chinese system is to fundamental change, even as the extraordinary wealth accumulated by his family members  — also the case for Xi’s family — demonstrates how ruling elites benefit from the state-driven economy.

It also is noteworthy that at the same time Xi’s appointment as party chief was being formalized, Beijing shied away from reform and instead resorted to the familiar but inefficient tactic of higher infrastructure spending in order to boost the sputtering economy.

Whether Xi lives up to the hopes now being invested in him will go a long way in determining the contours of the evolving global order as well as the accuracy of the most confident prophecies of China’s global ascendency – brazen examples here, here and here.  If he doesn’t, the counter-arguments about America’s strategic resiliency made in this blog and elsewhere will be strengthened.

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A Test of U.S. Credibility on Iran

Shifting red lines in Syria undermine the tough rhetoric toward Tehran

Obama Tough 2Many observers have connected the civil war raging in Syria to the broader U.S. standoff with Iran.  Critics of the Obama administration’s extremely cautious approach on Syria argue that pushing more forcefully for the demise of Bashar al-Assad’s regime, Tehran’s main ally in the Arab world, would bring about Iran’s further strategic isolation.  But another link is less noticed: Washington’s shifting red lines on Assad’s use of chemical weapons is undermining President Obama’s tough talk on Iran’s nuclear ambitions.

In earlier posts (here and here), I argued that Mr. Obama is more likely to accept a nuclear-armed Iran as a fait accompli rather than make good on his repeated vows to use military force to prevent it.  My reasoning is two-fold: First, as the depressing track record with North Korea over the last two decades demonstrates, it is exceedingly difficult for Washington to stop a rogue regime determined to develop nuclear weapon capabilities.

A second reason is more specific to this White House: The Obama administration’s threat to pick up the cudgel of military action has always an air of unreality.  After all, as I wrote earlier, “a president determined to wind down George Bush’s wars in the Greater Middle East is quite unlikely to initiate a third one.”  Continue reading

America vs. China: A Counter-Narrative Arises

US-PRC flags 4Given all the fanciful prognostications about how China is poised to eat America’s lunch, it might sound odd that the country’s new leader, Xi Jinping, is sloganeering about the need for national “rejuvenation” and “revival.”  He is, of course, attempting to harness patriotic sentiments in order to boost the Communist Party’s eroding legitimacy.  But his words might well have been an acknowledgement of the daunting array of challenges China now faces.

A regular theme in this blog has been that America’s strategic prospects are being revived by the dynamism of its private sector even as China faces a more problematic future.  As earlier posts (here, here and here) have outlined, the marked surge in U.S. oil and natural gas production that has transformed the country’s energy outlook over the last few years promises to have far-reaching economic and geopolitical ramifications.  The bonanza of low-cost energy, which the Wall Street Journal dubs “Saudi America”, has also given the U.S. manufacturing sector a significant competitive advantage.

Separate from the energy boom but fortifying its manufacturing effects are America’s innate advantages in what is becoming known as the “third industrial revolution” – one that is powered by high-skill labor as well as seminal progress in the areas of artificial intelligence, robotics, nanotechnology, composite materials, and “additive manufacturing” or three-dimensional computerized manufacturing.

The net effect of these two developments is that U.S. companies are beginning to relocate production capacity back to the United States, a pattern that is reversing some of the outsourcing of the last two decades.

These points have been amplified by a number of developments and observations over the last few weeks Continue reading