‘Economic determinism’ losing favor in China policy debate

Treasury Secretary Henry Paulson was in Beijing Tuesday for another round of “Strategic Economic Dialogue” talks with Chinese Vice-Premier Wu Yi.

In Washington, the China policy debate is shaped by diverging views of China’s future development. The dominant “economic determinist” view shared by Paulson — which holds that China’s economic liberalization will lead to meaningful political reform — may be slipping out of favor, with major policy consequences.

Washington is increasingly concerned that as its global leverage enters a prolonged period of relative decline vis-à-vis Beijing, its ability to influence China’s political development is slipping away. This sentiment has lent impetus to those in the policy community who believe that the current approach to China should be revised.

Renewed policy debate.

The debate within Washington on China policy is cyclical. The latest push for policy reassessment was inspired by:
•a range of Chinese events and actions — from stock market dips to food contamination scandals — that have made the U.S. public more aware of its growing dependence on China;

•the lead-up to the 2008 Olympics in Beijing and the 2008 U.S. presidential election campaign; and

•the publication of a book by the veteran journalist Thomas Mann, The China Fantasy, which warns that popular scenarios for political reform in China may be unrealistic.

Competing views of China.

The favored policy approaches of influential voices in Washington are shaped, in large part, by their views of China’s likely political development over the next two decades:

Economic determinism. The long-dominant view, “economic determinism” is espoused by the administration. This theory assumes that economic liberalization in China (spurred by WTO membership) will inevitably lead to political openness — in part because it will create a strong Chinese middle class that will demand greater freedoms and more democratic governance:

•This scenario appeals to the U.S. business community because it eschews confrontation with China and de-emphasizes human-rights concerns that might interfere with trade and investment.

•It appeals to Beijing as well, since it prescribes a sequence — economics first, then political change — that has been a cornerstone of Chinese policy since Deng Xiaoping’s reforms of the late 1970s.

Proponents of this approach point to the economic reforms that preceded political change in Taiwan and South Korea in the 1970s and 1980s. However, surging growth has actually boosted the legitimacy of the Chinese Communist Party (CCP), despite some popular discontent related to corruption and environmental degradation. Moreover, members of the middle class can be politically very conservative, particularly when change threatens their economic interests.

Democratic revolution. The collapse of communism in Eastern Europe in 1989-1990 encouraged those who believed that a similar democratic upheaval was possible in China. The 1989 Tiananmen Square crackdown dealt this notion a major blow, but economic determinists still occasionally make use of rhetoric along these lines, as in President George Bush’s recent pronouncement that “dissidents ... are the democratic leaders of tomorrow.” The view that a democratic upheaval is certain encourages policy inertia. As U.S. economic engagement with China deepens, the potential impact of an internal Chinese collapse on the United States — even in the name of democratic ideals — mitigates against real official backing for a democratic revolution.

‘Managed change.’ This scenario assumes a slow and incremental political liberalization overseen by the ruling party. It envisions a decision to reform the party itself from within, making it more palatable to a growing middle class, thus retaining their support. Ideally, the party eventually evolves to the point of allowing democratic competition:

•There are few examples of “managed change” in other countries — Taiwan may be the best example. After the death of Chiang Kai-shek in 1975, Chiang Ching-kuo gradually renovated the Kuomintang (KMT), a process that eventually led to the introduction of multi-party politics in the 1980s.

•The CCP has embarked upon a much more modest party reform program, incorporating some businessmen into its ranks and promoting elections at the village level (not designed to be replicated on the national level).

Significantly, the managed-change approach conforms to the “guided democracy” program envisioned by the father of modern China, Sun Yat-sen, and both the KMT and the CCP, albeit in different ways, claim to be Sun’s political successors.
However, this model may not play out in China as it did in Taiwan. The KMT was desperate to maintain popular support in the face of Taiwan’s de-recognition in the 1970s, but the CCP does not face such dire circumstances.

International integration. The “global stakeholder” approach articulated by former Deputy Secretary of State (and current World Bank President) Robert Zoellick maintains that drawing China into the international community, with the enhanced influence and responsibilities of a major power, will create democratic effects by osmosis. This policy may have had a limited impact on China’s foreign policy — Beijing has occasionally acted to curb Burmese repression — but its domestic relevance may be limited. China’s ruling elite is adept at building firewalls between foreign and domestic policy. Moreover, there are few if any examples of political change achieved solely through external pressure. Although international integration can reinforce domestic political trends, its effect is usually secondary.

Mann scenario. Mann contends that U.S. policymakers have adopted unrealistically benign scenarios for political change and development in China. His central point is that China could retain an authoritarian system indefinitely, with a detrimental effect on global human-rights norms and the broader international community. He says that U.S. policymakers should maintain open economic relations with Beijing while using what influence they have to press for democratization — a policy that some skeptics in Washington have dismissed as “con-gagement.” However, Mann’s prescription may have increasing popular appeal, as it offers a more active policy approach to a U.S. public increasingly nervous over China’s diplomatic, economic and strategic expansion in the global arena.

Economic populism.

Finally, there is the growing band of economic populists in Congress. They do not offer a policy for managing China’s growing power, but simply push sanctions and other tariffs against Chinese goods. Fearing that U.S. workers and industries will suffer due to the U.S.-China economic relationship, proponents of this approach cloak demands for curbs on trade in objections to Beijing’s human-rights practices.

Their central thesis is that democracy is more costly than authoritarianism (because the latter artificially suppresses labor costs, and thus prices) and U.S. citizens should not be “penalized” for their freedoms. The popularity of this argument depends upon internal conditions in the United States rather than China: party control in Congress (with Democrats traditionally more protectionist), proximity to national elections, and the U.S. growth outlook.

Policy outlook.

When the next president enters office in 2009, Mann’s view may find a more receptive audience, which could lead to harsher exchanges of rhetoric between Beijing and Washington. However, the failure of former President Bill ClintonWilliam (Bill) Jefferson ClintonProtests erupt in Switzerland ahead of Trump's Davos trip CNN's Camerota: Conservatives don't care anymore about extramarital affairs Conway: Trump taking 'America First' message to Davos MORE’s attempt to link China‘s “most favored nation status” to human-rights improvements in the mid-1990s suggests that demands for political change from foreign governments make little impression in Beijing.

Oxford Analytica is an international consulting firm providing strategic analysis on world events for business and government leaders. See www.oxan.com .