Excerpts from The Avoidable War
I recently finished reading The Avoidable War: The Dangers of a Catastrophic Conflict between the US and Xi Jinping's China by Kevin Rudd.
This was a very informative book, written by someone in a position to know the state of play in China (and spaces China touches) intimately, and who elucidated the prime concerns of those running China more clearly and thoroughly than I’ve seen elsewhere.
It paired nicely with another recent read, Beijing Rules by Bethany Allen, which is on a similar topic, but which contains (in my opinion) more of a focus on recent China-related current events, while The Avoidable War got deeper into the substance underpinning and informing those events (and come to think of it, Chip War probably made some of these narratives a bit easier to grok).
That said, here are some excerpts I highlighted while reading The Avoidable War, because I thought they were interesting or worth referencing at some point in the future (there are quite a few of them, so you may need to open this email in your browser to read the whole thing and to see the usual link section at the bottom):
The current state of US-China relations is the product of a long, complex, and contested history. This complexity has been compounded over the last 150 years by each side blaming the other for the relationship’s failings. What emerges across the centuries is a recurring theme of mutual noncomprehension and deep suspicion, often followed by periods of exaggerated hopes and expectations that then collapse in the face of fundamentally different political and strategic imperatives.
In its most narrow conception, the modern relationship between China and the United States has relied on common economic self-interest. At other times, this has been supported by a sense of strategic condominium against a common enemy, at first the Soviet Union and, after 9/11, to a much more limited extent, militant Islamism. More recently, a further pillar was added with shared American and Chinese concerns for global financial stability and the impacts of climate change. Human rights have always remained an underlying point of friction in the relationship, waxing and waning in significance over the last half century of diplomatic engagement. Despite occasional flirtations by the Chinese Communist Party (CCP) with various forms of political liberalization, particularly during the 1980s, there has been, at best, a sullen tolerance for each other’s political systems. Across the overall history of the modern relationship, these various pillars (economic, geostrategic, and multilateral), when taken together, have supported the relationship in a way that’s been relatively robust. But one by one, over the last decade, each pillar cracked, so much so that by the 2020s, they crumbled under their own weight, having virtually exhausted their individual transactional utility.
Therefore, to borrow a question from Lenin himself: “What is to be done?” As a first step, each side must be mindful of how their actions will be read by the other through the prism of their accumulated national perceptions—in other words, what buttons light up in the decision-making processes on one side when a particular action is taken by the other. At present, both sides are bad at this, often reflecting a combination of mutually assured noncomprehension and mirror imaging that has long characterized large parts of the US-China relationship. If we are serious about the possibility of developing a joint strategic narrative that might be capable of governing the future of the relationship peacefully, we must, at a minimum, be mindful of how strategic language, actions, and diplomatic signaling will be interpreted within each side’s political culture, systems, and elites. It is this sort of awareness that can help us navigate the practical complexities of competing national interests, values, and perceptions within a stable, albeit still competitive, strategic framework.
Developing a new level of mutual strategic literacy, however, is only the beginning. What follows must be the hard work of constructing a joint strategic framework between Washington and Beijing that is capable of achieving the following three interrelated tasks:
1. Agreeing on principles and procedures for navigating each other’s strategic redlines (for example, over Taiwan) that, if inadvertently crossed, would likely result in military escalation.
2. Mutually identifying the areas of nonlethal national security policy—foreign policy, economic policy, technology development (for example, over semiconductors)—and ideology where full-blown strategic competition is accepted as the new normal.
3. Defining those areas where continued strategic cooperation (for example, on climate change) is both recognized and encouraged.
This isolated status quo, however, would be turned on its head in the decades following the First Opium War (1839–1842), when Britain forced China to open its ports to international trade, imposed a series of unequal treaties on the Qing (including granting foreigners in China impunity from Chinese law under the principle of extraterritoriality), and gradually forced China to accept foreign missionaries. While the Americans may have been officially squeamish about the colonial methods used by their European cousins in forcing open China’s doors, they were soon demanding the same access to the country—both for commerce and Christian evangelism. American businesspeople were no more noble than any other country’s. Boston merchants did a significant trade in opium, sourced from Ottoman suppliers, and then plied across the Pacific to China’s newly opened treaty ports.
Increasing living standards and improving the quality of life for the Chinese people is a core part of Xi’s effort to build the party’s political legitimacy in the post-Mao era. This is the unspoken social contract between party and people: that the public will continue to tolerate an authoritarian political system under the party so long as the people’s material livelihood continues to improve. While Xi is no economist and appears to have surprisingly limited feel for how market economies actually function (he is much more comfortable in the classical political domains of ideology, security, and international relations), he understands the axial link between continued public prosperity and the security of his long-term leadership. Indeed, popular resentment about a failing economy has generally been seen by his detractors as the one factor that could bring him down. One of the recurring patterns of internal Chinese politics is that someone in authority must always take the blame if something goes radically wrong that the party elites judge to have been a preventable disaster. An economic recession would be a case in point, given that China has not experienced one since the Cultural Revolution. Even a lesser economic failing, such as a rapid decline in growth that wiped out many small and medium businesses, would also ultimately demand a political price. It is for these reasons that the economy still looms as the political Achilles’ heel for the party’s—and Xi’s—future.
Xi finds himself wrestling with five major interconnected, and in some cases conflicting, challenges in China’s unfolding political economy: (1) to maintain economic growth to provide employment and rising living standards; (2) to do so while maintaining an optimal internal balance between the state and the market without ceding the party’s political control to a new generation of entrepreneurs; (3) to ensure that growth is better distributed than in the past so that economic inequality is reduced; (4) to impose new carbon constraints on China’s previous economic development model to deal with the now accepted reality of climate change; and (5) to manage the external economic pressures now being applied by the United States on trade, investment, and technology.
All this changed, however, with the Chinese financial crisis of 2015. The event marked the beginning of the second transition in political and economic policy during the Xi Jinping period. That summer, Chinese authorities struggled to manage a stock market bubble driven by excessive liquidity and financially illiterate investors. The proliferation of margin-lending practices by individuals and corporations borrowing heavily from financial institutions to make investments in dubious asset classes (in what was assumed to be a permanently booming economy) soon turned into a disaster on Chinese equities markets. Once the asset bubble burst, state and private institutions were quickly directed by the government, as part of what became known as a national team, to invest heavily in equities to try to steady the market. This failed comprehensively, investors interpreting this radical intervention as a sign that it was time to jump ship, resulting in even more spectacular losses. The Shanghai Composite Index (China’s equivalent of the Dow Jones Industrial Average) collapsed 32 percent in less than three weeks in July 2015. At its 2015 high, its market capitalization was $10 trillion; by September 2018, it was at $5.7 trillion. Markets were finally stabilized at much lower prices by early 2016, but the damage had been done; they would take until 2020 to eventually recover. To Xi, it was more than a matter of financial management; it was a political fiasco. Tens of millions of average citizens had lost their savings, and they blamed the party and government. As a result, Xi’s intuitive skepticism toward what he soon described as the reckless expansion of capital was intensified—just as his political appetite for further broad-based market reforms, and not just those in finance, eroded.
This shift in policy first exploded into public awareness with the state’s suspension of the highly anticipated IPO of Jack Ma’s Ant Financial Group, followed by a furious regulatory investigation launched into Chinese ride-hailing giant Didi Chuxing in July 2021 after its $4.4 billion IPO on the New York Stock Exchange, which regulators had explicitly warned the company not to pursue. New data-security rules were quickly implemented, restricting IPOs by Chinese companies abroad. That wasn’t all. China’s cyber regulator accused 105 apps—including job-recruitment and short-video apps such as ByteDance—of illegal collection of personal data and demanded immediate rectification. The Chinese government quietly took a 1 percent ownership stake and a board seat in the domestic Chinese subsidiaries of ByteDance (the owner of TikTok) and Chinese microblogging platform Weibo. Discussion of an antimonopoly crackdown on China’s tech giants reached a fever pitch. Finally, in late July of that year, Beijing published new regulations banning for-profit tutoring and private education companies, effectively killing overnight a thriving sector attracting billions in investment. Chinese stocks plunged, as it dawned on executives and investors, both in China and around the world, that a new policy reality had crept up on them, that the policy assumptions they had made in the past, based on decades of experience, were changing rapidly, and that this was just the start of what Xi had planned.
So what does the NDC actually mean for Chinese economic policy? Although it first appeared in 2015 (when it was brought up by Xi at the Second Plenary Session of the Eighteenth Central Committee), for the next few years, the term New Development Concept was of secondary significance in the party’s official discourse, left vague enough to encapsulate whatever Xi’s take on economic policy happened to be at the time. Its intended significance was then underscored by Xi’s decision to have it formally incorporated into the Chinese state constitution in March 2018. Over the years that followed, Xi gradually imbued the concept with more meaning, and by 2020, the NDC came to embody the confluence of three key priorities: nationalist self-reliance, his protectionist concept of a dual-circulation economy, and his new redistributive doctrine of common prosperity.
The first pillar of the NDC is the concept, already touched on previously in this account, of self-reliance (zili gengsheng), which literally means “to rejuvenate through one’s own strength.” This is a revival of the Mao-era obsession with eliminating China’s vulnerabilities to any pressure from the outside world. But where Mao sought to boost grain yields and steel production, Xi seeks a China capable of producing its advanced semiconductors, software operating systems, and cloud-computing infrastructure—in short, leading on the cutting edge of critical strategic technologies through China’s indigenous innovation effort, notwithstanding any restrictions that might be imposed by a future US administration.
The second pillar of Xi’s NDC is his vision for a dual-circulation economy. Introduced in the fall of 2020 as part of China’s latest five-year plan for 2021–2025, dual circulation, in essence, calls for a much greater contribution to aggregate economic growth from China’s massive domestic market by ramping up consumer demand from a large, strong, and emerging middle-income class (i.e., internal circulation). Simultaneously, it would focus on rebalancing China’s global economic engagement from a model anchored in labor-intensive manufacturing for mass export to a model prioritizing both imports and high-value chain exports (external circulation). It is, in part, a conscious reversal of the “great international circulation” strategy adopted by Deng Xiaoping in the 1990s to power China’s rise under the general strategic direction of reform and opening.
However, the third pillar of Xi’s New Development Concept is focused exclusively internally—on fundamentally resolving the new principal contradiction identified by Xi in 2017. This is Xi’s operationalization of his long-standing concept of common prosperity (gongtong fuyu). Common prosperity, according to Xi’s goals defined in the party’s fourteenth five-year plan, means that “all people shall make more tangible progress in substance over the next five years.” This is notably a direct modification of Deng Xiaoping’s guidance that it was okay to “let some people and some regions get rich first”—although (and this is often forgotten) Deng also said that this was meant only as “a shortcut to accelerate development and achieve common prosperity,” which remained the “general principle.” Therefore, in framing his economic campaign as prioritizing “common prosperity for all,” Xi is portraying himself as completing what Deng was unable to finish during the forty-year-long period of reform and opening.
The panicked sell-offs in large Chinese private-sector companies’ equities following this wave of statements were sufficient to force Liu He’s deputy, Han Wenxiu, to release a statement in August 2021 that attempted to clarify that while the plan was to “encourage getting rich through hard work and innovation.… We will not ‘kill the rich to help the poor.’” Instead, the rich will merely be “encouraged” to give back more through what is labeled as a “tertiary distribution of wealth”—coming after the “primary distribution” of wealth through market wages and the “secondary distribution” of state spending. Calling on the rich to participate in charitable causes or otherwise assuming wider social responsibilities, “tertiary distribution” is, in essence, forced philanthropy. Politically literate companies, such as e-commerce platform Pinduoduo, quickly got the message—in that case, pledging to donate its entire second-quarter profit in 2021, or as much as $1.5 billion, to rural agricultural development. Meanwhile, online technology giants Tencent and Alibaba each pledged to donate more than $15 billion for common prosperity funds.
But common prosperity is not just about easing income inequality. It also has a significant social and cultural component. This appears to have been motivated, in part, by growing frustrations among Chinese youth, who have complained of poor postcollege employment prospects, a harsh 996 work schedule (9:00 a.m. to 9:00 p.m., six days a week) required by tech companies (since made illegal), and an exploitative gig labor sector commonly used by online tech platform companies to keep labor costs to a bare minimum. This practice has recently attracted growing public and therefore party scrutiny and discontent over poor pay and working conditions. A culture of nihilistic despair has appeared among Chinese netizens, commonly aired on social media in the form of popular slang terms such as neijuan, or involution, which describes a turning inward by individuals or society due to what one social media post described as a “prevalent sense of being stuck in a draining rat race where everyone loses.” This despair also manifested itself in a movement known as tangping, or lying flat, in which people resolve to do the absolute bare minimum of work in life, relying instead on the generosity of the state.
While concerned about citizens’ sense of economic injustice, Xi has little patience for the tangping. Hence, common prosperity measures have also gone hand in hand with a cultural crackdown on everything from video games (labeled “spiritual opium” by state media, with minors banned from playing them for more than three hours per week) to entertainment industry celebrities (where internet regulators have promised to censor “vulgar” displays of wealth and “resolve the problem of chaos” in online fan culture) to education ministry plans to “cultivate masculinity” in schoolboys. As one nationalist blogger wrote recently in a post shared widely by state media, the goal is that “the cultural market will no longer be a paradise for sissy stars, and news and public opinion will no longer be in a position of worshipping Western culture.” Applying copious doses of paternalistic, Confucian, and Leninist morality, Xi apparently doesn’t want China’s youth to lose their nationalistic virility and become apathetic slackers who do not make patriotic, productive citizens.
But nor, in Xi’s eyes, does China have enough children. Another closely connected reason for Xi’s common prosperity push is China’s demographic crisis. China’s 2021 census found that the Chinese population grew by only seventy-two million in 2020, representing a massive 18 percent drop in the number of newborns from 2019 and putting China’s fertility rate at a record low of only 1.3 births per woman. Analysts predict China’s population could peak as early as 2022, a full decade earlier than previously predicted. And with the portion of working-aged Chinese (fifteen to fifty-nine) relative to the entire population already standing at only 63 percent in 2020 (down from 70 percent in 2010), the demographic challenge to future economic growth appears acute. This has caused anxious planners in Beijing to lift China’s one-child policy restrictions and allow up to three children per family (with all limits likely to soon be scrapped) but to little effect. Frustrated Chinese young people say the costs of having even one child are already outrageous. According to one study, the average Chinese family spends around $115,000 per child from birth to seventeen, before college costs. One survey found that 90 percent of respondents said they simply “would not consider” having three children. Hence, expensive private tutoring services (which grew at an average annual pace of 30 percent between 2017 and 2019) were among Xi’s first targets in a blunt-edged effort to address this problem.
This then has become the North Star of China’s emerging political economy for the decade ahead. Xi believes that his New Development Concept, made up of this combination of self-reliance, dual circulation, and common prosperity, will be sufficient to transform China into a superpower strong enough to prevail in its unfolding strategic competition with the United States. As he put it to his comrades in January 2021, “As long as we can stand on our own and be self-reliant and maintain a vibrant flow of goods and services domestically, then we will be invincible no matter how the storm changes internationally. We will survive and continue to develop, and nobody can beat us or choke us to death.”
The most important question for the period ahead is whether the truth is more likely to be the opposite: that these top-down solutions, or what Xi likes to call top-level design, and his general obsession with political control will be a hurdle, not a boon, for future economic growth. Or if they will, in fact, strangle the goose that laid the golden egg altogether. After all, China’s largest private-sector players, once hailed as the country’s national champions for driving the Chinese economic miracle—including, as Liu He admitted, nearly all productivity increases, wealth creation, technological progress, and a significant proportion of new employment—are increasingly being crushed by the clenched fist of the Chinese party and state.
Environmental sustainability in China, as in most countries around the world, has steadily edged its way up the ladder of political priorities as people become increasingly aware of the impact of environmental degradation on their daily lives. The tragedy of China’s rapid economic development over the last thirty-five years is that the CCP subordinated environmental concerns to economic growth. This led to serious and health-threatening levels of air and water pollution as well as desertification, significant loss of biodiversity, and water scarcity. As a result, China has been paying the price. Despite the risks of protesting in China, there have been frequent and angry demonstrations against endemic pollution and the lack of government oversight in towns and villages across the country. Air and water pollution levels across China have been so high in places as to have given rise to a new range of respiratory diseases and other medical conditions, including localities with rates of cancer so high they have been dubbed “cancer villages.” There has also been growing public anger over food-quality scandals by producers sacrificing safety and quality to save costs—as in the case of the 2008 contaminated milk scandal that sickened and killed a number of children, prompting mass outrage.
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