Category Archives: China

The Asian Century 16.

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            At the dawning of the Cold War in Asia, the United States limited its security commitments in the region.  Holding Japan headed the list of American concerns.  The Chinese Nationalists (Kuomintang) seemed close to defeat by the Communists.  American efforts to reform or reinforce the Kuomintang, or to mediate a peace had foundered.  Nothing more could be done.  Communist victory in 1949 did not trigger an American commitment to stop further dominoes from falling.  The remnants of the Kuomintang were left to fend for themselves; American troops began to withdraw from Korea; and the Americans made clear to the French that their war in Indochina was a lost cause.[1]  Then the Korean War began (1950); Communist China intervened against the Americans; the Americans committed themselves to South Korea, Taiwan, and Indochina; and the two countries were at daggers drawn for twenty years. 

            All this suddenly changed in the 1970s.  Richard Nixon and Henry Kissinger began an “opening” to China, while post-Mao China launched a sweeping transformation of its economy and society.  That transformation accelerated after the collapse of the Soviet Union.  The United States and China appeared to develop a community of interest that would shape the future world.[2]  One of the sticking-points that had to be finessed was the fate of Taiwan.[3]  China has held to a “one China” policy that amounts to a determination to regain all the parts of traditional China that have been lost.  Chiefly this has meant Macao, Hong Kong, and Taiwan.  The United States has accepted this policy as a long-term goal while insisting that it not take place by force.  Without adequate military force to face-down the United States, China had to play the long game.  Meanwhile, protected by the United States, South Korea and Taiwan flourished. 

            It seems to some observers that we are at the beginning of a new phase.  China’s rapid economic development has permitted the once-weak country to begin projecting its power and claims.  China has engaged in a massive military build-up, expressed in a sustained campaign to gain control of the South China Sea.  It has begun reeling-in lost territories.  Macao and Hong Kong have been the first to fall.  Now Taiwan has become the focus of attention.  The loss of Taiwan would harm American national interests.  Partly the reasons are economic; partly they are diplomatic and military; taken altogether they are strategic.  Which system will dominate Asia?  Will it be the American system of democratization and an open market economy?  Will it be the Chinese system of autocratic government and a state-controlled economy? 

            Grand gestures without solid backing likely will lead to humiliating climb-downs in Asia.  “Solid backing” means military spending and alliance-revival through sustained diplomacy.  It alos means looking to the economic and technological foundations of national strength.  This grave challenge comes at a difficult time for Americans.  Donald Trump’s “America First” policies expressed, rather than caused, a pre-occupation with domestic social and economic concerns.  Seeing beyond the here-and-now will take strong leadership.  

[1] Brian Crozier, The Man Who Lost China: The First Full Biography of Chiang Kai-shek (1976); Nancy Bernkopf Tucker, Patterns in the Dust: Chinese-American Relations and the Recognition Controversy, 1949-1950 (1983); Lloyd C. Gardner, Approaching Vietnam: From World War II through Dienbienphu (1989).

[2] The omnipresent British smarty-pants Niall Ferguson coined the term “Chimerica.”  See: https://en.wikipedia.org/wiki/Chimerica 

[3] Walter Russell Mead, “Beijing Won’t Bow to Bluster,” WSJ, 12 January 2021. 

China Data.

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            During the late 1980s, Judy Shelton, a researcher at the Hoover Institution, began an examination of the public documents on the Soviet Union’s budget.[1]  Communism’s centrally-planned economy had spent decades setting unreachable production targets and then hiding the failure to achieve those targets.  The huge Soviet arms build-up after the humiliation suffered at the hands of the Americans in the Cuban Missile Crisis had long term effects.  The military (the “metal-eaters” as they were called) creamed off resources that could have been devoted to either civilian consumption or investment in production.  Economic stagnation went hand in hand with mounting popular discontent behind a veneer of great military power.  Shelton concluded that massive inflationary forces were being held back by controls, but eventually the dam would burst.  In the meantime, she argued, Mikhail Gorbachev sought to stave off the disaster by obtaining Western credits and technology.[2]  As Shelton predicted, collapse followed. 

            Twenty years on another financial crisis arose in Greece.[3]  Following a historical pattern, Greece had borrowed a lot of money from foreign lenders, spent the money on a higher standard of living in the short-term without investing in higher productivity in the long-term, cooked the books to cover what they were doing for as long as possible, and then loudly bemoaned their unjust fate when the sheriff finally showed up. 

            The common thread here is that reality and perception differed widely.  Both the Soviet Union and Greece worked hard to project an image that concealed grave problems.  Only a handful of budget experts could—with much labor—discern the truth.  The reason these historical cases matter is because not everyone today is happy with the state of data from China.   

            In the eyes of one analyst,[4] it is necessary to do a lot of digging to figure out what is going on.  On the one hand, Chinese government officials and managers are under continual pressure to meet certain quantitative standards.  In this situation, “real” growth (adjusted for inflation) is more important to managers than is actual new output.  So they may tend to overstate “real” growth.  Calculating inflation is a coarse art in China when compared to Western industrial countries.  This facilitates overstating “real” growth.  In addition, the government suppresses existing, reliable data reports when they diverge too much from the government’s line.  In 2016, the government halted publication of lending to public versus private borrowers; in 2018, it halted publication of purchasing managers indexes in Guangdong province. 

            On the other hand, this manipulation of data can makes things really difficult for people who are just trying to do productive things.  Obviously, it hinders the work of foreign observers who are trying to understand and anticipate the performance of the world’s second largest economy.  However, it can have the same effect on Chinese managers struggling to run their firms.  If uncertainty about economic performance piles up year after year, there’s going to be a reckoning.  Also, this isn’t public finance, but it may be true there as well. 

[1] On Shelton, now a controversial figure and notable spoil-sport, see: https://en.wikipedia.org/wiki/Judy_Shelton   

[2] Judy Shelton, The Coming Soviet Crash: Gorbachev’s Desperate Pursuit of Credit in Western Financial Markets (1989). 

[3] Carmen M. Reinhart and Christoph Trebesch, The Pitfalls of External Dependence: Greece, 1829-2015 (2015), Brookings Papers on Economic Activity, https://www.brookings.edu/wp-content/uploads/2015/09/ReinhartTextFall15BPEA.pdf 

[4] Nathaniel Taplin, “China’s Growth Data Dazes and Confuses,” WSJ, 5 January 2021. 

Looking Forward in December 2020 2.

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            President Joe Biden will face three chief problem areas in foreign policy.[1]    

            First and foremost, there is the problem of Asia.  “China is sort of the radioactive core of America’s foreign policy issues.”[2]  The phrase “U.S.-Chinese relations” offers an umbrella for two main issues.  The first is economic, covering trade and technology.  The second is China’s current and projected outward reach, meaning—for the moment– Hong Kong, Taiwan, and the South China Sea.  Donald Trump replaced the long-term American policy of co-operation with one of confrontation.  The central pillars of this approach have been tariffs, harassing the Chinese tech giant Huawei, and talking about building up the over-stretched U.S. Navy.  The Chinese government’s crackdown on the Uighurs, Hong Kong, and internal critics of its response to the Corona virus show the direction Zi Jinping intends to take on internal affairs.  Will the same be true in foreign policy?  To what extent will President Joe Biden change course from the Trump administration?

            There is no good solution in sight to the problem of a nuclear armed North Korea.  Plastering the little country with economic sanctions didn’t work.  Trump’s initiative to open direct contact with North Korea didn’t work.  Somehow (or from someone) North Korea acquired ICBM rocket engines and the ability to stop the US from messing up its missile test launches.  Biden has roundly denounced Trump’s appeasement of North Korea, but hasn’t suggested any alternative beyond rhetorical initiatives.  If the Obama administration wouldn’t bomb Iran to stop its nuclear program, would a Biden administration bomb North Korea? 

The second is the Middle East.  For a long time, America’s Middle East policy sought to limit Soviet influence in the area and to gain security for Israel through a resolution of the Palestinian problem.  Events have by-passed by far this policy.  The collapse of the Soviet Union reduced the scale of that danger.  However, the Sunni-Shi’ite civil war[3] took its place. 

The Obama administration negotiated an agreement to limit Iran’s pursuit of nuclear weapons for a time, but left other aspects of Iran’s assertive behavior for some future day.  President Trump abandoned that agreement and restored unilateral, but painful for Iran, sanctions.  President-elect Biden has said that he will reverse course by rejoining the agreement, but he also has said that Iran must commit to additional negotiations.  “Iran is desperate for a deal.”[4]  How desperate? 

Trump’s aggressive stance toward Iran strengthened both Israel and Saudi Arabia, which felt threatened by the more accommodationist policy of the Obama administration.  An Israel-Sunni Arab coalition is well under construction, with knock-on damage to the long-term Two States solution to the Palestinian problem.  Will the Biden administration reverse course on the Sunni-Shi’ite civil war within Islam?  Will it restore support for a Two State solution?  How will it deal with the Crown Prince (and likely future king) of Saudi Arabia?[5] 

            The third is relations with America’s European allies.  In 1949, the United States created the North Atlantic Treaty Organization (NATO) to deter the existential threat from a Soviet attack on Western Europe.  Forty years later the Soviet Union disintegrated.  NATO faced a new existential threat: what was its purpose?  No one has come up with a good answer. 

Trump openly and repeatedly disparaged our Continental European allies, while hoping for better relations with post-Soviet Russia.  Will the Biden administration find common interests with Russia in areas like arms control, even if it means throwing overboard the kleptocracy in Ukraine?  Will the Biden administration bear with the continual post-Trump whining from E.U. leaders to “prove you love me”? 

Seeing Britain’s departure from the European Union (E.U.) through the same optic of “tribalism” and “nationalism” as they saw Donald Trump, both former President Obama and presidential candidate Biden opposed “Brexit.”[6]  Trump thought that he saw a kindred spirit in British prime minister Boris Johnson.  Now Trump will be replaced by Biden, but both Johnson and “Brexit” are still there.  Will the Biden administration really want to make things difficult for America’s most reliable ally now that “Brexit” is a done deal?    

Joe Biden seems adept at dealing with realities as they exist.  It is at least possible that there will be an uncomfortable degree of continuity between the foreign policies of the Trump and Biden administrations. 

[1] Rick Gladstone, “Biden to face a Long List of Foreign Challenges, With the Chinese at the Top,” NYT, 9 November 2020. 

[2] Orville Schell.  On Schell, see: https://en.wikipedia.org/wiki/Orville_Schell 

[3] Essentially this pitted Shi’ites in Iran, Iraq, Syria, and Lebanon against Sunnis everywhere else, with Saudi Arabia taking a leading role. 

[4] Cliff Kupchan.  On Kupchan, see: https://en.wikipedia.org/wiki/Cliff_Kupchan    

[5] The man appears to be a very able psychopath. 

[6] “Brexit” seems to me to be an understandable bad idea with much deeper historical roots than is often recognized. 

The Asian Century 15.

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            Analogies hand us a useful device for understanding the unfamiliar in terms of the familiar.[1]  The key thing is to pick the right analogy.[2]  In Summer 2019, Walter Russell Mead offered the early Soviet-American Cold War as a useful analogy for understanding the contemporary relationship between the United States and the Peoples’ Republic of China (PRC).[3]  He emphasizes that the Soviet-American relationship plunged down-hill so fast that it caught the American public flat-footed.  Mead suggests that today China and the United States stand on the edge of a similar precipice.  If we go over the edge, no one can predict the duration or nature or outcome of the struggle. 

            Looking back at the Soviet-American rivalry for lessons, Mead asks about the impact of ideologies, the future “hot spots” of the competition, the impact on American society, the role of and impact on the high cultures (meaning higher education and technology) of the rivals, and how the densely woven relationship between China and America will affect and be affected by such a competition.[4] 

            Just as “the emperor counsels simplicity,” Mead counsels Americans to give much thought to understanding both themselves and China.  First, how do Chinese leaders see China and its place in the world?  Since the death of Mao, China has experienced tremendous economic growth under the leadership of the Chinese Communist Party.  That economic growth created a large and self-confident middle class.  Some observers, applying the analogy of the European bourgeoisie in the 18th and 19th Centuries, believe that this middle class is showing the first signs of restlessness with the Party’s leading strings.[5]  Will Beijing pursue an assertively nationalist foreign policy to squelch dissent?  What might be the outcomes of such a policy?[6]    

            Second, how can Americans forge a consistent and effective China policy when the country is so deeply divided?  Here Mead penetrates much less deeply.  On the one hand, the origin of our discontents has not yet found any satisfying explanation.[7]  On the other hand, he doesn’t broach the subject of whether America even has the resources to rise to the challenge.  So, coming to know ourselves may be a lengthy undertaking.      

[1] See: https://plato.stanford.edu/entries/reasoning-analogy/ 

[2] Ernest R. May, “Lessons of the Past”: The Use and Misuse of History in American Foreign Policy (1975). 

[3] Walter Russell Mead, “Americans Aren’t Ready for Cold War II,” WSJ, 11 June 2019.  It’s an encouraging choice of analogy in the sense that the Cold War never turned into a full-scale direct military conflict. 

[4] At this point, it might be useful to start building a library of Cold War history books.  Aaron L. Friedberg, In the Shadow of the Garrison State: America’s Anti-Statism and Its Cold War Grand Strategy (2000); John Lewis Gaddis, The Long Peace: Inquiries Into the Cold War (1989); and Geir Lundstad, East, West, North, South: International Relations since 1945 (2017) can all be recommended.   

[5] On the European analogies, see Eric Hobsbawm, The Age of Revolution, 1789-1848 (1962); and William L. Langer, Political and Social Upheaval, 1832-1852 (1969).  Sure they’re “old” books.  That’s because a couple of really smart guys got there first.  Everybody since has been nibbling around the edges. 

[6] For this analogy, see Volker Berghahn, Germany and the Approach of War in 1914 (1973). 

[7] Kevin M. Kruse and Julian Zelizer, Fault Lines: A History of the United States Since 1974 (2020) and Thomas Friedman and Michael Mandelbaum, That Used to Be Us: How America Fell Behind in the World It Invented and How We Can Come Back (2012) fall into the Blame Republicans First camp.  Charles Murray, Coming Apart: The State of White America, 1960-2010 (2013); and Stephan and Abigail Thernstrom, America in Black and White: One Nation, Indivisible (1999) are conservative interpretations of one theme in the conversation.  Reading the Conclusions and Recommendations of The 9/11 Commission Report (2004) would be a good way to begin. 

The White Russians in Shanghai 2.

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The French Concession at Shanghai was very modern in terms of its appearances and services, but was home to comparatively few businesses.  Consequently, rents and property values were lower here than in the International Concessions.  Not a few rich Chinese merchants had built opulent homes in the French Concession because of the superior services and policing compared to the rest of Shanghai.[i]  The better-off among the Russians often settled along the plane tree-lined Avenue Joffre in the western part of the concession, which became known as the “Russian concession.”  Here there were many Russian restaurants, cabarets, bakeries, and shops, all with signs in Cyrillic over their doors.[ii] 

Few of the Russian refugees arrived with the resources to start a new life, but many of them managed to thrive over the years.[iii]  The prosperity of the European population, the vitality of commerce in the great trading port, and the absence of the sort of professional restrictions on the immigrants which prevailed in European countries allowed the refugees to make a better living than was commonly the case for the Russian refugees in Europe or America.[iv]  Valentin Fedoulenko, who ran a successful pharmacy in the French Concession, recalled the favorable business conditions that made prosperity possible.  “Credit there was rather easy to obtain from the Chinese firms.  But the condition was that everything must be paid [back] within one year; if you didn’t pay within one year then you never got any more credit.  If you did pay back within one year then you had complete respect and you had all the money you ever needed.”  In addition, “We had almost no taxes to pay and life was truly remarkable for a long time. We did not know such a thing as income tax up to the end, when the merchants had to pay a tiny percentage of their income.”  There was a sham quality to this glitter of success however.  “In Shanghai money was unstable and we were taught not to hoard it but rather to spend it.”  Inflationary conditions bred inflationary behavior.  “All of this trade was based on very easy credit.  As we used to call it in Shanghai, this was business sucked out of one’s own thumb. Many of our merchants who gave the appearance of being very wealthy were in fact quite poor but lived and operated on credit.”[v]  

According to a 1925 census of the foreign settlements in Shanghai, there were only about 4,000 White Russians living within the privileged areas.  From 6,000 to 10,000 more, the much less successful, lived in Chinese Shanghai.[vi]  The prosperity attained by some allowed them to escape the oppressive heat of the Shanghai summers by vacations at one of the northern Chinese ports.  These cities– Peitaiho, near the Gulf of Chili, and Tsingtao and Chefoo, on the Shantung peninsula–became popular summer vacation spots for White Russians in Shanghai with the means to afford it.  The upper crust brought their marriageable daughter there in hopes of finding a match with a British or American naval officer; the Shanghai prostitutes hoped to do a profitable trade with sailors on shore-leave.[vii]  Tsingtao became known as the “Brighton of the Far East” because of its cool climate, a beautiful beach on the Yellow Sea, and the large Strand Hotel.[viii] 

A favorite place for relaxation among Shanghai’s foreign population—including the White Russians–was the Cercle Sportif Français which admitted interesting Chinese and women.  It had a dance floor and an excellent restaurant, a swimming pool and tennis courts, and a roof garden in the form of a pagoda.[ix] 

[i] Miller, Shanghai on the Metro, p. 241. 

[ii] Clifford, Spoilt Children of Empire, p. 64; Sergeant, Shanghai, p. 36. 

[iii] Clifford, Spoilt Children of Empire, p. 64.  

[iv] Stephan, The Russian Fascists, p. 35. 

[v] Fedoulenko, “Russian Émigré Life in Shanghai,” pp. 53, 59, 84. 

[vi] Clifford, Spoilt Children of Empire, p. 41. 

[vii] Stephan, The Russian Fascists, p. 36. 

[viii] Feuerwerker, The Foreign Establishment in China, p. 18. 

[ix] Clifford, Spoilt Children of Empire, pp. 72, 160. 

The White Russians in Shanghai.

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            In this anomalous city, the White Russians occupied an anomalous position.  They were a vitalizing, but disruptive, element.  The First World War coincided with–if it did not create–a marked change in the social life of foreign residents in the Shanghai settlements.  Before the war the foreigners, the English especially, ordered their lives around afternoon carriage-rides on Bubbling Well Road, massive meals of over-cooked food, evenings of bridge, and social events at the various nationally-based clubs.  There was a golf course and stables and tennis courts for the week-ends.  After the war, movies, cabarets, and a much more frantic night-life seemed to take over.[i]  Many of the Russian émigrés bore with them into exile a very high level of culture and intellectual achievement.  Consequently, they greatly enlivened the colonial cultural backwater of “Western” Shanghai.  Music, theater, and dance all flourished with the coming of the Russians.[ii]  At the same time, White Russians ran many of the nightclubs, cabarets, and restaurants in foreign Shanghai.  As the nightlife grew more extravagant, more settled people tended to blame the White Russians for any trouble that arose.[iii]   

The White Russians were losers in a larger community of winners.  Unlike the other Westerners in Shanghai in the Twenties, the White Russians were not there by positive choice.  They were refugees, with the largest group arriving in 1923 after the evacuation of Vladivostok.  After 1921 they lacked the protection of extraterritoriality enjoyed by the British, French, and Americans, and were subject to the Mixed Court headed by a Chinese magistrate assisted by Western “assessors.[iv]  Some among them were not merely losers, but were also the fallen.  The prevalence of prostitution among White Russian women is probably much over-stated, but in the popular mind “’Russian girl’ came to mean ‘Caucasian harlot’ in the tenderloin lingo of Harbin, Shanghai, and Kobe.”[v]  In addition, there was the problem of alcoholism.  Valentin Fedoulenko recalled that “our one big sorrow was that there were many people who had been used to living in a certain rather prosperous way of life and who had found themselves suddenly in terrible conditions and had begun to drink very heavily.  During the first ten years we had a terrible problem of drunkenness among our Russian colony in Shanghai.  This was our great sorrow.  This period, until they all died of drunkenness, we had a horrible time with them….They would die very frequently right on the streets, dropping themselves completely to the level of the Chinese and worse…..”[vi]  Impoverished, stateless white people presented a problem for the British, French, and Americans who inhabited the “concessions.”  The Western domination of Asian peoples depended a good deal upon their prestige, the sense of superiority over the Chinese that they conveyed.  The other Westerners regarded the Russians as improvident and untrustworthy, fit only to be shunned, pitied, and despised.[vii] One White Russian refugee recalled the state of mind in October 1922, when the last White forces evacuated Vladivostok.  “The atmosphere was such that we were getting ourselves loaded on the ships and God knew where we would end up.  We had no plans, only that we could leave and go any place so as to escape the Bolsheviks.  Outside of that we had no plans.  Whatever would be in the future, anything would be better than to be caught by them.”[viii]

[i] Feuerwerker, The Foreign Establishment in China, p. 6.  

[ii] Harriet Sergeant, Shanghai: Collision Point of Cultures, 1918-1939 (New York: Crown Publishers, 1990), p. 34.  

[iii] Clifford, Spoilt Children of Empire, p. 73. 

[iv] Ibid, pp. 6, 41, 29-30.  The Mixed Court dealt with Chinese charged with crimes or engaged in civil suits, either among themselves or with foreigners, and with foreigners who did not enjoy extraterritorial protection, all within the settlements.  It was headed by a Chinese magistrate, but that magistrate was effectively under the supervision of the Shanghai Municipal Council (a western institution) and westerners sat as “assessors” on all cases. 

[v] Stephan, The Russian Fascists, p. 8.  See Fedoulenko.  Michael Miller has observed of the mind of the French public that, thanks to popular literature during the inter-war period, “Around ‘les femmes russes de Shanghai’ grew up a certain literature–pornographic, cheaply sentimental, and laden with the specter of white decline in the Orient.”  Miller, Shanghai on the Metro, p. 246. 

[vi] Fedoulenko, “Russian Émigré Life in Shanghai,” pp. 52-53. 

[vii] Sergeant, Shanghai, pp. 38, 39. 

[viii] Fedoulenko, “Russian Émigré Life in Shanghai,” p. 45. 

The Asian Century 14.

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            The way it looks at the moment, the foreseeable future will be dominated by tiny things: deadly viruses and ultra-thin semi-conductors.  Controlling both holds the key to leadership (and possibly survival) in the Twenty-First Century.  Both come from Asia.  Of the two, computer chips may be the more pressing long-term concern.[1] 

            Inevitably, this begins as History.  The West pioneered industrialization, then moved up the ladder from making simple things to making more complicated and higher-value things.  From this they drew immense wealth.  Wealth converts into military power.  From the late Eighteenth Century onward, the West both shot ahead of the rest of the world and began to impose its rule on the rest of the world.[2] 

            Since the Second World War, many countries have wanted to follow the Western path.  For most of the imitators it meant beginning where the West had begun, with simple mass-produced goods that the West no longer cared to produce.  Textiles, then simple electronics, then motorbikes and automobiles.  They were filling global needs without competing head to head with the established economies. 

            Two countries—South Korea and Taiwan—went farther than making textiles, steel, and ships.  Taiwan’s strategy: invest heavily in research and development; build human capital through education and hold that capital in Taiwan; push rapid adaptation to changing markets in the West; encourage new businesses, rather than guard the established giants; and don’t put the hackles up on key Western manufacturers. 

            One of those start-ups was the Taiwan Semiconductor Manufacturing Company (TSMC).  The Taiwanese government chose Morris Chang, an American-educated Taiwanese, to begin creating a semi-conductor industry.  They didn’t set him to jumping too far by building an industry to use those chips in things like smartphones.  They set him to building the essential component of such devices.  He succeeded, but–true to the Taiwanese form—he didn’t rest on his laurels.  TSMC kept pushing up the ladder to chips until it became the leading producer of high-end semi-conductors.  What it did not do was to branch out into making the devices produced by powerful companies like Apple.  Both American and Chinese device manufacturers came to rely on abundant supplies of TSMC chips. 

            Now TSMC and Taiwan are becoming important “chips” in a different game.  The Trump Administration broke with previous American policy by taking seriously the profound Chinese-American rivalry.  Tariffs formed one part of its campaign, but so did a campaign to block the expansion outside China of the Huawei Company.  The American campaign against Huawei aimed, in part, to block the Chinese company’s access to TSMC chips.  The Trump Administration also encouraged TSMC to build a chip plant in the United States. 

            IF artificial intelligence and high-speed computing are going to be two corner stones of economic power and national prosperity, then high-end chips are an essential interest of both China and the United States.  Will the complicated Sino-American relationship on this issue and on so many others be resolved by diplomacy? 

[1] Ruchir Sharma, “It All Comes Down to Taiwan,” NYT, 15 December 2020. 

[2] David S. Landes, The Unbound Prometheus: Technological Innovation and Industrial Development in Western Europe from 1750 to the Present (1969). 

Shanghai in the Twenties.

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Shanghai was a place to conjure both dreams and nightmares.  The city still incarnated Western power over the rest of the world at the start of the Twentieth Century.  British and French negotiations with the Chinese government in the 1840s had produced the International Settlement and the French Concession in Shanghai.  These tracts were legally privileged and self-governing areas for European residents.  Residents within the Shanghai settlements were exempt from most Chinese taxation.  They were tried by Western courts, rather than by Chinese courts.  Disputes between Chinese and Westerners were tried in a Mixed Court dominated by foreigners in fact if not in name.  The municipal authorities within the Shanghai settlements had legal jurisdiction over all the residents, including the Chinese.  But the settlements also exuded a certain ambiguity and vulnerability that could not escape the Westerners.  They only amounted to a little over twelve square miles.  The exact limits of the Shanghai settlements remained ambiguous since Chinese owned land within the settlements and the foreigners kept trying to extend their authority over additional territory by building roads, water mains, and power lines outside the territory.  Moreover, Chinese made up the vast majority of inhabitants of the settlements.[i] 

Shanghai meant opportunity.  Businessmen came to reap the benefits of abundant cheap labor and raw materials, low taxes, a great port on the South China Sea, and a river into the heart of the much-imagined “China Market.”  Civil engineers came to build bridges, dams, and railroads.  Ship engineers and sea captains came to run the riverboats and steamers carrying the trade.  Bankers, lawyers, doctors, and insurance men—for when the bankers, lawyers, and doctors failed–came to provide their services.  Nor were the opportunities solely material.  Missionaries and teachers came to provide “oil for the lamps of China.”[ii]  The Westerners maintained troops and warships in the Far East to guard their possessions, so there were soldiers and sailors.  People with money need entertainment, so the city drew actors and singers, gamblers and bartenders, whores and pimps. 

Shanghai also meant danger and always had.  In the nineteenth century to be drugged in a waterfront tavern and kidnapped aboard some square-rigged hell-ship bound for the seal fisheries of the Bering Sea was to be “shanghaied.”  Now, a revolution that had been roiling China since 1911 created turmoil.  Shanghai drew adventurers of all sorts, from criminals on the run to “soldiers of fortune” hoping to hire on with a warlord to young men desperate to escape the humdrum life at home.  The police force in the French Concession was in league with the Chinese “Green Gang” to deal in opium in return for the protection of the French territory.  For those with fears of a coming race war between Yellow and White, Shanghai appeared to be a flash-point.  In 1925 the settlements contained about 37,000 foreigners and 1.1 million Chinese.  The total population of Shanghai itself stood at 2.5 million, so the settlements amounted to a great Chinese city under western imperial government.[iii]  The psychological effects could be disturbing.  One Russian refugee remarked that “China is not only an immense territory, it is a human anthill.  Everywhere, in Shanghai, Tientsin, Fuchow, a European feels himself submerged into an enormous swarm of human beings in the midst of which one feels himself defenseless and strange as if he were a creature from another world.”[iv] 

In Shanghai East and West thus rubbed up against each other uncomfortably.  There seems to have been less friction between the Chinese and the residents of the French Concession than between the Chinese and the Anglo-Saxon residents of the International Settlement.  The French assumed that this arose from their own lack of overt racism; the British and the Americans assumed it was because the French were slimy and willing to retreat from any principle in pursuit of gain.  In any event, many rich Chinese maintained a house in the French Concession, either because the services were good and the area quiet, or because they wanted a bolt hole in case of trouble in the Chinese city.  In the French Concession Chinese dressed in Western clothing were allowed to enter the public park, but anyone not dressed as a Westerner was banned.  Conversely, the professors at the Jesuit-run Aurora University on the Avenue Dubail, wore long beards, presumably to associate themselves with the wisdom of the ancients in the minds of their Chinese pupils.[v] 

[i] Albert Feuerwerker, The Foreign Establishment in China in the Early Twentieth Century (Ann Arbor: University of Michigan Center for Chinese Studies, 1976), pp. 3, 5.   The International Settlement occupied 8.35 square miles; French concession, 3.9 square miles. 

[ii] The phrase comes from the title of one of the books about Westerners in China by Alice Tisdale Hobart (1882-1967).  Married to a Standard Oil company executive working in China during the 1920s, Hobart drew on her own experiences in a series of novels and non-fiction works: Pioneering Where the World is Old (1917); By the City of the Long Sand (1926); Within the Walls of Nanking (1928); Pidgin Cargo (1929); and Oil for the Lamps of China (1933).  The latter became a best-seller in 1934 and was made into a popular movie. 

[iii] Nicholas R. Clifford, Spoilt Children of Empire: Westerners in Shanghai and the Chinese Revolution of the 1920s (Hanover, NH: University Press of New England for Middlebury College Press, 1991), p. 40.   There were 29,848 foreigners and 810,378 Chinese in the International Settlement; there were 7,790 foreigners and 289,210 Chinese in the French Concession. 

[iv] George C. Guins, “Interview,” University of California Oral History Archive, 1966, p. 273. 

[v] Clifford, Spoilt Children of Empire, pp. 26-27, 58, 64. 

The Asian Century 13.

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            From the time of Queen Elizabeth I (1533-1603, r. 1558-1603), England had a special intelligence service dedicated to thwarting the schemes of foreign enemies.[1]  Other countries took longer to reach this institutional goal.  Many countries assigned this task to intelligence departments of the military, with military attaches in foreign countries operating as case officers for spies.[2]  Impressed by the achievements of the British in the Second World War, the United States soon created the Central Intelligence Agency.[3]  On the other hand, revolutionary movements caught up in the struggle for power have to improvise.  The Bolsheviks created the “Cheka” in 1917.[4]  Later it became the OGPU, then the KGB, and now the FSB.[5] 

            The intelligence service of Peoples’ Republic of China (PRC) followed a recognizable track in its own development.  It began as a branch of the Peoples’ Liberation Army in the era of the struggle against Chiang Kai-shek’s Kuomintang government.  It continued as such during the wars with Japan, with Kuomintang again, and then with the Americans in Korea from 1937 to 1953.[6]   The Ministry of Public Security handled the repression of domestic resistance. 

Military domination of intelligence-gathering matched poorly with Deng Xiaoping’s decision to dramatically reorient China after the death of Mao.  An opening to the West would involve allowing Westerners relatively unrestricted access to China.  This would pose a grave security threat.  However, an opening to the West would also permit greatly expanded espionage directed not only against foreign military power, but also against economic and technological targets.[7]  In 1983 Deng created the Ministry of State Security (MSS). 

In comparison to the Soviet Union, the PRC began at a disadvantage.  Many of the Westerners who spied for the Soviets were recruited during the “Devil’s Decades” of the 1920s and 1930s.  Social, political, and economic crises created large numbers of foreigners who were true believers in Communism.[8]  That intellectual commitment had died long before the MSS began its work.  Instead, it has relied upon a combination of lots of money to human agents and lots of technology to invade foreign computer systems. 

Has it worked?  Yes: spy scandals are becoming ever more common.  How much difference has it made?  It’s hard to tell because China’s astonishing ascent as a military and economic power has so many roots.  Still, in the judgement of experts, “China is today the greatest intelligence threat to U.S. interests.” 

[1] Now called MI-6, the Secret Intelligence Service.  Domestic counter-intelligence is the province of MI-5, the Security Service.  See: Christopher Andrew, Secret Service: The Making of the British Intelligence Community (1985). 

[2] See, for example, Peter Jackson, France and the Nazi Menace: Intelligence and Policy-Making, 1933-1939 (2000). 

[3] Unfortunately, one of the British advisors to the early CIA turned out to be the Soviet “mole” Kim Philby. 

[4] The All-Russian Extraordinary Commission for Combatting Counter-Revolution and Sabotage. 

[5] See Christopher Andrew, KGB (1990). 

[6] Peter Mattis and Matthew Brazil, Chinese Communist Espionage (2020), reviewed by Michael Auslin in WSJ, 2 March 2020.  . 

[7] Despite President Obama’s huffing and puffing, this was hardly a new approach to hurrying industrialization on the cheap.  See Doron Ben-Atar, Trade Secrets: Intellectual Piracy and the Origins of American Industrial Power (2004). 

[8] See, for examples, the Rosenberg spy ring in the United States, the “Cambridge Five” in Britain, and the “Red orchestra” in Germany and elsewhere. 

The Asian Century 12.

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            China has a huge stake in continuing economic growth.  For decades, Communism delivered little to the Chinese people but poverty and suffering.  Only a brutal police state kept the Chinese Communist Party (CCP) in power.  After the death of Mao, the CCP re-founded Chinese Communism.  Prosperity gained through rapid industrialization and entry into the global market would legitimize CCP rule.  Having made this bargain, the Party would have to keep the economy growing faster than either population or the expectations of the Chinese people.  A crash or even a serious slowdown would strain the Party’s claim to both omniscience and power. 

            China has an unbalanced economy.[1]  China laid the foundations for its post-Mao economic ascent with investment in heavy industry and mass production of consumer goods for export.  The Chinese have a high savings rate that limits the domestic demand for consumer goods, while also limiting the impact of foreign lenders.[2]  The government pursued a policy of easy money with interest rates held down regardless of market conditions. 

China’s excess of enthusiasm led to over-investment in productive capacity.  Even before the 2008 financial crisis, political considerations forestalled a clean-out, so mills and mines proliferated beyond actual demand.  The same forces prevented raising interest rates. 

            China responded to the global recession triggered by the American financial crisis of 2008 with a gigantic stimulus program.  After 2008, government-owned heavy industry splurged on adding more productive capacity in basic industries.  All of this happened because the central government provided easy credit.  Local governments did the same with their own locally-controlled businesses.  Private industry—notably property developers and construction companies—built whole “ghost towns” on credit. 

            China ended up with a more distorted economy as a result of that stimulus program.  “Zombie” businesses walked the land like a Chinese opera version of “Twilight.”  This led many Western observers to predict a financial collapse that would shake Chinese politics and society.  Why didn’t that happen? 

            China has robust means to resolve its economic problems.  It’s not a Western capitalist country or a democracy.  Real power rests with the Chinese Communist Party.  Zi Jinping has been consolidating control of the Party and of the government in his hands for some time now. 

China operates a powerful set of controls on capital flows out of the country, so the savings of the Chinese are readily available to the government.  The same controls help shore up the international exchange value of the currency. 

Ownership of so much industry and control of the banks allowed Zi to begin shoring-up the financial system from early 2016 onward.  China did what Japan had balked at doing years before.  It forced mergers and write-downs on loans, sometimes expanding the state’s ownership stake in businesses through taking equity positions.  The government pulled back on lending, both by banks and outside the banking system.   

Will these reforms suffice to hold off disaster?  Probably not.  Political concerns limited the clean-out needed for real stability.  Meanwhile, real estate and consumer debt have ballooned.  There’s always someone who says “This time it’s different.”  It never is different. 

[1] Thomas Orlik, China: The Bubble That Never Pops (2020), reviewed by Edward Chancellor, WSJ, 27 July 2020. 

[2] Foreign lenders, operating with a more capitalistic mind-set, might well have tried to drag on the reins.