PKU Dean on The Malice Behind Calls To Cut US-China Ties

I’m Jordan Schneider, Beijing-based host of the ChinaEconTalk Podcast. In this newsletter I translate articles from Chinese media about tech, business, and political economy. Do subscribe here if you were forwarded this.

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What follows is a near-complete translation of a speech recently delivered by Yao Yang, dean of the National School of Development at Peking University. Dr. Yao, who got his PhD in the US, makes a bold case for US-China cooperation. He argues that China really doesn’t benefit from self-reliance development strategies and has substantial overlapping interests with the West. Next, he bring the Confucius, arguing that the Warring States Period is a better model than ancient Greece. Yao then outlines how the trade war isn’t that a big a deal for the Chinese economy, and finally makes a case against decoupling, calling on China to “adopt the proper attitude of a world leader.”

This translation omits the first section, entitled “Only a few in America are hostile to China,” which argues that the those in favor of confrontation in China are limited to “a few ultra-conservatives of the Republican Party.” Wishful thinking perhaps on Yao’s part. We’ll pick up the translation in part two, where he takes on the idea of the Thucydides Trap.

Unlike past articles I’ve translated, this piece has only gotten a few thousands views. It’s interesting not for its virality but rather in that it conveys what an elite Chinese argument against confrontation looks like. It serves as an echo of sorts to the Washington Post open letter in which leading American experts on China urged the Trump administration to ease off.

The Malice Behind The ‘Let’s Cut Ties Between the US and China’ Theory

中美经济脱钩论中的利益企图, August 2019

Expanding the friendship network

We need to clarify: Must there be a conflict between China and the US? Is China-US competition a zero-sum game?

In a certain sense, China and the US are competitors with different political systems. The fact that we are catching up with US technology is exerting pressure on the US. One cannot state that China and the US are not competitors. However, fair competition is possible.

During the Soviet-US Cold War, despite serious ideological conflicts, the war did not turn hot and peace was maintained for several decades. China and the US have strong bilateral trade relations, and no cold war has yet emerged, so there is really no need to picture the China-US trade conflict as so grim.

Moreover, China is not the Soviet Union. We embrace a lot of global values, and China has undergone drastic changes over the past 40 years. In addition, China’s economic power long ago overtook the Soviets. At the peak of Soviet power, Soviet GDP did not amount to even half of US GDP, while China’s economic output today already stands at 60% of US GDP, with growth showing no signs of stopping. From the standpoint of economic strength, China-US and Soviet-US relations are not comparable; in fact, financial interaction between China and the US also far exceeds US-Soviet financial engagements.

The American military has also taken a stance. The Commander of the US Pacific Fleet recently stated that China and the US are competitors but do not have to be enemies. The majority of Americans don’t want to have hostile relations with China, and the price of the two countries turning hostile would be too high.

China and the US have to strengthen and protect their competitor-collaborator relationship, with both sides competing fairly. The two countries have a lot of opportunities to cooperate: US agricultural products, natural gas, passenger airplanes need Chinese buyers—and China needs these products. At the same time, both sides gain from a frequent exchange of ideas. As information flow is now already two-sided, it is almost inevitable that technology transfer will also become more two-sided, meaning not just from US to China as before, but slowly, the other way around.

China needs to actively take a stance to create multilateral mechanisms to hedge against American pressure. The China-initiated Asian Infrastructure Investment Bank (AIIB) is a great case in point. At the outset the US opposed it, but after the UK joined, followed by all the European countries, the AIIB turned into a model of a China-initiated multilateral cooperation. So then, could the “One Belt, One Road” initiative also become a multilateral cooperation mechanism?

The Organization for Economic Co-operation and Development (OECD) is a classic multilateral organization that we can examine. Founded in the ’60s under the leadership of President Kennedy, it is not an organization giving directives; instead, it is a “knowledge” bank. We need to establish a kind of similar organization. The OECD is the club for wealthy countries, and I think the Global South also needs best practices adapted to their stage of development. “One Belt, One Road” should do the same.

Ways to explain ourselves

As part of holistic international competition, and in order to explain our system, we need a way to gain acceptance from others. We need to study how to use traditional Chinese culture and philosophy to explain our current system, making it more acceptable to the world.

There is also the Confucian concept of “harmony” (和). We admit there is competition between China and the US, but the goal is not to eradicate each other, but to harmonize the world. Of the world’s three ancient civilizations, China is the only one to have continuously existed and evolved. Thousands of years of “harmony” is China’s ongoing teaching.

Ancient Greek culture may seem an ideal model, but in reality, it has several flaws. The Peloponnesian War between Athens and Sparta was caused by conflict between their allies. In this regard, Greece is not as ideal as one would think. Western civilization has always conquered the outside world. Nevertheless, it also has its merits: In order to conquer people and nature, it gave birth to science.

Chinese Confucians talk about how to live a peaceful life, and the Daoists talk about how to be one with nature. When these two are put in the context of global order, they resemble “harmony.” During the Spring and Autumn Period and the Warring States Period, the relationship between big kingdoms and small kingdoms revolved not only around exploiting and being exploited, but also in terms of exchanging gifts and tributes.

As we re-contemplate the international order today, this kind of Chinese culture should contribute to enrich the world. The ultimate goal of competition is to integrate and harmonize, not to conquer.

If we use this method to talk about the competition-cooperation relationship of international society, we will stand on the moral high ground.

How intense is the trade war?

The actual impact of US-China trade disputes on China’s economy is relatively small, since China’s exports to the US account for only 16% of China’s total exports. In H1 2019, China’s trade with the US fell 10%, accounting for 1.6% of China’s total trade. Some companies have been hit hard, but it’s not really visible at the macro level. Vietnam’s exports to the US have increased by 40%, but their total exports account for just 11% of China’s. That 40% increase, even if it comes from China, is only equivalent to a 4% drop in China’s total exports.

Keep in mind that export data is more trustworthy, because when companies export products, funds have to return to China, so there’s no need to falsify data. (By contrast, some people falsify import numbers in order to remit money outside China.)

Most importantly, domestic reforms require follow-through. Last year, we announced several measures for liberalizing the financial system. This year, the National People’s Congress passed a new Foreign Investment Law, which explicitly prohibits forced technology transfer. Our negative list on investment dropped from 140 to 40 categories. This is a big improvement. And if the goal of the negotiations is to make SOEs compete on an equal footing, then we should do such reforms.

Future world leaders should not cut ties

US-Chinese decoupling deserves special attention. American companies don’t want to decouple. Huawei was surprised, for sure, but later chilled out and realized this actually wasn’t a huge deal. Sixty percent of American chips are sold to China. If Americans can no longer sell to China, won’t their companies die? They’ll just get replaced by South Korean or even Chinese manufacturers.

The chip industry is a high-stakes industry. If you don’t invest, you can’t lead, and you’ll lose the market. Thus, American companies have to put huge amounts of money into R&D. Sanctions on Huawei scared American firms, soliciting them to push their government to allow a reprieve. As a result, decoupling really isn’t all that likely.

Nowadays, many at home and abroad advocate decoupling, restructuring the supply chain, and so on. If it’s true, it will damage the US as much as it’s damaging China. China suffers because it has to invest more to develop technology independently. The US loses long-term market share and sacrifices an ecosystem that it already leads.

Likewise, China should not pursue decoupling. It has made great achievements in the past, but while our missile industry and aerospace are self-reliant, their cost is just too high.

In this world, it’s impossible to rely on independent R&D. No country can afford it. We must be clear-headed about this.

We must be especially vigilant about the operation of some Chinese interest groups. Some interests are pushing really hard for decoupling. They want to take advantage of this moment to get more money from the government, create momentum, and push China to adopt domestically. However, most of our past investment in chips has been squandered because our bottleneck is not in chip development. Chip design also isn’t a huge issue. We’re very bad at manufacturing, and this isn’t something that can be solved quickly.

Taiwan Semiconductor (TSMC) can now produce 7-nanometer chips, and has to develop 5- and 3-nanometer ones. Domestic stable mass production is at 28 nanometers and can make some that are 14-nanometer. Most of the time, however, 28-nanometer chips will suffice. For instance, Huawei’s 5G base station equipment doesn’t use 7-nanometer chips. The military doesn’t need fast, high-capacity chips either. Nowadays, they’re mostly used for high-end game-playing smartphones.

We need to look at independent research and development from another perspective. China is slowly becoming a global leader. As a leader, it’s necessary to take on the attitude that a leader should have. Economically, it’s impossible for our industries to do everything themselves. The Chinese market is too big. If we really wanted to be self-sufficient, we probably could do it, but what impact would that have on other countries? As a world leader, we must learn to let others survive. We cannot always walk at the world’s forefront, relying on others’ manual labor. Letting everyone play together is the proper attitude for a world leader.

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On this week’s ChinaEconTalk podcast I let my hair down with Lauren Teixiera, a Chengdu-based freelancer. We discussed how in discussing sensitive issues like Hong Kong and Xinjiang with most Chinese nationals,

There’s a ceiling for your rhetoric because at some point you can’t tell someone to “look it up” because they can’t look it up. Epistemologically you’re not on even ground. And so, if you want to really get into a real discussion with someone,  you basically have to red pill them.

We also covered nationalism in Chinese hip hop and pop idols, chinese dramas, and the evolution of modern Chinese architecture.

Paintings of the Week—Swished Cat and Double Fish

Zhu Da 朱耷 aka 八大山人 was a weird dude. A former Ming prince, he took the fall of his family’s dynasty pretty hard.

After the collapse of the Ming, Zhu Da became a Buddhist monk in 1648. Possibly the fall of that dynasty and the death of his father at about the same time caused him some psychic disturbance, and he may have hovered between real insanity and impassioned creativity. He eventually left the Buddhist cloister and exhibited wildly erratic behavior – such as writing the character for “dumb” (ya, 哑) and attaching it to his door and then refusing for years to speak.

His animal and flower paintings are in the ‘suggest meaning’ 写意 style, a sort of Chinese impressionism a few hundred years before Europeans got into this game. Baidu partially redeems itself this week with a cute video and an extended entry on his personal life and work.