Are the people of mainland China just like Americans? (Part 2 of 2)

Part 1 of this post listed seven characteristics of mainland Chinese culture which can complicate political interactions with the West, and discussed the first three:  a high value on order, collectivism over individuality, and saving face.  This post will explain the remaining four:  political patience, relationships as the key to success, non-linear thinking, and the relativity of truth.

Political patience is one of the most powerful weapons in China’s diplomatic and military arsenal, particularly against an impatient superpower like the US.  As Harvard Professor Graham Allison put it:  “Americans tend to focus on the present and often count in hours or days. Chinese, on the other hand, are more historical-minded and often think in terms of decades and even centuries… U.S. politicians take to Twitter or announce alliterative, bullet-point policy plans that promise quick solutions. In contrast, Chinese leaders are strategically patient: as long as trends are moving in their favor, they are comfortable waiting out a problem.”

Exhibit A for the application of political patience is Hong Kong.  In 1898, the British Empire obtained a 99 year lease to the island.  By the time it expired in 1997, the UK and China had negotiated an agreement for a 50 year transition period under the principle of “one country, two systems.”  This assured that Hong Kong would maintain its democratic government and capitalist economy separate from the mainland until at least 2047.

Danger signs began appearing within a few years, with Beijing pushing for more control and protestors in Hong Kong pushing back.  This peaked in 2019, when Beijing proposed a new law which would permit Hong Kong residents accused of crimes to be extradited to the mainland.  Half a million took to the streets of Hong Kong to protest.  When the extradition law was finally withdrawn after seven months of protests, activists said it was too little too late, and the protests continued.

In Hong King, protests like this disappeared in 2020 after Beijing passed a strict new security law.

By May 2020, Beijing had had enough and announced that its legislature was considering a sweeping new national security law to govern Hong Kong.  According to a New York Times report, the law defined “four offenses — separatism, subversion, terrorism and collusion with foreign powers — with penalties up to life imprisonment. It [also] demanded oversight of schools and media.”  (Maybe it was just a coincidence, but China put this policy into effect at a time when Washington was distracted by the coronavirus crisis, and a series of Black Lives Matter protests.) The law was passed on June 30, 2020 and went into effect the same day. 

In less than two years since then, over 100 of Hong Kong’s most well-known activists have been arrested, and the crackdown is still underway.  Just a few weeks ago “police arrested six current and former executives… [of] Stand News, one of the last independent news organizations in Hong Kong… in predawn raids, accusing them of a conspiracy to publish ‘seditious’ material.”

Fortunately, there are signs that the US is becoming more sophisticated about dealing with China’s political patience.  In January 2021, Rush Doshi was appointed director for China at the National Security Council.  Doshi is the author of a recent book entitled “The Long Game: China’s Grand Strategy to Displace American Order.”  While some scholars believe that China’s leader Xi Jinping is responsible for China’s current aggressiveness, Doshi argues that Xi’s actions are all part of a master plan based on political patience.  So we can only hope that the US will factor China’s political patience into its thinking… at least until a new administration disagrees. 

Another East/West difference which can complicate mutual understanding is the fact that in China relationships are the key to success.  The Mandarin term guanxi has become so common that it is defined in the Oxford English dictionary as: “the system of social networks and influential relationships which facilitate business and other dealings.”  But that definition is just the start.  The concept of guanxi is so complex and so critical that entire books have been written about it.

Confucianism holds that the basis of society lies in the family, and that proper behavior starts within the family circle.  One’s network of personal connections — and the importance of guanxi — builds out from there to include friends, friends of friends, and business partners. All of these relationships must be built over time, to assure trust and mutual respect.

In this context, the most important fact about guanxi is, as Richard Conrad put it in Culture Hacks (p. 166 and 187):  “China has one set of rules for conduct within the extended family or clan group and a much different set of rules for those outside of the group… When an official steals money from the state to help his family in China, he sees himself as being virtuous.”

If it’s OK to steal from fellow citizens as long as they are outside your network of connections, imagine how foreigners can be treated.  Conrad also wrote (p. 192) that after traveling to 31 of the 32 provinces in China, “[I] have never been robbed, though I have, from my Western perspective, been cheated in almost every province I visited.”  As James McGregor summed it up in his book One Billion Customers (Kindle loc 269):  “China has allowed foreigners in only on its own terms, and those terms are often opaque, contradictory and bewildering… negotiations can take forever and the resulting agreements can be promptly ignored.” 

When it comes to US-China communication, one of the most confusing and frustrating differences is the next on our list:  non-linear thinking.

When I earned a PhD in Psychology several decades ago, I spent five years learning to identify the underlying causes of human behavior using linear logic, in which A causes B and B causes C.  But (Culture Hacks, p. 112) “the Chinese believe the world is far too complex for simple linear logic. Rather than focusing on unifying rules or patterns, Chinese thinking became as complex as the perceived world.”

This difference extends even to the games we play.  In the West, chess is a popular linear game in which each move proceeds logically to the next.  In China and other Asian countries, a more popular game is “go,” which is played on a larger board with many more possible moves.  To win, one must surround the other player’s pieces, an art in which each move can be affected by the overall context of the board.

Go is a far more complicated game than chess.  Computers became able to beat skilled human chess players several decades ago, most famously in 1997 when IBM’s Deep Blue computer beat world champion Gary Kasparov in a six game match.  But for go, a comparable result required another two decades of research, until Google’s Alpha Go program beat 18-time world champion Lee Sodol in 2016.

This sort of situation-dependent complexity can be especially frustrating for Westerners when combined with the seventh and last trait from our list:  the relativity of truth.  “China is a relative society and doesn’t believe in absolute right or wrong… If one can get away with a crime and not get caught, then there is nothing wrong with it.”  (Conrad, p. 192)

Like so many other things in China, truth depends on context.  What is right in one context may be wrong in another.  This can be extremely confusing to Westerners.  For example, when Western bankers evaluate the financial position of a company, they look at statements such as “profit and loss” based on the records in a company’s accounting books.  But “Chinese companies will often have one set of books for public investors to see, one set for the government and tax authorities, and then the real set of books… they believe in different truths for different audiences.” (Conrad, p 122)

Even worse, “to the Western mind, once a bargain is struck, it shouldn’t be modified; a deal is a deal. For Easterners, agreements are often regarded as tentatively agreed-upon guides for the future.”  (Conrad, p. 196)

The political consequences can easily be seen in the case of Hong Kong.  In 1984, China and the UK signed the Sino-British Joint Declaration which guaranteed that the “one country two systems” approach to Hong Kong government would last until 2047.  But around the time of the first major Hong Kong protests in 2014, “The government began dismissing [the agreement] as a relic… a Chinese diplomat in London said the declaration was ‘now void,’ according to a British lawmaker.”  For Hong Kong, the “one country, two systems” approach began to be phased out in 2020, 27 years before the agreed upon deadline of 2047.

The US’s naïve belief that China would live up to its signed agreements is also behind a number of other diplomatic mis-steps, right up to the fact that, as a headline in Fortune magazine put it that “The centerpiece of Trump’s trade deal with China ‘failed spectacularly’.”

The seven differences described here unquestionably complicate today’s relationships between China and the US.  But on the positive side, as Nisbett noted in The Geography of Thought (p 227) there is “evidence that cognitive processes could be modified even after relatively limited amounts of time spent in another culture.”   If globalization continues to march on at its pre-pandemic pace, it is reasonable to expect that these cultural differences will gradually shrink and even disappear.

But until then, as Harvard Professor Graham Allison wrote in Foreign Affairs,  “misunderstandings are magnified, empathy remains elusive, and events and third-party actions that would otherwise be inconsequential or manageable can trigger wars that the primary players never wanted to fight.”

Are the people of mainland China just like Americans? (Part 1 of 2)

If you had been born in mainland China anytime in the last century, you, your parents, and your grandparents would have lived through a number of major upheavals including:

– The Chinese Civil War (1927-1949) between the Kuomintang government of the Republic of China and the Chinese Communist Party.

– The Japanese occupation of China in World War II (1937-1945).

– The great famine (1959-1961) in which more than 30 million died.

– The Cultural Revolution (1966-1976) in which Mao Zedong inspired youth to violent class struggle to root out the “Four Olds”:  Old Ideas, Old Culture, Old Habits, and Old Customs.  They did so with a vengeance.  The total death toll is unknown but has been estimated as high as 20 million.

– The fastest economic growth of any country in history (1978-present).

Mainland Chinese people from previous generations went through much worse.  Over the course of several thousand years of Chinese civilization, there has been a near constant series of wars between competing regional factions and warlords. In his thought provoking book Has China Won (p. 11), Kishore Mahbubani, former president of the UN Security Council, argues that “As the Chinese look back over two thousand years, they are acutely aware that the past thirty years under CCP rule have been the best thirty years that Chinese civilization has experienced since China was united by Qin Shi Huang in 221 BCE.”

Given the head spinning changes of the last century, it would not be surprising if mainland Chinese wanted a little peace and quiet, and placed a high value on order.  This is consistent with an ironic “Chinese curse,” usually translated as “May you live in interesting times.”  According to Richard Conrad, a researcher who lives in Asia, a more accurate translation from the original Mandarin would be far more forceful: “I’d rather be a dog in times of peace than a human in times of upheaval.” The high value that mainland Chinese place on order is also consistent with Confucius’ emphasis on hierarchy and harmony, as expressed in his “first imperative: Know thy place.”   (Culture Hacks, p. 120)

This is the first of seven mainland Chinese cultural characteristics which can have a major impact on political relations with the West:

– High value on order

– Collectivism over individuality

– Saving face

– Political patience

– Relationships as the key to success

– Non-linear thinking

– The relativity of truth

While others have proposed different lists (including one quoted in my first post in this blog), there can be little doubt that significant differences exist. If you are not convinced, simply Google a phrase like “doing business in China” and start reading all the books about how radically different it is from doing business in the US, based in part on Chinese culture. 

There is also a body of academic research supporting significant cultural differences.  In The Geography of Thought, social psychologist Richard Nisbett conducted and reviewed dozens of studies and concluded (Kindle loc 147) that “there are… dramatic differences in the nature of Asian and European thought processes.”  People think differently about the world as a result of societal differences that date back to ancient Greece and China.

But in today’s politically correct world, few Americans understand these differences or their implications.  And it can be politically risky to even talk about them.  Just ask Kiron Skinner.  In 2018, she was appointed Director of Policy Planning at the US Department of State, and given the task of overseeing the development of a new US policy on China.  But in April 2019, Skinner gave a speech which characterized the US-China relationship as “a fight with a really different civilization and a different ideology… It’s the first time that we will have a great power competitor that is not Caucasian.”  Among the political implications, Ms. Skinner argued that “it would be impossible because of cultural differences for the United States to make appeals based on human rights to Chinese and use that as a wedge against the Communist Party.”  

Skinner’s warning is based on the fact that for several decades China has been promoting a different definition of human rights, in which, as Foreign Ministry spokesperson Wang Wenbin put it in February 2021:  “China… Regards the rights to subsistence and development as the primary, basic human right.”  For the Chinese, if you and your children don’t have enough to eat, THAT is a violation of human rights that trumps all others.  Similarly, CCP officials often talk about events in the US like crime, riots and school shootings as violations of the security aspect of human rights, and signs of the superiority of their system     

Whether you think China’s definition has a certain common sense appeal or is an evil and convoluted twist of the very phrase, the gap in understanding does support Skinner’s conclusion that this issue is not a promising place to start negotiations.  But that is exactly what the US often seems to be doing.  For example, a few weeks ago the US announced a diplomatic boycott of Beijing’s Winter Olympics in February.  White House Press secretary Jen Psaki described the reason as “egregious human rights abuses and atrocities [of Muslim Uighurs] in Xinjiang”  (For background, see this previous post.)

Whatever their validity, Skinner’s comments about “non-Caucasians” led to a huge outcry over racism, just about everywhere except China.  There, Hong Kong’s South China Morning Post ran an article entitled “Culture and race can’t be ignored in US-China rivalry – American official Kiron Skinner is right.”  A few months later Skinner was forced out of her job, in part due to the public outcry over her “racism.”  Which is a bit ironic given that Skinner is herself African American.

Skinner’s views can be traced to Samuel Huntington’s highly influential 1996 book The Clash of Civilizations which argued (p. 20) that “culture and cultural identities… are shaping the pattern of… conflict in the post-Cold War world.”  Admittedly, among political scientists this is a minority view.  Most instead favor Francis Fukuyama’s  view that that the entire world would gradually converge on a single system: liberal democracy with free market capitalism, as explained in his book The End of History.

Fukuyama’s view has been widely accepted, Nisbett wrote (p. 220) “especially [by] Americans, who tend to assume that everyone is really an American at heart, or if not, it’s only a matter of time until they will be.”  I wish I believed Fukuyama, but I side with Huntington in thinking that the cultural split between East and West will be an important and continuing source of tension for the foreseeable future. 

The second cultural difference listed above is collectivism over individuality.  As one reviewer of Nisbett’s book put it “The key concept in East Asia is harmony, where collective goals are held as more important than individual goals.”  Or, in the more colloquial words of Conrad’s book (p. 201), in China “the emphasis is on avoiding disrupting the harmony of the group by being different, thinking differently, or being a nail that sticks out.”

From an early age, American children are taught to be individualistic while mainland Chinese children are taught the value of collective values and action.

Of course, this is in direct contrast to the high value Americans place on individualism.  In his fascinating Foreign Affairs article China Vs. America – Managing the Next Clash of Civilizations, Harvard Professor Graham Allison noted that “the Chinese term for ‘individualism’—gerenzhuyi—suggests a selfish preoccupation with oneself over one’s community. China’s equivalent of ‘give me liberty or give me death’ would be ‘give me a harmonious community or give me death.’”

As a result of this cultural difference, “A person from China is more prone to look at how their acts affect the whole instead of how [they] affect them personally. They are more willing to give up and sacrifice for the greater good.”

In the last few years, I can’t remember reading about many Americans who were willing to sacrifice their individual rights for the greater good.  If you have the slightest doubt about the value Americans place on individual rights, try having a conversation with somebody who disagrees with you on vaccination or gun control. 

The third and final cultural gap to be described in this post is “saving face.”  Americans are not fond of looking foolish, but in China this is much much more important.  “The Chinese prize face above all else, and will sacrifice money, honor, and their own health to gain it.”  (Culture Hacks, p. 124)

A lack of understanding of face is one of the many cultural traps that faces Americans hoping to do business in China.  There are many ways to go wrong.  For example, according to Conrad (p. 210): “Westerners can sometimes inadvertently cause someone to lose face by saying ‘no’ too directly, contradicting something someone says, not listening attentively to someone, interrupting them, criticizing someone publicly, not letting another pay for a meal, turning down a toast, or even not walking as far as possible when sending someone off.”  An article entitled 13 Major Cultural Differences Between China and the United States put it this way: “To prove a point and show yourself in the right, even over business issues, is considered shameful and should be avoided.”

In politics, the lack of understanding of face can cause more serious problems than hurt feelings or lost business.  One examples is described in Conrad’s book (p. 123), “In 1993, soon after becoming president, Bill Clinton bluntly told the Chinese not to conduct any more nuclear weapons tests. Given that President Clinton said this to the Chinese publicly, the only way they could save face and show that they weren’t in a subordinate position to the US, was by publicly testing another nuclear device. To make their point abundantly clear, the Chinese conducted two nuclear tests.”  


Part 2 of this brief series will describe the other four cultural traits from the list above, and how to avoid gaffes like Clinton’s, based on a better understanding of US-China cultural differences.

China’s campaigns against laziness and video games

Is it possible to enforce guidelines against laziness?  If anybody can do it, China can.

“A happy life is earned through struggle, and common prosperity requires industriousness,” Chinese leader Xi Jinping said in an August speech about his “common prosperity” initiative (also discussed in my previous post.)  “We must resolutely prevent [ourselves] from falling into the trap of nurturing lazy people through ‘welfarism.’  We must… encourage industriousness and innovation as means to prosperity… with participation from everyone, and avoid… ‘lying flat.’”

The phrase “lying flat” first became popular in China last April after 31 year old LuoHuazhong published a social media post explaining “I have not been working for two years, just having fun and don’t see anything wrong in it… I [just] feel that many things are not worthy of my attention and energy… Do we have to work 12 hours a day in a sweatshop?”  Luo had previously held several jobs since dropping out of vocational high school, such as working 12 hours a day in a tire factory.  Then, he decided he preferred “doing nothing. He quit his job… biked 1,300 miles from Sichuan Province to [his home in] Tibet and decided he could get by on odd jobs and $60 a month from his savings. He called his new lifestyle ‘lying flat.’”

The phrase does not imply lying in bed all day every day, but is instead a state of mind of doing the bare minimum needed to get by.  Luo now eats just two meals a day – mostly noodles, rice, and eggs – and spends about 200 yuan ($31) per month on his minimalist lifestyle.  He supplements his income with occasional part-time jobs, including one assignment at a film studio “that he considered perfect – acting as a dead body in movies.”  Luo spends most of his time reading news and philosophy, and working out, and lives at home sponging off his parents. 

China’s lying flat (tang ping) movement produced many internet memes, including this one which was posted by a cat lover with the caption was “Finally, a social movement I can get behind.”

Government censors did not like the sound of this, and Luo’s original post was soon “scrubbed from the internet. However, copies quickly spread online, sparking lively discussions and videos – many of which garnered millions of views each… they, too, have since been deleted.” 

Despite the censors’ efforts, the concept spread like wildfire, and led to a national “lying flat” movement, complete with T-shirts that say things like “Do nothing lie flat youth,” and “Don’t buy property; don’t buy a car; don’t get married; don’t have children; and don’t consume.”

This concept fell on fertile ground in a country where many Chinese have to work a “996” schedule – from 9 AM to 9 PM six days a week.  But the payoff for all that work can be hard to see since, as David Bandurski, Co-Director of the China Media Project at Brookings put it in one of the best overviews of this movement, “skyrocketing living costs in China’s cities have meant that many young Chinese, even with elite college degrees, find it difficult to cover the basics, much less afford a life of conspicuous consumption.” 

The result, according to Bandurski, is that many workers are beginning to “balk at the Party’s high-minded calls for ‘continued struggle.’” Some observers interpret the movement as “a manifesto against materialism, some suspect it is simply being lazy, and others say this type of defeatist attitude is an inevitable result when people become so overwhelmed and dismayed by the notion of working themselves to the bone that they feel there is no other option but to give up.”

Whatever the interpretation, Communist leadership sees the movement as threatening the economy in two ways.  First, it reduces production by reducing hours worked.  Second, when practitioners spend less, it reduces the consumption which is expected to drive future growth.

Lying flat is just one of the many lifestyle patterns that China hopes to change through its loosely defined common prosperity initiative.   Of all the crackdowns to bring behavior into line with socialist values, the one which is likely to be least popular among teenagers is a new limit of three hours per week on playing video games.  And, oh yeah, the three hours per week must be between 8 and 9 PM on Friday, Saturday and Sunday.  (By comparison, last year the average US teenage boy spent about 21 hours per week playing video games.)

A few weeks before these new rules were announced, a state-run publication compared “video games to ‘electronic drugs’ and ‘spiritual opium,’ eliciting memories of the 1800’s, when millions of Chinese became addicted to smoking opium during the country’s Opium Wars with the United Kingdom.”

According to a New York Times article: “As a more paternalistic government under the Chinese leader Xi Jinping has turned to direct interventions to mold how people live and what they do for fun, gaining control over video games has been high on the priority list… Mr. Xi’s government has increasingly deemed games a superfluous distraction at best — and at worst, a societal ill that threatens the cultural and moral guidance of the Chinese Communist Party.”

The concept of limiting video game playing is not new, but the 2021 total of 3 hours per week represents almost an 80% reduction from the previous Chinese regulation, which limited children to about 14 hours of video games per week (three hours per day on weekends and 1.5 hours on weekdays). 

How could such draconian regulations be enforced?  In China, when people “sign into a game [they must] first provide a mobile phone number, state-issued ID, or even undergo a facial scan.” 

But since we are talking about teenagers, some have already found their way around the bans.  When one Chinese newspaper conducted a survey of parents a month after the new rules went into effect, one reported that his son replaced one bad habit with another, and is now “obsessed with watching others playing video games on streaming services.”  Another parent reported that her son had supplemented gaming with a new internet hobby: “he got hooked on short-video platforms instead, spending hours a day browsing clips and creating content himself.”

Still other teens borrowed a phone from a parent or grandparent.  And some entrepreneurial adults even began placing ads on ecommerce sites to rent their gaming accounts.  “By paying as little as 33 yuan ($5), under-18s could borrow gaming accounts from adult vendors for two hours of use.”

Despite pushback from the public on these and related crackdowns, there is every reason to expect more pressure like this in the future.  As Xi Jinping summed it up in his August speech:  “In our efforts to seek happiness for the people and continuously consolidate the Party’s foundation for holding power over the long term, we shall focus on driving common prosperity for all.” (Italics added for emphasis.)

But what if these two goals – happiness for the people and CPC power – find themselves in conflict?  The Party may find the situation unusually hard to control.  As an article in Hong Kong’s South China Morning Post put it, “quelling protests in the streets is one thing, but getting millions of individuals out of their beds and forcing them to engage in society is entirely different.”

China’s new initiative to reduce inequality

A few weeks ago, Chinese state journal Qiushi published the text of a widely discussed speech China’s leader Xi Jinping gave in August describing a new initiative which will “focus on driving common prosperity for… all people in their material and spiritual [moral] lives… to seek happiness for the people and continuously consolidate the Party’s foundation for holding power over the long term.”

Xi did not promise immediate success: “We need to be patient, and progress step-by-step in a firm and steady manner… Achieving common prosperity is a dynamic process; we must continuously drive it forward.”

But make no mistake:  to borrow a phrase from Brookings consultant Ryan Hass, this is a “hard pivot” in China’s policies.  In September, Xi himself described the common prosperity initiative as a response to “changes unseen in a century.”

There can be no doubt that the last several decades of Chinese economic policy have led to the fastest GDP growth spurt in history (see my post How the ‘China Model’ lifted 850 million people out of poverty,)  In its 2015 Five Year plan, China announced a goal of eliminating poverty completely by 2020.  And, in no surprise to anyone, Xi announced last year that this goal had been met, right on schedule.  This despite the skepticism of some mainland Chinese, including the social media user who wrote “Perhaps the motherland forgot to count me,” and the one who joked “China has eliminated absolute poverty… Everyone is just relatively poor.”

There will always be controversy about exactly where to draw the line defining poverty, but there can be no doubt that the income gap between hundreds of millions of Chinese laborers and their bosses has never been greater or more obvious.  Kind of like in capitalism.  As one Shanghai businessman put it “When I was growing up, textbooks tried to convince us about the decadence of capitalism by showing a picture of rich Americans’ pets enjoying air conditioning, a luxury that few Chinese dreamed of having in those days. Today, my neighbor’s dog will only drink Evian.”

The gap between China’s rich and poor is being addressed by a new “common prosperity” initiative.

When China began its period of explosive growth in the 1980s, China’s leader Deng Xiaoping famously said that China needed to “allow some people to get rich first.”  The result was several decades of a kind of Wild West capitalism in which everything goes, and a new class of billionaires emerged from the struggle.

New insights into the excesses of that period appear in “Red Roulette: An Insider’s Story of Wealth, Power, Corruption, and Vengeance in Today’s China,” a book published in August by Chinese billionaire Desmond Shum, who now lives in the UK.  Extravagant banquets for his business clients often included “$1,000 just for a soup made of fish maw, the air bladder of a large fish.”  He also showered his business contacts with luxury watches, but in Shum’s words “This was pocket change to the people who accepted them… It wasn’t so much a bribe as a sign of our affection.”

As I wrote in an earlier post (13.5 tons of hidden gold: Can Xi stop corruption?), corruption has long been a problem in China. 

Xi has been fighting this sort of corruption since he came to power.  According to consultant Richard McGregor, in the first six years after Xi rose to power in 2012, “the authorities have investigated more than 2.7 million officials and punished more than 1.5 million others.”  But corruption endures.  An article in Foreign Affairs entitled “The Robber Barons of Beijing” provides many recent examples, including the “former minister of railways [who] was charged with taking $140 million in bribes, not including the more than 350 apartments he had been given. The head of one state-owned lender allegedly kept a harem with over 100 mistresses and was arrested with three tons of cash hidden in his home.”

Many of these excesses grew directly out of China’s single minded focus on economic growth.  Xi’s new common prosperity initiative reflects a change in priorities designed to “open up channels for upward mobility, form a development environment with participation from everyone, and… divide the cake well, forming a reasonable distribution pattern for the benefit of all.”

Although the term common prosperity has been used by the CPC since the 1950’s, in his August speech to the Central Committee for Financial and Economic Affairs, Xi expanded and redefined it.  The government is now “promising to reduce inequality and make life better for ordinary people, and many of the moves seem to have genuine popular support.”

A number of the goals listed in Xi’s speech sounded like they could have been ghost written by Bernie Sanders, including:

  • “reasonably adjust high incomes 
  • prohibit and suppress illegal incomes. 
  • improve the pension and medical care assurance systems
  • expand the size of the middle-income groups as a proportion of the population
  • increase the income of low-income groups”

How exactly will Xi do this?  No one knows, including Xi.  The common prosperity initiative is not a well defined list of policies; it is instead a broad general framework for China’s future. 

But, keep in mind that, as Chinese state media outlet Xinhua put it, “Common prosperity is not egalitarianism. It is by no means robbing the rich to help the poor as misinterpreted by some Western media.”

The first steps toward common prosperity can be seen in a running list of crackdowns in mainland China published by SupChina, a New York based news organization.  On the day this post was published, that list included 19 separate crackdowns.  But by the time you read this, there may be 20 or 30 crackdowns in this list, since “the government’s targets have expanded dramatically in just the last month.”

Several of the crackdowns focus on high-income individuals.  For example, ten days after Xi gave his speech in August, “the State Taxation Administration announced a probe into people who have avoided taxes. Regulators have already fined a number of pop stars and actors for tax evasion and have even ordered broadcasters to wipe the content of blacklisted celebrities — their names and faces — from the Chinese internet.”

In a second example, “Beijing has explicitly encouraged high-income firms and individuals to contribute more to society via… charity and donations.”

A third crackdown involves China “sharpening its scrutiny of the country’s red-hot real estate market by tackling unbridled borrowing that has fueled concern about financial risk.”  This crackdown is behind the current liquidity crisis at Evergrande.  In case you haven’t been reading the business section lately, Evergrande is one of the 500 largest companies in the world, with about 200,000 employees.  It is also “China’s most indebted developer, with more than $300 billion worth of liabilities… [In September the company] warned investors of cash flow issues, saying that it could default if it’s unable to raise money quickly.”  And if it did fail to make an interest payment, that could lead to “cross-defaults on all of the company’s $19 billion worth of bonds in international capital markets.”  In the worst case, this could start an international economic meltdown, as Lehman’s bankruptcy did when it triggered the 2008 Great Recession.

Within the last two weeks, Evergrande has made overdue interest payments of $83.5 million and $47.5 million, each one day before the final deadline for default.  Given China’s lack of transparency, no one is entirely sure where this money came from.  But there have been reports that “Chinese authorities had urged Evergrande’s founder, Hui Ka Yan, to pay the developer’s debts out of his personal wealth.” If true, that would be a great example of the success of the common prosperity goal of encouraging the rich to give back.  Can you imagine an American billionaire such as Mark Zuckerberg using his own personal money, to prop up Facebook if it faced financial problems?  Me either.  But, of course, China is different.

Beyond the financial efforts to reduce inequality, it is important to keep in mind that “Common prosperity… is not just an economic issue… [It] refers to affluence shared by everyone both in material and cultural terms.”

As noted in the first sentence of this post, Xi’s definition of common prosperity included improvements in “spiritual [moral] lives.”  I don’t think Xi was referring to increasing church attendance on Easter or improved chanting of Mahayana sutras.  Rather he used the phrase to refer to day to day motivation and lifestyles, in the same sense that he has referred to video games as a kind of “spiritual opium.”  More about the cultural side of the common prosperity coming soon in a future post…

Wolf warrior nationalism

When the US withdrew from Afghanistan a few weeks ago, China’s “wolf warriors” began tweeting highly critical comments like these:

— “Wherever the US sets foot… we see turbulence, division, broken families, deaths and other scars in the mess it has left.” – Hua Chunying, Foreign ministry spokesman

— “The failure of the U.S. in Afghanistan should serve as a warning to [the citizens of Taiwan]… who have to understand that they cannot count on Washington.  Afghanistan is not the first place where the US abandoned its allies, nor will it be the last.” – Hu Xijin, Editor-in-chief of the state-controlled Global Times

The phrase wolf warriors came from two “hugely popular movies in which elite Chinese special forces take on American-led mercenaries and other ne’er-do-wells. They are violent and extremely nationalistic in tone.  One critic dubbed them ‘Rambo with Chinese characteristics.’”

A poster for the first Wolf Warrior movie.  An alternate version shows the main character raising his middle finger with the slogan: “Anyone who offends China, no matter how remote, must be exterminated.”

The wolf warrior movement became more louder and more visible last year when diplomats and citizens responded to criticism over China’s response to covid with tweets like this:

— “Some US leaders have stooped so low to lie, misinform, blame, stigmatise. That is very despicable, but we should not lower our standard [in a] race to the bottom. They don’t care a lot about morality [and] integrity but we do.” – Ma Hui, China’s London Embassy

— “Faced with this suppression… we’ll never swallow our pride or stoop to compromise.” – Le Yucheng, a Chinese vice minister of foreign affairs

According to David Shambaugh, Professor of Asian Studies at George Washington University, one reason behind this type of nationalistic diplomacy is the view “that the tide of history has turned, and that China is becoming the world’s dominant power…Chinese citizens are deeply infused with uber-nationalism and a sense of national accomplishment — they take great pride in their government officials pushing back against perceived discrimination.”

Two years ago in this blog, I published a post entitled “Dueling Superiority Complexes: The US and China.”  I wrote there about China’s pride in its 5000 years of civilization.  “The Mandarin word for China – Zhongguo – is translated as Middle Kingdom, since… they believed their empire occupied the middle of the earth, surrounded by barbarians.”

While contemporary Chinese no longer see themselves at the geographic “middle of the earth,” the notion that all foreigners are inferior barbarians has not entirely died out.

In the 1800s, the Chinese had good reason to feel superior.  China’s Qing Empire was at its height, and its Emperor ruled “300 million people or about a third of the world’s population.”  Ancient Chinese civilization was responsible for a wide variety of inventions including papermaking, printing, gunpowder, the compass, iron smelting, porcelain, rockets, bronze, row crop farming, paper money, tea production, mechanical clocks, kites, the umbrella, and the toothbrush. 

China’s arrogance was challenged when maritime trade routes were opened to Europe and America in the 19th century.   Westerners had a huge demand for such products as tea, porcelains, and silk garments (whose weaving technology was “such a closely guarded secret [that] the West had to pay gold [for] the same weight [as] silks.”)

But China had little interest in European products or technology, and wanted to be paid only in silver or gold.  This led to a very unfavorable balance of trade for Western nations.  Then the British had an idea:  increase the cultivation of opium in its Indian colony, and sell it in China for silver, then use the silver to buy tea and the other Chinese products Westerners craved. 

This was a success for the West, but created a huge problem of recreational opium smoking and addiction in China.  In 1839, the Emperor tried to ban the trade in opium because of concern with its effects on Chinese citizens, not to mention his concern with the outflow of silver. 

This resulted in the First Opium War (1839-1842) and then the Second Opium War (1856-1860).  China lost both by a wide margin due to the vast superiority of Western military technology. 

Around this time, Westerners were often referred to with the Cantonese term “gweilo,” which can be translated as “foreign devil.”  Not a great foundation for positive relations. 

When the First Opium War ended with the Treaty of Tientsin, it forbade China “from using the character 夷 … (‘barbarian’) in official documents to refer to officials, subjects, or citizens of [Britain, France, Russia, or the United States].”

But that was the least of China’s problems.  By 1860, the Chinese had been forced to legalize opium, pay western powers about 500 pounds of silver in reparations for the cost of the war, cede large portions of Manchuria to Russia, give Hong Kong to the British, open about a dozen ports to western traders, and much more.

And thus began what Chinese call, to this day, its “Century of Humiliation.”  It continued with a long list of events, capped by the Japanese invasion of Manchuria (1931) and World War II.

Officially, the “century of humiliation” ended in 1949 when the Communist Party won its civil war and founded the People’s Republic of China.  But in the eyes of the Chinese, humiliation continued. 

Do you remember when “a U.S. plane accidentally bombed the Chinese embassy in Belgrade mistaking it for a Serbian arms depot, killing three Chinese and injuring several others” during the Kosovo War in 1999?  Me either.  But the Chinese certainly do.  Many believe the bombing was intentional.

How about the 2001 death of the Chinese pilot of an F-8 jet fighter when it crashed with a US spy plane in disputed air space?  Or the 2005 protests in China over publication of a Japanese history text that downplayed World War II atrocities?  Can’t say I remember those either, but these were big news in China, and boosted nationalism.

Westerners may see the Chinese reactions to these and other events as excessive.  But as one China expert summed them up, he noted “that incensed Chinese online reactions are often the result of deeply felt, shared emotions about historical experiences characterized by a great deal of suffering at the hands of foreign powers. The authorities stoke those emotions, and nationalists embrace them, but that does not make them unfounded.” (Italics added)

Wolf warrior diplomats are now building on this tradition.  It is important to keep in mind “that the diplomats are not speaking to a foreign audience, but catering to ‘domestic consumers,’ who – amid times of relative turbulence – are in search of impassioned, at times zealous, speech in defense of the Chinese nation… What cannot be underestimated here is the extent to which support genuinely emanates from the public.”

Chinese public opinion polls conducted by western pollsters support this view.  A “decade-long opinion poll released [last year] by the Harvard Ash Center concluded that 93% of Chinese citizens were ‘satisfied’ with their central government.”  Similarly, a recent “World Values Survey reported that 95 percent of Chinese citizens said that they have a great deal or quite a lot of trust in national government.”  And, at least in the opinion of sociologist Cary Wu, “what we know about citizen surveys in China… suggests that these results cannot be simply reduced to a misrepresentation out of political fear.”

Nationalist feelings run highest among “among Chinese born in the 1980s and 90s, a generation that has matured [with]… a nationalist education system, and a censored web. In their anti-Western and anti-Japanese attitudes, they often display the most xenophobic aspects of Chinese society… Distinctive to this nationalism is its raw, conspicuous character, which often manifests itself in calls for a more muscular foreign policy and public outrage in the wake of perceived foreign threats.” Australian diplomat Andrew Forrest has described this group as “an aggressively restless generation that expects to live to see China kick the United States out of Asia.”

According to consultant Jude Blanchette from the Center for Strategic and International Studies, the combination of Chinese ultra-nationalism and censorship has created “a really nasty echo chamber that I think will continue to drive China.” 

Hmm.  A “nasty echo chamber.”  Where have I heard that before?

In any case, according to Minxin Pei from the Carnegie Endowment for International Peace:“A very nationalistic public makes foreigners wary of China and harms China’s image.”

It also increases the risk of war.

Chinese media coverage of the US Capitol riot

When rioters invaded the US Capitol on January 6, the Chinese media could barely control their glee.

According to a headline in China Daily – the official publication of the publicity department of the Chinese Communist Party (CCP) — “The Capitol riot is a collective American failure.”  The article argued that the riot was “squarely rooted in the US government’s inability to tend to societal issues that have been simmering over the last few decades,” including race relations, income inequality, and social media that wrapped “people in their own cocoons of comfortable opinions.”

The article concluded that the US has been so “focused on waging wars and poking its head into other people’s affairs [that it] easily overlooked all these brewing tensions… the shining city on the hill has been decaying from inside for a long time.”

While US allies were horrified and disgusted by videos of Trump supporters attacking police, CCP propagandists saw these events as an opportunity to support their “narrative that democracy doesn’t work and that its authoritarian model functions much better.”

The Washington Post reviewed the coverage in an article entitled “China is having a field day with US Capitol chaos.”  It noted that “Beijing has long argued its restrictions on its people’s freedoms were necessary to prevent chaos, and the unrest in the United States under Trump has played into that narrative.”  The events of January 6, it went on, have provided “a convenient defense for its authoritarian policies and iron-fisted suppression of dissent.” 

When Republicans and Democrats were unable to agree on how, or even whether, to investigate the riot, the coverage in China continued. When a group of Republicans from the Senate Homeland Security and Rules Committee published their findings on “Security, Planning and Response Failures on January 6” in June, a China Daily editorial cynically concluded that “While the candy-sucking report declines to draw the conclusion, the Capitol riot was incontrovertible evidence of the failing governance system of the United States.” 

Given the way that the Chinese government controls the press, it is no surprise that articles throughout China took a similar approach.  According to Tracy Wen Liu in Foreign Policy, reporters in mainland China were issued guidelines on how to cover the Capitol riots. “Write on how democracy could be hijacked by a group of uneducated people and how democracy could only be realized when the population is highly educated—and that China’s current education level is not suitable for democracy.”  Reporters were also told to focus their January 6 articles “on how the United States’ global reputation would be damaged.”  Which is exactly what they did.

Another China Daily article argued that that the events were “squarely rooted in the US government’s inability to tend to societal issues that have been simmering over the last few decades…. [For example], the rich [have gotten] richer faster than anyone else does.”  Underlying political fissures can also be clearly seen in “the Black Lives Matter movement… [which] part of the country sees as a rightful decry of systematic discrimination while the other [part of the country] considers it a challenge to social stability.”

The article went on to say that “from Ukraine to Venezuela, from Syria to Libya, people have suffered as a result of the attention the US politicians have given to affairs that do not concern them… Intent on their mischief-making elsewhere, US politicians have ignored the mounting problems at home.” 

Still another piece went deep into American history, describing the US as “a country built on slavery, with land forcibly taken from indigenous populations. The first draft of the US Constitution —right below high-minded passages about ‘a more perfect union’ — deemed Africans property, three-fifths of a whole human being.”

US House Speaker Nancy Pelosi came under special attack.  On January 7, the Global Times, another newspaper published by the CCP, noted that “Chinese web users still remember the distress and anger they felt when they saw rioters in Hong Kong storming the Legislative Council Complex … US politicians hailed the ‘courage’ of these mobs … House Speaker Nancy Pelosi even called it a ‘beautiful sight.’”  The article came complete with a picture to underline this hypocrisy.

This photo appeared in a Global Times article comparing politicians’ responses to the 2019 riot in Hong Kong’s Legislative Council to the 2021 US Capitol riot.

However, a fact-checking article later rated this Global Times claim as FALSE. Pelosi did indeed use the phrase “beautiful sight to behold” on two occasions.  The first was during a 2019 congressional hearing when Pelosi was shown a picture of tens of thousands of non-violent Hong Kong pro-democracy protestors holding a candlelight vigil.  “It is a beautiful sight to behold, and I commend the courage of the people there for speaking out in light of China’s actions in Hong Kong these days …”  But both times Pelosi used the phrase “came before Hong Kong protesters broke into and ransacked the city’s Legislative Council complex on July 1, 2019.” 

Nevertheless, in China, as in the US, social media users are not known for caring much about facts or subtleties. “The phrase ‘beautiful sight to behold’ started to trend on Weibo (the Chinese equivalent of Twitter) on Jan. 7.”

“This is karma,” wrote one Weibo user. “The United States has been fanning the flames all over the world for many years, and now the fire of ‘freedom’ is burning themselves.  “There are no rules at all and no respect for the law,” said another. “This is the ‘democracy’ they boast about.”

A later China Daily opinion column entitled “Capitol Riots a Page in US Legacy of Violence” took the argument several steps further.  “The hordes who attacked Congress are the people who jeered students attending integrated schools. They’re the people who formed lynch mobs. MAGA and QAnon are just the John Birchers and Klansmen of yesteryear. Make no mistake: This is an old, abiding hatred with a fresh coat of paint… This reactionary rot, festering as it has for countless decades, was inflamed by the consolidation of capital and the monopolistic control of information through enormous tech companies.”

Foreign Policy’s analysis of Chinese coverage noted that “Beijing never misses an opportunity to glorify its governance when liberal democracies are challenged… The violence at the Capitol aided the Chinese government… by giving it another justification for arguing that control of speech is necessary.”

Ryan Hass, a senior fellow at the Brookings Institution think tank summed it up this way: “Chinese media outlets broadcast images of mayhem inside the American Capitol to a domestic audience to buttress a narrative of America as a country in descent, plagued by deep divisions and a broken political system. Externally, official Chinese media outlets used news of the insurrection to make the case that the greatest threat the United States faces is itself, not China.”

Let me repeat that: “The greatest threat the United States faces is itself, not China.” 

He’s got a point.

Will China grow old before it grows rich?

A few months ago, in a post entitled China’s rise is accelerating I argued that “China is likely to become the most powerful country in the world, sooner or later [and]…it’s starting to look like sooner.”  While I stand by that conclusion, I will readily admit it’s not a sure thing, and there are a number of factors that could slow or even reverse China’s rise.

Chief among them is what some experts have called China’s “number one economic problem… going forward”:  the aging of its population.  Very simply, as any country’s population gets older, fewer workers must support a larger number of retirees. 

In 1978, around the start of China’s economic rise, there were nine workers for each retiree.  Today, that number has slipped to five workers per retiree, and according to a recent Forbes article, by 2040 China will have “barely three workers for each dependent adult. Those three workers will have to produce enough for their own consumption, those of their other dependents, and… [for] retiree’s needs.” 

China’s initial wave of growth was largely based on cheap labor producing cheap products.  “Demographics were not the only contributor to China’s fabulous growth…” the Forbes article explained, “but they were a substantive part to be sure.”  Since then, wages in China have gone up and many of its manufacturing jobs have moved to India, Brazil, and other countries with lower labor costs.  

To sum up, according to a Time article entitled China’s aging population is a major threat to its future: “China, whose extraordinary economic heft has been built on labor-intensive manufacturing and which has no social safety net to protect the aged, is uniquely ill-prepared for the societal changes this gray wave will bring.” Or, as a Washington Post editorial a few weeks ago phrased it “The ambitions of China’s rulers may be undone by the baby bust.”

The continued aging of China’s population will also have more subtle negative effects, such as reducing innovation. “Research into patents and Nobel Prizes [has shown] that in all cultures and economic systems, the 30-40 age cohort provides the bulk of society’s inventiveness. In China, that age cohort is expected to shrink by 100 million over the next 20 years, from 43% of the workforce to 37%.”

Of course, China is not the only country facing problems associated with too many elderly retirees.  For example, according to Time, in Japan “more adult diapers are sold… than infant ones.”

In fact, “having an aging population is a common demographic problem in developed countries, where birthrates decline as a result of higher levels of income, healthcare, and education.” 

A study published in The Lancet last year predicted that “an accelerated decline in fertility rates means the global population could peak in 2064 at 9.7 billion and fall to 8.8 billion by century’s end… An important underlying reason behind the conclusions is the improvement in access to modern contraception and the education of girls and women, which the study said would ‘hasten declines in fertility and slow population growth.’” 

The economic effects will be much worse in China than elsewhere since it began “the aging process at an earlier stage of [economic] development… than most countries… and at a more accelerated pace.”

Put it all together, and the New York Times called this demographic trend a “looming crisis” that threatens the country’s position on the world stage.  A population that is growing older and living longer could not only slow consumer spending but also limit the military’s manpower.  It may even require China to build a huge social welfare state over the coming generation.

There are many reasons to believe that China’s population will continue to get older.  The first and foremost has been the increase in life expectancy.  In 1959, life expectancy in China was just 44; today it is 77, largely as a result of improved medical care.

A second reason is the “middle income trap,” a term introduced by the World Bank in 2006 to refer to developing economies which first grow rapidly, until wages rise to the point where a middle class emerges and has fewer babies.  In China, “urban couples, particularly those born after 1990, tend to value their independence and careers more than raising a family despite parental pressure to have children.  Surging living costs in big cities, where most Chinese now live, have also deterred couples from having children.”

Still another cause of this problem was self-induced.  According to Time, “The scale of the problem is partly due to the legacy of the one-child policy: history’s biggest social-engineering experiment… introduced in 1980 to reduce the number of hungry mouths to feed.”

Enforcement of the limit of one child per couple was harsh. “Corrupt and brutal family-planning officials demolished the homes of some who resisted. Women had their menstrual cycles recorded on blackboards, for all to see. As birth quotas bit, gender ratios became more skewed by infanticide and sex-selective abortions of girls.”

When it became clear that this policy was interfering with long-term economic growth, in 2016 China changed the law to allow two children per couple.  This didn’t work, so a few months ago China again increased the limit, this time to three children per married couple.  On Weibo – one of China’s largest social media platforms – this latest change “was met with cynicism and ridicule. [As] one user wrote, ‘Whether you change the policy to five children or eight children, [high] housing prices are still the best sterilization tool.’”

The same day it announced the new three child policy, the Politburo also “said it would reduce the costs of education, improve maternity care and insurance and provide other support to families on housing and taxes… [and that] they would gradually raise the country’s retirement age, which is currently 60 for men and 55 for women.”

Many experts are skeptical that these new policies will make much difference.

As the Forbes article summed it up, this is not to argue that “China will disappear as a major power or that its economy will cease growing. It does say, however, that contrary to most media commentary today, the country’s growth rate will slow appreciably going forward, as will its pace of development and innovation. China will begin to resemble Japan in crucial ways, except that Japan got rich before it aged, whereas China, still not rich, will age first.”

How families are changing

For the last several thousand years, “The family [has been]… the most important social institution in China and blood ties have traditionally been the cornerstone of society…” 

But all that has started to change.  As an article last month in Foreign Affairs entitled China’s Shrinking Families explained, “the impending implosion of the extended family… is essentially certain.” The full implications for Chinese society are just beginning to be understood. 

Traditional family norms are being shattered as China adapts to modernization. 

The impact of these changes is greater on women than on men.  According to the Confucian tradition, “women should observe the Three Obediences… to be obedient to the father and elder brothers when young, to the husband when married, and to the sons when widowed.”

That doesn’t leave women a lot of time for education, careers or self-actualization.  Not to mention yoga.

A traditional Chinese extended family.

Women’s reproductive rights have been trampled in the transition to a modern society.  From about 1980 to 2015, China enforced a “one child policy” which included significant fines for any couple that had two children.  One result is that “By 2050, two-fifths of Chinese under 50 will be only children… Many… will traverse life from school through work and on into retirement with little or no firsthand experience of the traditional extended family so integral to Chinese culture. Theirs will be the generation that in effect finds 2,500 years of Confucian tradition coming to an end.”

Of course, it also produced the population drop the government was aiming for, but that too had some unfortunate effects. “As countries become more developed, birth rates tend to fall due to education or other priorities such as careers… But with the biggest population in the world and an economy that [China is] trying to make more reliant on domestic consumption, this is a particularly salient issue.”

On an individual level, when two only children marry, the results are “4-2-1 families” which place enormous financial and emotional burdens on the two parents who must care for one child and four grandparents.  (On the plus side, these families have six adults available to help raise each child.) The government changed the policy in 2016, and there is now a two-child limit per family. 

This head snapping reversal in policy has reinforced the pressure on women to marry young.  “Women are vigorously discouraged to delay marriage for career, with the derisive label sheng nu, or ‘leftover women,’ given to unmarried women over 27…[The government] encourages Chinese citizens to see unmarried women as unhappy and unfulfilled.”

A 2019 documentary entitled “Leftover Women” illustrates this stigma by following three women to illustrate the pressures they face, including an unmarried female lawyer named Qiu Hua Mei.  In one scene “At a ‘marriage market’ in Beijing, where parents solicit dates for their children, one mother shies away from Qiu after learning that she’s a lawyer, claiming Qiu might sue a potential husband’s family. When you have a degree, Qiu said, people think, ‘This woman must be very tough, not obedient. Maybe very bossy. Maybe she wouldn’t follow the orders of a husband.’”

In contrast, for men “Under Confucianism, the oldest male and the father are regarded as the unchallengeable authorities. They set rules, and the ‘duty and virtue’ of everyone else is to follow them.” 

You can tell Confucius was a guy.  Under his system, the most powerful people were old men since he also promoted the concept of filial piety “that it was important to worship one’s parents while they are still living and old people should be venerated because even though they are weak physically they are at the peak of their knowledge and wisdom.” 

This didn’t make a lot of sense to me in my teens or twenties.  But now that I am 73, I can see the profound wisdom of this approach.  In China, the veneration of parents went further than just following their rules.  “In the old days a son was expected to honor his deceased father by occupying a hut by his grave and abstaining from meat, wine and sex for 25 months.”

To sum it up: “In a traditional family, the father is dominant, the mother is home-centered and devoted to raising her children, and grandparents, aunts and uncles play an important role in a youngster’s life. A husband’s first duty has traditionally been to his parents and a wife’s duty has been to her parents-in-law…” 

But this 2,500-year-old family structure is now giving way.  One expert quoted in a New York Times article went so far as to say that these days “Filial piety is a myth.”

In fact, it’s gotten so bad that “In a country famous for its Confucian traditions of filial obedience, tens of millions of elderly Chinese are being left behind… suffering poverty, illness and depression. It has become such a serious problem that the Chinese government put into effect a law [in 2012] allowing parents to sue their children if they failed to visit and support them.”

Other traditional attitudes are changing more slowly.  For example, “It is [still] taken for granted that everyone should marry, and marriage remains part of the definition of normal adult status. Marriage is expected to be permanent.”

But here too, change is underway. “Urban couples, particularly those born after 1990, tend to value their independence and careers more than raising a family despite parental pressure to have children.”  One result is that “The divorce rate in China has soared from around 0.96 divorces per 1,000 people in 2000 to 3.36 divorces in 2019.”  (China’s divorce rate is now higher than the US rate of 2.7 per 1000.) And when the results of China’s 2020 census were announced two weeks ago, the average size of a family household had significantly shrunk (from 3.10 people per household in 2010 to 2.62 in 2020). 

This is a massive social change when multiplied by China’s total population of 1.4 billion.  It can be explained largely by “increasing population mobility and the fact that young people after marriage [now] live… with improved housing conditions… separately from parents.”

The implications of these huge demographic shifts will be rippling through Chinese society for decades, sometimes with surprising consequences.  To cite just one example, China has traditionally been classified as a “low-trust” society.  A lack of confidence in both laws and the government has led to the system of guanxi in which people rely on social networks of trusted family and friends.  According to the article China’s shrinking family “From China’s earliest recorded history, guanxi networks of informal social relations (mainly but not exclusively through family ties) have helped get business done for the modest and the mighty alike by reducing uncertainty and facilitating economic transactions. These sorts of networks remain essential today and supply the necessary trust that helps business get done. The coming decades’ implosion of China’s extended family networks portends a national decline in this kind of trust and social capital.”

The same article goes on to argue that “the changing structure of the Chinese family poses a threat to the country’s great-power ambitions in the decades to come… to a degree that China’s leaders may not yet anticipate.”

The greatest implication of all these changes is that “a diminishing pool of working adults [which] will also test China’s ability to pay and care for an aging nation.”  But that’s another story. I will discuss it in my next post.

The Taiwan conundrum

Beijing is irrevocably committed to regaining control of Taiwan, an island about 100 miles off China’s coast.  But the US and its allies are committed to the opposite:  helping Taiwan maintain its status as an independent county.  Something’s got to give. 

To put the problem in context, Taiwan was part of China for over 200 years, until it was ceded to Japan in 1895 when China lost the first Sino-Japanese War.    Taiwan was returned to China at the end of World War II, but then taken over by the Nationalist Chinese forces after they lost their civil war to the Communist Party in 1949.    

As recently as a few weeks ago, Chinese Foreign Ministry spokesman Zhao Lijian told reporters that: “China’s position on the Taiwan question is consistent and clear. There is but one China in the world, and Taiwan is an inalienable part of China’s territory.”  

Zhao is certainly correct that the Chinese have been both consistent and clear.  Nearly 50 years ago, when President Nixon visited China in 1972 to reopen relations between the two countries, Chinese Premier Zhou Enlai’s “principal goal was to persuade [US Secretary of State Henry] Kissinger to agree to ‘recognize the PRC as the sole legitimate government in China’ and ‘Taiwan Province’ as ‘an inalienable part of Chinese territory which must be restored to the motherland.’”

In 2019, on the 40th anniversary of the US establishing diplomatic relations with China, President Xi Jinping gave a speech explaining how the need for re-unification with Taiwan remains critical. Xi also emphasized the need for a peaceful solution, repeating a line from a 1995 speech by former Chinese president Jiang Zemin that “Chinese will not fight Chinese.” But Xi also went on to say that Beijing ultimately “reserves the option to take any necessary measure,” and that the problem “should not be passed down generation after generation.”

Xi described the re-unification of Taiwan as part of the “great rejuvenation of the Chinese nation,” a phrase often used when referring to China’s “century of humiliation” at the hands of foreign powers, and its current rise to true superpower status. As a New York Times article summed up the situation a few weeks ago, “to Beijing, Taiwan continues to be a source of embarrassment, the island where the losers in the country’s civil war fled in 1949 and whose government is propped up by foreign powers.”

In his provocative book Has China Won? (p. 94), former president of the UN Security Council Kishore Mahbubani concluded that “the one issue where the Chinese leaders cannot bend and compromise is Taiwan… [this issue could even] trigger a war.”

The American position is quite a bit muddier.  In 1979 Congress passed the Taiwan Relations Act which stated in part that the U.S. will consider “any effort to determine the future of Taiwan by other than peaceful means, including by boycotts or embargoes, a threat to the peace and security of the Western Pacific area and of grave concern to the United States.” 

More recently, in one of his fist major speeches on China, Secretary of State Antony Blinken has warned that “when China uses coercion or aggression to get its way… We will push back if necessary.” 

Both statements are consistent with the US’ longstanding policy of “strategic ambiguity.”  As a New York Times article recently explained “Under a longstanding — and famously convoluted — policy derived from America’s ‘one China’ stance that supports Taiwan without recognizing it as independent, the United States provides political and military support for Taiwan, but does not explicitly promise to defend it from a Chinese attack.”

So, to sum it up, if China takes aggressive action on Taiwan, the US will consider it a matter of “grave concern” and we will push back “if necessary.”  Any questions?

I suspect that nobody knows exactly what the US would do in response to a direct threat to Taiwan, not even in Washington.

When the Senate Armed Services Committee recently reviewed the nomination of Adm. John Aquilino to lead the US military’s Indo-Pacific Command, one Senator asked was why the US should defend Taiwan at all.  Aquilino replied that “Washington’s credibility as an ally to places like Japan and the Philippines is at stake if the island were to fall to Beijing.”

In a Bloomberg opinion column ominously titled “A Taiwan Crisis May Mark the End of the American Empire” Niall Ferguson added several other reasons, notably that “Taiwan in recent years has also gained a greater strategic importance as one of the world’s leading producers of semiconductors — the high-tech equivalent of oil in the emerging supercomputing showdown between the United States and China, which faces microchip supply shortages.”

An article in Asia Times about the microchip shortage noted cynically that the US used to be a leader in “all forms of high tech, especially semiconductor chips, [but] now spends its time redesigning chocolate chips.”  Meanwhile, the Taiwan Semiconductor Manufacturing Company (TSMC) has become “pretty much the only place to get processor chips fabricated, unless you’re Intel.” 

Often missing from discussions of this diplomatic stalemate is a discussion of what the 24 million people who live on Taiwan want.  This is unfortunate since “it is the people of Taiwan who will suffer if American actions provoke military responses from China.”  (Has China Won, p. 98)

One way to answer this question is to look at the results of Taiwan’s most recent presidential election. “Taiwanese President Tsai Ing-wen won a landslide election last year on a promise of defending the island’s democracy and standing up to China.”  The Unionist Party, which favors re-unification with the mainland, got just 0.23 percent of the vote. 

The implication is obvious, according to Taiwan News: “the majority of Taiwanese do not believe Communist China can peacefully coexist with a free society, and voters rejected China’s ‘one country, two systems’ framework by casting a vote for the presidential candidate who opposes it.”

A few weeks ago, Taiwan’s foreign minister said that if China attacks “We will fight a war if we need to fight a war, and if we need to defend ourselves to the very last day, then we will defend ourselves to the very last day.”

What are the chances of winning?  One way of estimating this, and of refining military strategy, is to look at the results of simulated war games conducted by military officers.  According to David Ochmanek, a former senior Defense Department official who helps run war games for the Pentagon “the results are sobering and the United States often loses.”   In an article in Foreign Affairs, Fareed Zakaria was more specific “The Pentagon has reportedly enacted 18 war games against China over Taiwan, and China has prevailed in every one.”  Hmm.

And therein lies the conundrum:  What should the US do?  And when?

If Hu Jintao (President 2003-2013) or Jiang Zemin (President 1993-2003) or any of China’s other recent leaders were in power, I believe that they would try to bring Taiwan under control the same way that they gained control over Hong Kong, patiently and without major violence.  As Chinese general Sun Tzu wrote in The Art of War in the 5th century BC, “The supreme art of war is to subdue the enemy without fighting.”  The result has been, in the words of the Washington Post “Hong Kong’s fall from a relatively free, boisterous territory to an Orwellian place that resembles the repressive mainland.”

But current president Xi Jinping may be on a faster, more aggressive path with Taiwan.

Interestingly, Niall Ferguson has reported that, “I was told by one of Xi’s economic advisers that bringing Taiwan back under the mainland’s control was his president’s most cherished objective— and the reason [Xi] had secured an end to the rule that had confined previous Chinese presidents to two terms.” 

Since January, China has significantly increased flights of military aircraft violating Taiwan’s airspace, in “attempts to intimidate” the Taiwanese government.  Two weeks ago, China “conducted simultaneous military exercises to the west and east of Taiwan… [which] showed that the People’s Liberation Army is capable of surrounding the island of Taiwan, isolating its troops and leaving them nowhere to run and no chance to win.”

The clock is ticking.  When Adm. Philip Davidson, commander of the U.S. Indo-Pacific Command, was asked by the Senate Armed Services Committee about timing he replied that “The threat is manifest during this decade, in fact, in the next six years.”

Similarly, a New York Times article two weeks ago entitled The New Taiwan Tensions quoted Anne Applebaum of The Atlantic “that a Chinese invasion ‘could happen at any moment.’”  

The article’s conclusion was a bit more optimistic: “a military conflict still seems unlikely. Then again, military conflicts often seem unlikely until the moment they begin.”

Two problems with companies in China

There are two major problems with evaluating the performance of companies based in China:  the lack of transparency, and the near-absolute power of the Chinese Communist Party.

Do these problems affect you directly?  They might. 

Roughly what percent of your savings are in stocks in Chinese companies?  If you invest in mutual funds, you probably have no idea. 

China is currently a favorite among mutual fund managers and individual investors who are willing to take risk to maximize their long-term returns.  As one analyst quoted in a January article in US News and World Report put it:  “China is the only major economy in this COVID-pandemic era that’s actually on a growth path.” 

And “there [are] 217 Chinese companies listed on [the three big US stock exchanges – New York, American, and NASDAQ] with a total market capitalization of $2.2 trillion.”  So if you invest in certain types of mutual funds you almost certainly own a small piece of some of them.

If you’re not worried about the first problem – lack of transparency — consider the case of Luckin Coffee, the “Chinese Starbucks.”  When the company went public on NASDAQ in 2019, they had 4,500 stores in China, and reported $413 million in sales for the previous nine months.

The price rose quickly from $17 per share to $50 per share. and a lot of investors made a lot of money.  As long as they sold their stock near the peak.  Because in April 2020, less than a year after the company went public, “it came out that its COO, along with a number of other employees, had overstated revenue figures by some 40%.”  Within a week of this fraud announcement, the price per share dropped to $4.  By June, NASDAQ had delisted the stock.    

Luckin Coffee has agreed to pay a $180 million penalty to the SEC (Securities and Exchange Commission) and in February filed for Chapter 15 Bankruptcy.

Luckin Coffee’s stock price crashed when the company admitted fraud.

Could this type of fraud happen in a US company?  Of course, fraud is always a possibility when humans are involved.  That’s why there will always be accountants. 

But in the US, the PCAOB (Public Company Accounting Oversight Board) oversees external audits which greatly reduce the risk of fraud in publicly traded companies.  Chinese companies traded on US stock exchanges have agreed to be audited by the PCAOB.  But they consistently violate this promise.  Which is an excellent illustration of the first problem highlighted in this post:  Lack of transparency.

Indeed, in general “China’s economy [is] incredibly opaque, not only to foreigners but to the Chinese as well… [The government controls the flow of information including] the massaging of data, faking it outright, turning a blind eye to its misreporting [and] rationing its publication.”  Even worse, “its rules are fluid.”  (China’s Great Wall of Debt, p. 10)

China’s lack of transparency has been “a thorn in the side of the U.S. Securities and Exchange Commission (SEC) for a decade.”  Last year, the SEC issued a warning to investors explaining that “in many emerging markets, including China, there is substantially greater risk that disclosures will be incomplete or misleading and, in the event of investor harm, substantially less access to recourse.”

What’s the SEC’s solution?  Be careful out there. 

Or, to use the governmental phrasing of the authors of that SEC report, investors should “consider the environment in which the company operates in assessing whether the company has sufficient controls, processes and personnel to address its accounting or financial reporting issues.” 

How likely is it that the average investor will find time to do intensive background research on each and every Chinese company listed in the prospectus for their mutual funds?  I’d say it’s roughly about 0%. 

And then there’s the second problem:  the near-absolute power of the Chinese Communist Party.

The Party has the greatest impact on state-owned enterprises (SOEs), which are partially or fully owned by the Chinese government.  (13 SOEs are traded on American stock exchanges.)  SOEs are designed to meet specific goals such as driving growth, maintaining employment, and increasing China’s technical expertise in areas that give the country an economic or strategic advantage, such as artificial intelligence, robotics, and green energy.  Note that making a profit is NOT one of their primary goals.  As a result, according to the World Economic Forum: “SOEs are highly over-leveraged and structurally less efficient than their private peers… It is widely argued that the SOEs would not survive in an innovation-driven market environment without the perks they currently enjoy.”

But even companies that are 100% privately owned must be very careful to support the Communist Party.  If you doubt this, just ask Jack Ma.  If you can find him.

According to Forbes magazine’s rankings of billionaires Jack Ma is one of the richest people in the world with a net worth of $38.8 billion.  His fortune grew out of co-founding online shopping giant Alibaba, sometimes referred to as “China’s Amazon.” 

Among many other things, Alibaba owns a 33% stake in Ant Group, an online payment service that resembles a supercharged Venmo plus PayPal, and is used by over 1 billion Chinese. Last fall, Ma was expected to become even richer when Ant Group was poised to offer the world’s largest initial public offering (IPO).  But then Jack made a big mistake:  he gave a speech in October criticizing China’s banking system.

Within days, the IPO was canceled and Ma disappeared.  For three months, journalists speculated that he was under house arrest or maybe even dead.  Ma reappeared January 20 in a video address for a charity event and was seen in February playing golf.  Nevertheless Ma is still keeping a very very low profile.

Another sign of the Party’s power over “private” companies, is its Military-Civil Fusion (MCF) strategy.  According to a US State Department fact sheet, the goal of MCF “is to enable [China] to develop the most technologically advanced military in the world. As the name suggests, a key part of MCF is the elimination of barriers between China’s civilian research and commercial sectors, and its military and defense industrial sectors.”

Do you remember my post on “The biggest theft in human history”  and its discussion of how the government “encourages Chinese who study and work abroad to copy or steal technology and rewards them when they do.”  That’s a natural outgrowth of MCF.

Critics have noted that “As a strategy, MCF is still in its early stages, and its success is difficult to evaluate.”  But there is no ambiguity in the law.  Article 7 of China’s National Intelligence Law reads: “Any organization or citizen shall support, assist, and cooperate with state intelligence work in accordance with the law, and maintain the secrecy of all knowledge of state intelligence work.” And Article 11 of China’s National Security Law states, “All citizens of the People’s Republic of China …. shall have the responsibility and obligation to maintain national security.”

I could cite numerous other legal examples, but you get the idea:  Every Chinese citizen is required to assist intelligence authorities.   

Would you invest in a company’s stock if you thought they prioritized China’s political goals over making money?  How about if you thought its sales numbers might be fraudulent?  Me either.

But there is a counter-argument.  Many financial analysts believe that China’s 1.4 billion consumers offer unique opportunities for growth, and that justifies the risks.  For example, consider these recommendations from three unrelated analysts:

Like everything else in the stock market, it comes down to the “risk-return tradeoff”:  the more risk you are willing to take, the higher your gains may be.  Not to mention your losses. My personal conclusion?  Before I started researching this topic, nearly 10% of my retirement portfolio was invested in companies in China and other emerging markets, based on the advice of our financial advisor.  But my parents lived through the Great Depression of 1929, and I am highly risk averse by nature.  So now that I know more, I’ve sold off almost all of that foreign stock and invested it in US companies instead.