Chapter Five

Chapter Five
China’s Conundrum and the Clash of Freedoms.

The best time to plant a tree was 20 years ago. The second best time is now.
Chinese proverb.

Chapter Highlights

While China quite liked the idea of economic reform, it was less enamoured by political freedom. Fukuyama was firm in his contention that the two freedoms must go hand-in-hand, a view which was highly naïve given the hugely different characteristics and histories of the two communist uber-states, the USSR and China.

The People’s Republic of China, the PRC, emerged as a geopolitical force following the end of the long Chinese Civil War in 1949, a victory for Chinese Communists under Mao Zedong (aka, Emperor, Chairman, Great Helmsman). He had led the rebellion against the ruling Nationalists Kuomintang (KMT) party amidst a protracted conflict between China and Japan.

The KMT, under its long-time leader and generalissimo Chiang Kai-shek, had already established a retreat on the island of Taiwan (formerly Formosa) ahead of the 1949 fissure, stashing gold, national treasures and foreign currency reserves in anticipation of a temporary period of exile ahead of a triumphant return to the mainland.

Two of the world’s most powerful trading nations, China (PRC) and Taiwan, the original Republic of China (ROC), were established at the end of the 1945-49 conflict.

Chinese history is fascinating and colourful. It is incredibly tempting to ‘stretch’ a discussion of dynasties, warlords, silk roads, colonisation, opium wars and even dragons into our focus on globalization dynamics. But it would be an unnecessary distraction. It would also be informative to analyse Chiang Kai-shek’s China’s Destiny alongside Quotations from Chairman Mao Tse-tung (the Little Red Book) for philosophical insights from the two civil war protagonists.

Closer to our focus, the ‘Long March’, the ‘Chinese Communist Revolution’, the ‘Great Leap Forward’ of dismal economic and social reform, the ‘Cultural Revolution’, the ‘Gang of Four’ and the ‘Red Guards’ had little impact on the pace of post-Bretton Woods globalization other than delaying China’s contribution to its development and acceleration. Strong evidence for this is provided by Taiwan’s extraordinary technology-focused, export-driven industrial economic growth under the equally authoritarian one-party (KMT) government during the period of Maoist mayhem and shenanigans alluded to in the previous sentences.

Five distinct periods relate directly to China’s current position in the history of globalization. Following is a brief chronicle of these, starting in 1949 and leading into the decade reviewed in Ten Years.

One.  The Finalé: China’s Long Civil War Ends (1949)

Interrupted by the Sino-Japanese War and Japan’s occupation of the Chinese mainland and surrounding islands during the Second World War, the Chinese Civil War began in 1927 between the Kuomintang-led (Nationalist) government of the Republic of China (ROC) and the Communist Party of China (CPC).

The conclusion to this civil war came in 1949 and laid the foundations for two global economic superpowers, the ROC and PRC, separated by just over a hundred miles of water and a lengthy but always uneasy truce.

Two.  Panda Diplomacy: President Nixon Visits Chairman Mao (1972)

Although the US had remained ice-cold towards the PRC and its ideology since the civil war had ended, following the latter’s ascendancy to legitimate status as the ‘one China’ in the UN in 1971, relations did begin to thaw. President Richard Nixon saw both opportunity and threat in the vast country and persuaded his National Security Advisor, Henry Kissinger, to his line of thinking.

The Nixon-Mao meeting is widely acknowledged as the first move by China to engage with the West and, as such, is a significant milestone in the long march of globalization.

It should be noted that the primary motivation behind Nixon’s visit to China was his desire to destabilise the delicate Cold War balance between the USA and the USSR, which at the time resembled a teetering faux-conflict complicated by the Vietnam War. In this, it failed.

China has a long history of Panda Diplomacy, dating back to the Tang Dynasty. In recent years it has developed a business in leasing pandas to zoos worldwide, typically for ten years at around $1m a year, with any cubs born reverting to Chinese ownership. Edinburgh Zoo in Scotland currently has two Giant Pandas on a ten-year loan, arranged as part of a £2.6bn UK-China trade deal. The female is Tian Tian (Sweetie), and the male is Yang Guang (Sunshine). At the time of writing, the pandas remain unproductive on the cub-creation front but are hugely popular amongst families and schoolchildren on social media and at Edinburgh Zoo’s PandaCam, although the SquirrelMonkeyCam is more animated!

ThreeDeng Xiaoping, Modernisation and Special Economic Zones (the 1980s)

For many decades China has been accused of ‘stealing’ ideas by fair means or foul. But while the focus in recent years has been upon technology and intellectual property theft, it is important to note that the Communist Party of China has not been shy of ‘borrowing’ ideas from political science and political economy.

Deng Xiaoping had been sidelined on numerous occasions under Mao’s chaotic leadership and had witnessed the disastrous consequences of the Great Leap Forward in both the agricultural and industrial sectors. Moreover, he was undoubtedly very much aware of the impact of Stalin’s purges of the ‘capitalist’ Kulaks and the subsequent failures of various attempts at collectivisation of agriculture in the USSR. Multiple ‘private land plots’, in contrast, were considered the most productive component of Soviet agricultural output, and it was this model of agrarian reform that began Deng’s transformative approach to Chinese economics.

From this foundation, Deng’s focus switched to an old idea that had been around in China for many years but never implemented in any systematic manner: special development areas.

Looking at economic development initiatives from as far afield as Ireland (the southern Shannon project), post-war South Korea, closer to home in Guangdong province and across the water to the extraordinarily successful Taiwan, Deng made the following oft-cited (and adapted) observation:

We must integrate the universal truth of Marxism with the concrete realities of China, blaze a path of our own and build socialism with Chinese characteristics.

The means of achieving this evolved into the creation of Special Economic Zones (SEZs). The SEZ’s success was replicated and expanded, primarily around eastern coastal areas, south towards Hong Kong and with special attention focused on conurbations such as Shanghai, the mega-city being allowed to attract foreign inward investment and expertise.

China under Deng was characterised by market liberalization and FDI, concisely paraphrased as ‘one country, two systems’, later to become the philosophy underpinning the Special Administrative Region (SAR) status of Hong Kong and Macao. For the first time in its modern history, China had successfully synchronised agricultural and industrial economic reform.

Four.  Students Protest; Gorbachev visits Deng; the Tanks Roll (1989)

As the end of the 1980s approached, ‘Western’ firms (including companies from Japan, Taiwan, South Korea) saw political stability, low-cost manufacturing potential and, further down the line, a vast consumer market in the making in China.

As this chapter’s title suggests, Deng faced a conundrum: students in China were agitating in campuses across the country, especially in the more prosperous areas. Given the spectacular success of his economic reforms, Deng pondered how he should respond to the university students’ demands which were broad-ranging in scope, a laundry list of political reforms, freedoms and government accountability.

Deng was one of the ‘Elders’, a veteran of the Long March. He had been on the receiving end of the infamous leadership purges, had witnessed the disastrous Great Leap Forward and, perhaps most important of all, had observed the role of students in the philistine-inspired destruction embodied in The Cultural Revolution under the guise of the (student) Red Guards.

There were many factions in the student body who pitched their tents in Tiananmen Square in 1989 and marched daily in huge numbers. Their ranks were swelled by artists, teachers, historians and journalists.

As early as 1988, Deng had observed and intensely disliked the emerging impact on the USSR of Gorbachev’s glasnost and perestroika freedoms and reforms. By coincidence, Gorbachev made an official visit to meet Deng for a summit in Beijing on May 15th 1989 and had to enter the Great Hall by a side entrance as more than 300,000 protestors marched on Tiananmen. Meanwhile, international reporters covering the summit turned their attention to the protestors and their wish lists. China in general, and Deng in particular, had lost face, directly with their great communist rival, the Soviet Union and, more broadly, with the world at large.

There was extreme tension in the CPC leadership with the most powerful group then (and now), the Politburo Standing Committee (PSC), urging restraint. As a veteran of the Long March and representing the ‘Elders’, and with no formal constitutional power base, Deng Xiaoping sent in the tanks.

The capitalist community and no doubt Fukuyama-followers watched intently: in the absence of political freedom, what next for Chinese economic reform?

FiveDeng’s Southern Tour and Reaffirmation of China’s Economic Reform (1992)

The atrocities committed in Tiananmen Square and the broader discussions relating to human rights, democracy & dissent, liberal versus conservative, old versus young, and related controversies are beyond the scope of this book but are central to its context.

Capital had flowed to China from Western and Japanese firms in anticipation of bumper rewards, which is what capital does. Billions had been invested, but asset repatriation, expropriation and nationalisation have plagued FDI in the past, especially in countries rich in resources (land, labour, technology, capital) but opaque in political governance.

After Tiananmen, a deep breath was taken by companies who waited to see how the dice would roll: what had widely been seen as a safe bet now had the nasty taste of a highly speculative punt.

For more context, China was in negotiations with the UK regarding the handing over of Hong Kong when its lease expired in 1997. As Chris Patten, the ‘Last Governor of Hong Kong’ observed, an impatient Deng, no doubt with a view to his declining health, told Margaret Thatcher that the PLA could simply ‘march south and take it now’. They could, but they didn’t, apparently fearing ‘bad publicity’. Beyond irony.

So, the world watched and waited, totally impotent on the China front, dealing with an autocratic, ageing, senile dictator who had overridden the most powerful group within the CPC when he sent the tanks into Tiananmen.

Jonathan Fenby, a chronicler of modern Chinese history noted that Deng, “in the last major action of his life and one which would set his decisive stamp on the evolution of China into the twenty-first century”, embarked on a train journey in 1992. This became known as ‘Deng’s Southern Tour’, a trip during which he made the following widely-reported announcement:

We should be bolder in carrying out reforms and opening up to the outside world and in making experimentation; we should not act like a woman with bound feet.

These words were translated into immediate actions, as Fenby observes:

The SEZs boomed. Foreign money poured in. Western firms saw the cost benefits of using Chinese labour. Modern machinery was imported. Tens of millions of migrant workers crowded into the development zones. Annual growth soared. China’s role as assembly shop for the world became irreversible.

In 2021 we know China has far greater ambitions than being a simple ‘assembly shop’, i.e. providing low-cost intermediate goods to global brands. But by the mid-1990s, the creation of the SEZs had already transformed China’s economy.

Four key factors explain this:

      1. Under the CPC, an autocratic political system enabled the rapid and ‘forced’ mass movement of people into newly created supercities. These were either built upon established conurbations such as Shanghai or developed from scratch.
      2. The same political system provided the surety and stability sought by executives making FDI decisions.
      3. Whereas inward FDI was initially only allowed to create partnerships with local firms, investment in wholly-owned subsidiaries became possible alongside international joint ventures (IJVs) over time. $bns of inward investment was attracted, the textbook example of a hugely successful IJV in China being Shanghai Volkswagen.
      4. Strict rules of FDI engagement ensured that the majority of manufactured goods in China had to be exported, which, in turn, had three favourable outcomes: (i) companies had to produce goods to international quality standards, thus de-emphasising any negative connotations associated with ‘Made in China’; (ii) related to the previous point, Japanese, German, Taiwanese and South Korean companies transferred their highest tech manufacturing equipment and process technologies into China; (iii) substantial foreign reserves were quickly accumulated, allowing China to invest heavily in mega-infrastructure projects, including hi-speed railways, super-highways (e.g. between Guangzhou and Hong Kong), airports, nuclear power stations etc.

In a propagandic advertorial, How China Made It: The political philosophy behind the world’s most remarkable success story, placed by ‘China Focus’ in The Economist on March 10th 2018, a notorious Chinese ‘political scientist’ Zhang Weiwei, widely acknowledged as a high-ranking ideologist in the CCP,  wrote:

In response to Francis Fukuyama, author of The End of History and the Last Man, now is not the end of history, but the end of the end of history. This is not only good for China but for the West and the whole world, as we can now jointly explore new ways and means for better governance and development in the interest of our common humanity.

Your right of reply, again, Dr Fukuyama.

 


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All content © Colin Edward Egan, 2022