The Beijing Consensus

Rebirth, because it seemed that in June 2009, we were emerging from a recession that had begun about two years earlier, and discovery because one felt compelled to look beyond the events of the day to the changing global system to understand the dynamic that had driven the financial system to the brink of collapse. Both China and the United States had a hand in these events. But China’s rise and role in global affairs, its market-authoritarian example, the failure of the Washington Consensus, and the diminished appeal of American values are what concern us here.

This book confronts and rejects the conventional wisdom that the U.S.-China relationship is on track. It is not. The book also explodes the myth that a market economy leads inevitably to democratic government.

China poses the most serious challenge to the United States since the half-century Cold War struggle with the Soviet Union. Remarkably, neither the Obama administration nor the Bush administration before it has accurately grasped the dimension in which China has chosen to engage the United States, nor has either administration clearly articulated what is at stake. China’s market-authoritarian model provides rapid growth, stability, and the promise of a better life for its citizens. Absent are the freedoms we believe are essential—freedoms of speech, belief, and assembly, and the notion of the loyal opposition.

Of immediate concern is that China’s governing model is more appealing to the developing world and some of the middle-sized powers than America’s market-democratic model. Given a choice between market democracy and its freedoms and market authoritarianism and its high growth, stability, improved living standards, and limits on expression—a majority in the developing world and in many middle-sized, non-Western powers prefer the authoritarian model.

This poses a strategic challenge. If it is not met in the decade ahead, the United States will be left in a world unsympathetic to the democratic values and principles that have guided Western progress for more than two centuries. What does this challenge mean for the United States, the rest of the West, and the millions in the Third World affected by Beijing’s policies—and how did we reach this point?

Writing this book has been a journey. The original argument didn’t survive the first draft. The earliest intention was to produce a book on the rise of the new consumer class in China and how the process was eating away at the power of the ruling party. Looking at the issue from the lofty vantage of Cambridge lecture halls and Senior Common Rooms seemed to confirm a bold idea that the Chinese Communist Party, static, gray, and intellectually outmoded, was no longer the cutting edge of its own society.

But then the smooth turning wheels of academic exchange brought a new reality as I took my research to London, then to Washington, and finally back to China for the twentieth visit in thirty years. In due course, the book transformed from optimistic conjectures about the perfectibility of mankind to a set of sobering realizations about China.

A veritable Jekyll and Hyde on the world stage, China and its global relations are the subject of this book. China’s dual nature—what former ambassador to China, James Lilley, has called a schizophrenia—is both a source of stability and a profound challenge to Western governance and the values that animate our culture.

We explore China’s new global presence and its impact on the developing world and ask how Beijing can be a “responsible stakeholder,” as World Bank President Robert Zoellick contends, while its policies enable systemic repression among its impoverished partners and erode the values now informing the international system.

As growing numbers of countries in Africa and Latin America embrace relationships with China, one can see how Beijing’s example illuminates a path around the West. It is making the West less relevant in world affairs. In effect, China is shrinking the West.

Remarkably, Washington has had little to say about it. Why? We are locked in a marriage of liabilities. Washington’s financial crisis has allowed Beijing to set the terms of today’s U.S.-China relationship, limiting America’s voice on a range of issues, including human rights and Tibet, in return for continued economic cooperation.

The United States executed a brilliant China policy in 1972, when the Nixon-Kissinger team “opened China,” but today what was coherence has devolved to policy prioritizing accommodation.

Unlike the Cold War, in which the Soviet Union wielded the blunt instrument of great military power, China arrives with the power of the pen—the power of a governing idea that will produce rapid growth, stability, security—but not freedom in the public square. What does that mean, what is it worth, and what, if anything, can be done about it?

Driven largely by metrics rather than principles, we have tended to measure success in terms of improving the balance of trade, maintaining China’s purchase of Treasury debt, and limiting China’s military advances. Policy in each of these areas has brought uncertain progress—at best. On matters of global ethics and governing principles, however, America’s voice—its most important asset—has been muted when it comes to China.

We have reached a critical point. Beijing’s challenge, if not met, will alter both the substance and the tone of global affairs for decades. The United States has no choice but to revitalize the American story to make American values and the American brand again synonymous with innovation, progress, and fair play—most importantly, we must rekindle the drive among others to acquire and preserve democratic freedoms. Bearing in mind the lessons of the past decade and John Quincy Adams’s caution “go not abroad in search of monsters to destroy ,” we must lead by example. To fail is to surrender the moral authority and Western inheritance that has animated America’s appeal for two hundred years.

Wen’s words were a perfect iteration of the so-called new China that we’ve seen emerging on the world stage over the last decade. Long gone are the ideological crusades of the 1960s—crusades that took Maoism to Africa, spread revolution in Southeast Asia, and sought to overthrow the great powers of the West. On the contrary, capitalism is now a global phenomenon—with China among its greatest champions. And since this new incarnation has embraced the capitalist road, the country has come to rely on international markets, global institutions, and free trade to achieve economic growth. This has allowed living standards to rise, contributing to political stability at home. In the process, China has progressively engaged with the international community it once spurned, showing a willingness to cooperate on a range of priority issues. In so doing, its leaders have taken great pains to craft a new personality for China in the world, which explicitly avoids the historical imagery of a rising power.

Would that this were so. It is not. The discussion that follows makes the case that China’s fresh global face belies a profound challenge to America and the West. This threat is partly hidden by a nuanced and pragmatic Chinese foreign policy. It allows Beijing at once to cooperate on current economic challenges, to promote nonproliferation objectives, disaster relief, peacekeeping operations, antipiracy, and more—all underscoring its support for the global good. In the process, China has carefully avoided direct challenges to the United States, preferring to avoid crises.

But while its leaders follow a path of progressive engagement with the liberal international order, Beijing’s leaders are also leading a formidable assault on this order. As the following pages convey, China is the protagonist in a clash of values, governance, and two versions of modernity in the twenty-first century. On one side are the Western liberal founders of the global marketplace. These actors take for granted their political and economic preeminence in the world they constructed after 1945. On the other side are the new non-Western market converts, from Asia to Latin America, which have learned how to extract the best from both market capitalism and one-party government, thus shattering the illusion that capitalism begets democracy.

Thus, new centers of wealth in the developing world are diminishing the traditional leverage and centrality of Western economic power; meanwhile, today’s emerging markets are increasingly drawn to a new and compelling doctrine of state-managed capitalism. They are learning to combine market economics with traditional autocratic or semiautocratic politics in a process that signals an intellectual rejection of the Western economic model. According to this doctrine, the government maintains central control over a partly liberalized economy, and the people accept a very non-Western kind of civic bargain: political oppression in the public square in return for relative economic freedom and a rising quality of life. Both of these trends have a powerful cheerleader in Beijing.

What’s more, the Chinese have become a critical source of financial autonomy for smaller countries as well as a beacon of ideas and management expertise about capitalism in a less Western, less liberal format. Taken together, these trends suggest that China is set to have a greater impact on the world in the next two decades than any other country.⁴

The net effect of these developments is to reduce Western and particularly American influence on the global stage—along both economic and ideational axes. My purpose is to recast our understanding of this challenge, for its strategic importance cannot be overstated and will have vastly greater impact than will the tactical military and economic “China threats” concerning Washington today.

Global economic integration has been under way for decades, and while the downturn has upset its tempo, the recession won’t derail it. The global economic system has become so deeply connected, for example, that neither Washington nor Beijing can afford to backslide into heavily protected fortress economies. This realization was apparent from the second half of 2008, when both governments made repeated calls to avoid protectionism. Premier Wen Jiabao used his speech at the World Economic Forum in Switzerland in early 2009 to emphasize the need for Washington and Beijing to “stick to a policy of opening up and co-operation.”⁵ Weeks later, the Obama administration removed passages from its domestic stimulus bill that referred to a “Buy American” policy advanced by members of Congress. As Obama told journalists, “we can’t afford to send a protectionist message.”⁶

Admittedly, the following months saw subtle forms of creeping protectionism among various members of the G20. In February 2009, the World Bank announced that it had identified forty-seven measures “that restrict trade at the expense of other countries” between November 2008 and February 2009, including bans on certain Chinese toys in India and Chinese tariffs on Belgian chocolates .⁷ As the recession’s grip tightened in mid-2009, China was featured on the front pages of the New York Times for quietly adopting policies that encouraged exports and curbed imports. Authorities were, according to the Times, assisting exporters with larger tax rebates and generous loans from state-owned banks while prohibiting provincial government agencies from buying imported goods except where no local substitute existed.⁸ Notwithstanding these infractions, however, there was a broad commitment to free-flowing international trade—a commitment not present during earlier economic crises such as the Great Depression. This new collective fear of serious and sustained protectionism was evident after the London G20 summit of April 2009, which saw renewed pledges to avoid such policies.⁹

Declining world trade and the falling price of food and fuel in 2008 may have taken the wind out of the global export boom for countries like China, Russia, and India. But beyond the balance sheets for 2009, a broader shift in the world economy remains intact. When India, China, the former Soviet bloc, and other regions joined the capitalist world, the global labor pool grew by over three billion. Never again will the West live in a world with so little global competition as it did in the late twentieth century.¹⁰ Beyond the facts and figures of the recent economic slowdown, we continue to witness the broad emergence of a new economic order, in which great economic powers such as the United States will continue to wield immense influence, but where new economies such as China can demand an ever-greater say.

Premier Wen has, perhaps predictably, used the crisis as a platform to talk about the need for a novel world order.¹¹ On a trip to Moscow in November 2008, he spoke of the importance of building a new international financial order by attaining new levels of financial and industrial cooperation among China, Russia, and other groups, like the Shanghai Cooperation Organization. Wen also stressed the need to give developing nations more say in global institutions such as the International Monetary Fund (IMF) so that these nations could play a bigger role in international regulatory mechanisms and supervision over financial institutions in countries whose currencies are held as reserves around the world—namely, the United States .¹²

Without question, rising unemployment, factory closures, and a slowdown in exports presage more difficult times. This is a clear problem for a country that has, at times, depended on international trade for up to 80 percent of its GDP.¹⁴ But important details in the current downturn have kept the leadership optimistic about the continuity of its system.

The slowdown in the G8, for example, has not been mirrored by the fastest-growing developing economies. The two largest, China and India, expect high, single-digit growth in the next two years, albeit less than in 2000-2007.¹⁵ Countries like Brazil, China, and India have also benefited from large foreign-exchange reserves that can be used to cushion domestic shortfalls with accelerated public spending. If the global recession concludes in 2011-2012, we can reasonably expect Chinese, Brazilian, Russian, and Indian economic growth to accelerate.¹⁶ China’s semiplanned economy can comfortably maintain growth of 7 percent or more, propelled by state-led investment in infrastructure, while it waits for global consumer markets to recuperate. Which, of course, they will.

Speaking politically, although the downturn has caused serious concern within the politburo, it doesn’t come anywhere near the convulsions of 1989, when students and workers led a nationwide protest from Tiananmen Square over racing inflation, economic hardships, and political oppression. While this is a testing time for the ruling party, the odds are clearly in Beijing’s favor. Many Chinese people today feel a sense of gratitude for the economic reforms that have lifted millions out of poverty and brought the thrills and comforts of modernity to Chinese towns and cities. The protests are small compared with what Beijing has seen before—and more importantly, they remain uncoordinated, a crucial detail in a place as expansive and difficult to organize politically as China. ¹⁷ New China also has a larger role—socially, politically, and economically—for the new middle classes. This distinguishes China from the country it was twenty years ago. Today’s middle class is meritocratic, individualistic, committed to education and thrift—yet lured by the consumer culture.¹⁸ The downturn is unlikely to change its outlook radically. Middle-class Chinese are accustomed to their new position in society and are more likely to worry about keeping their children in private school by spending less in the supermarket, than they are about running into the square and building Statue of Liberty models to the sound of Bruce Springsteen. The global recession could actually become a source of confidence for the ruling party in the longer run. As the government staves off significant, coordinated protest, it will mark a milestone for the party’s ability to suffer turbulence and manage a robust, durable system, as new China passes its thirtieth birthday.

In the process, a global economic architecture for tomorrow is being quietly constructed today, and when the current economic turbulence has passed, global capitalism will no longer proceed from the old Western formulae. David Rothkopf, a Commerce Department official in the Clinton administration, has mused that “the balance of power shifts quietly during times of crisis.”¹⁹ The economic preeminence of the West is being increasingly moderated by the new norms and networks of the rest; the “invisible hand” of free markets around the globe is being balanced by the notably more visible hand of central governance.²⁰ In the following chapters, we look at China’s pivotal role in this emerging future.