How China became China Inc

The Communist Party is here to stay, but the expansion of the new Chinese empire is more likely to be mercantilist than territorial, writes Alastair Campbell.

Making predictions about China’s future is in fashion. Since Xi Jinping (XJP) took the helm as General Secretary of the Chinese Communist Party (CCP) and chairman of the Central Military Commission in November 2012, there has been lively debate among  China-watchers about the country’s likely trajectory over the next decade.

There is a widely held assumption that XJP will seek a second term in 2017. Other predictions have varied. Some forecast the party’s collapse; others suggest China’s early achievement of economic parity with the US.

There are too many internal and external variables for detailed predictions. To interpret what is happening, we need to drop our Western prism and look at the world from a Chinese perspective. China represents an unprecedented experiment in governance. It is, as Zhang Weiwei says in The China Wave, “the only country in history which has amalgamated the world’s longest continuous civilization with a huge modern state”. It is best to comprehend China as the Chinese themselves view it: the “Middle Kingdom” rather than just another emerging nation in the “Far East”.

The Chinese Communist Party, government and military share “a single-minded mission to strengthen China comprehensively and become a major world power”, says David Shambaugh in the Washington Quarterly. How has this manifested itself under XJP’s leadership? Let’s look at two big issues: security and politics and power.

The security challenge

China has unique security challenges. No previous major power has faced the twin challenges of defending a continental land border and an extensive littoral zone. Its land borders alone extend to 22,147kms, from Russia to the north through central and south Asia, through to the Mekong region to the south. It shares land frontiers with 14 countries.

China has taken proactive steps to secure its Eurasian land borders by a series of alliances with the countries of central Asia. It has also cooperated with the Russians, via the creation of the Shanghai 5 in 1996 and the Shanghai Cooperation Organization in 2001.

Yet China’s sea borders extend to 14,500kms – double the length of India’s – so the country rightly feels exposed. To develop an effective coastal naval defence force, and secure key shipping routes, China has tried to reinforce claims to island territory in the South China Sea, where it is actively constructing dwellings and airstrips on some of the many atolls and islets.

China maintains that it is simply reasserting long-established territorial claims and only the Philippines has taken its case to international arbitration. But China’s Asian neighbours, particularly Japan, view these measures as aggressive and predatory.

The Japanese reaction, after numerous incidents, has reduced in intensity under Prime Minister Shinzo Abe, who has chosen to rekindle the US relationship as the tried-and-tested formula to guarantee Japan’s security. But, unsurprisingly, China sees this as further evidence of a US “containment” policy – and has shown no inclination to back down over a single inch of disputed territory. Conflict is certainly possible in this tense theatre. But it is more likely to arise from an accident than from a willingness to engage in physical confrontation.

The major event in the security sphere, which caught the attention of the world’s media last year, was the Umbrella Movement started in Hong Kong. Tens of thousands demonstrated under the symbol of the umbrella, representing defiance and resistance. The central business district and the commercial area of Mong Kok were under unprecedented occupation for three torrid months from September to December.

The government initially reacted with ill-considered force, deploying tear gas to disperse the crowds, resulting in widespread anger and sympathy for the demonstrators from the public – and a PR disaster for the already deeply unpopular Hong Kong chief executive CY Leung.

No concessions

Under instruction from Beijing, there was no further serious engagement – apart from one round of televised dialogue – and the demonstrations soon showed divided leadership. Eventually, legal means were deployed to move the demonstrators from the occupied zones.

To the satisfaction of Beijing, no concessions were made, just vague promises by the administration to listen to the popular concerns that the movement had so dramatically highlighted. While the debate on the electoral process for the choice of chief executive continues in the press learned journals, the student protagonists have vanished from the public arena and returned to school.

The most palpable result has been a new focus on security – and the explicitly declared expectation that Hong Kong citizens accept that the former British territory is now an integral part of China, and is subject to the same responsibilities in respect of defence and security. After all, the Joint Declaration of 1984 never recognized Hong Kong as an independent nation, but a city separated from China through the wrongful seizure of the territory by the British in the 19th century. The Chinese government has always considered Hong Kong’s population as citizens of the Chinese nation.

As a result of the demonstrations, however, Beijing now considers Hong Kong a security liability, a territory open to foreign activists and agents, and will redouble efforts to impose controls, irrespective of the cherished “two systems” espoused in the Joint Declaration – the 1980s principles for reunification were based on “one China, two systems”, so that distinct Chinese regions such as Hong Kong could retain their capitalist framework.

China knows that Hong Kong is not viewed as another Crimea, there will be no Falkland scenario. Yet much hot air emanates from the British parliament about the desirability of universal suffrage. “It would be a strange disregard of national interest and security for China to accept any nomination procedure for the chief executive which did not ensure a majority of nominators sympathetic to China,” argues Professor Tony Carty

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It should come as no surprise therefore that China recently urged the Hong Kong government to speed up enacting a security law to parallel that of the mainland. This complements the provision under the Basic Law that allows national laws to be applied to Hong Kong during a state of emergency.

Politics and power

On the political front, it is indicative of the circles of resistance XJP faced that it took until July 2013 for him to bag his first senior tiger, with the arraignment of security chief Zhou Yonkang on charges of serious discipline violations. In December 2013, Zhou was stripped of his party membership, rendering him liable to prosecution in the courts.

This victory gives XJP full control of China’s security apparatus, thus strengthening his grip on power. The next step is to place the loyal acolytes from his elitist princeling group in key appointments throughout the administration. He has two years to complete the process before the party congress in late 2017. To help smooth the way, his loyal comrade-in-arms Wang Qishan will pursue the anti-corruption campaign to clear the stables of all potential opposition and undermine the factions that have been a feature of Chinese politics since the revolution resistance to his policies. This programme has the additional benefit of winning public support by attacking a deeply unpopular officialdom, whose systemic corruption is well appreciated by ordinary citizens.

The result is that XJP’s new power is unprecedented and resides not simply in his party, government and military roles, but in the newly constituted five “leading groups”, all of which he chairs. These groups are where political and economic policy is now formulated and handed down to the administrative organs of government to implement. “The widely trumpeted Western forecast, repeated by successive leaders over the past 65 years, that the Chinese Communist Party would wither away in the face of political reforms and yield to a multi-party democratic system has proven alarmingly wrong,” says Michael Pillsbury at the Hudson Institute. “We should dismantle comfortable assumptions and false realities and study China anew, recognizing that its communist rulers are determined not to fade into history.”

The civilization state

In addition to these major changes in structure and reporting lines, XJP has embarked on an ambitious programme to redefine China as a “civilization state” rather than a simple nation state and to undertake a comparison with other major civilizations across time.

This reassessment of China’s historical importance has become a central pillar of Chinese policy and communications. Historians have been commissioned to write books on the subject, the communications machines of the State Council Information Office, the Foreign Ministry and the Han Ban (OCLCI) are putting out the same messages about the revival of Chinese civilization. So how precisely is a civilization state defined and what does this spell for China’s international relations?

As every Chinese schoolchild learns in their first history lessons, China “is a 3,000-year-old civilization state”. At a time when “Euro-American” civilization seems to have entered a period of introspective malaise and dysfunctional democracies, China argues it is simply reaffirming the equal validity of Chinese civilization as an alternative. This model has different traditions of governance and values rooted in a traditional oligarchic/meritocratic  system, and one that has a much longer and sustained pedigree than Western or other counterparts.

The Chinese can point to evidence: a much higher level of sustained growth and benefits delivered since 1949 to a third of the world’s population. “The significance of the re-emergence and ascendancy of the Middle Kingdom can no longer be ignored,” says Eric Li, director of CEIBS and Crown Fellow of the Aspen Institute. “More than one billion people of a dismembered state have risen from abject poverty to make up the second-largest economy in the world. And it has happened without a single election.”

This explains the confidence with which the party affirms the validity of its one-party meritocratic system based on selection rather than election. How does this play out in China’s external relations? Should we anticipate an expansionary China in the next phase of evolution? I believe we should, but perhaps not in the way Western powers extended their empires historically. China seeks to extend its influence in more subtle ways than force of arms or occupation of land.

This reflects an essential difference between China and other civilization states. The Chinese concept of civilization is rooted in the conviction of ethnic superiority, a race-nation ruled by Han Chinese – glossing over the historic assimilation of many diverse ethnic groups living between the Gobi desert and the South China Sea – in contrast to the “multi-ethnic immigration- based model” of Western societies. Rather than open its doors to foreign skilled immigration, China will leverage one additional channel unique to itself to pursue the acquisition of Western knowledge, skills and technology: the Chinese diaspora.

The diaspora consists of more than 50 million overseas Chinese in 160 countries, with an estimated $2 trillion of liquid assets and annual economic output of $600bn (see infographic). The power and potential of this external “bamboo network” is fully appreciated by the new leadership in Beijing, and represents a key resource in the process of China’s modernization and technological empowerment.

So we should expect a more intelligent and pragmatic approach to China’s expansion. The leadership has a strong sense of history and knows that empires tend to overextend themselves,  are costly and difficult to sustain, and progressively exhaust the original creative force that inspired them. It is more balanced and Confucian to adopt the pragmatic goal of becoming the strongest, smartest, most prosperous nation on the planet, by acquiring, by every means available, the intellectual and natural resources available in less enlightened jurisdictions.

Look at where the “one belt, one road” strategy is mooted to end up: the maritime route ends in the new $10bn port in Bagamoyo Tanzania, which will outclass other facilities on the east coast of the continent. Who is slated to design and build it? Who will be the primary beneficiary of commodities and raw materials shipped through this new mega-hub? China Inc.

These factors add up to a clear conclusion. It is likely the New Chinese Empire will be built on more of a mercantilist than territorial model, one that serves to deliver the resources and technology to strengthen and extend China’s power and influence beyond the boundaries of a greatly enhanced and strengthened Great Wall.

The impact on business

What does this mean for Western chief executive with substantial China commitments? If you want your business to survive and prosper in this new economic order, you should start to look at China rather like a mega corporation. XJP chairs “China Inc”. Its top management team is responsible for policy decisions, consists of the CCP Central Committee, and his five newly formed leading groups.

These are the teams driving China’s five-year plan and “go-global” strategy and this is the level at which the C-Suite needs to engage, in order to understand their priorities and aspirations. The traditional focus on one-way investment and traditional exports are history, as are old networks of relationships. These relationships will have rapidly declining value, as XJP’s new team progressively takes the reins of power.

So the key new challenge is to start viewing the world through the eyes of a rapidly globalizing China Inc. and to access and engage the new decision makers, who will help you to identify partnership opportunities with Chinese enterprises to exploit global markets.

 

Alastair Campbell is director of Asian Capital Partners Group.