Why China is anti-fragile

David P. Goldman

American policymakers believe that China is fragile, and that external pressures will crack the regime and mitigate China’s challenge to American strategic dominance. Cutting off access to technology, hectoring allies to exclude Chinese tech companies from communications infrastructure, encirclement through the “Quad” alliance of the US, Japan, India, and Australia, sanctions over the treatment of Hong Kong or Xinjiang, and so forth will weaken or even collapse the Communist regime, according to the Was-hington Consensus. Dan Blumenthal, the director of Asian Studies at the American Enterprise Institute, presents the consensus view in a new book that illustrates by negative example how utterly wrongheaded the consensus has been.

Blumenthal misses the trees for the forest, to invert a phrase; he has a sharp understanding of China’s historical fault lines, but ignores the singular accomplishments that make China a formidable rival.

Fate played a cruel trick on Blumenthal. His book went to the printer in April, late enough for the author to add an Afterword about the Covid-19 pandemic in China, but too soon to get the story right. Had the book gone to press only a few weeks later, the author might have avoided egregious errors that undercut the credibility of his thesis, namely that China is at imminent risk of collapse due to its “internal contradictions.”

To the surprise of most Western analysts, China (along with the rest of East Asia) succeeded in suppressing a disease that continues to paralyze most of the West. To be sure, policies pursued in China that were seemingly successful in mitigating the spread of the virus were only possible because of the government’s lack of regard for personal autonomy. China’s economy will grow by 2% this year and 8% next year according to the International Monetary Fund; every other major economy in the world will shrink during 2020. In April it was still possible to believe (as Blumenthal wrote) that “China is still clearly underreporting its Covid-19 cases, possibly by a factor of 100.” Covid-19 was “a politically caused virus,” due to “an Orwellian police state [that] could not contain the epidemic and in fact made it worse,” through “political repression and social control that creates powerful incentives for local officials to lie, cover and punish those who can help most in a crisis.”

China’s comparative success in controlling the pandemic astonished the West. After some early bumbling by local party officials, China used its real-time locational data for smartphones to isolate individual cases, and fed this mass of information from smartphones into artificial intelligence servers which calculated the probability of new infection clusters. A Chinese government think tank published a detailed report on Beijing’s high-tech response on March 24, ignored at the time by a West that couldn’t believe it was happening. China reportedly has had virtually no new Covid-19 cases since April, apart from a few localized outbreaks quickly isolated and extinguished. Western commentators no longer gloat about China’s “Chernobyl moment.”

China has won a major battle in its civilizational contest with the West. We may regard with repugnance the surveillance methods that China deployed against the pandemic, but there is no question of their efficacy.

Blumenthal believes that China is a Leninist state subject to chronic mismanagement, slowing growth, demographic decline, and centrifugal forces that threaten to tear it apart. He has a clear understanding of China’s history as a multi-ethnic empire masquerading as a nation-state, always at risk of coming apart. But he exaggerates China’s weak points and is silent on the means by which China mitigates them.

China is always at risk of breakup, but two powerful centripetal forces counteract this. One is infrastructure: Riparian technology created the Chinese empire in the first place, and centralized infrastructure investment and management is indispensable to China’s well-being. The other is Chinese culture. From the ages of six to 12, Chinese children will spend three to four hours a day becoming Chinese, that is, learning the characters of the written language.

China’s long and often-tragic history has been a story of conflicts between the center and the periphery, as Blumenthal explains. Nowhere does he mention the salient in recent Chinese history: During the past 35 years, almost 600 million Chinese have migrated to cities from the countryside. That is the equivalent of the whole European population from the Ural Mountains to the Atlantic Ocean, and China has built the equivalent of all the cities of Europe to house them. Chengdu was a Third World backwater a generation ago; today it is a steel-and-glass behemoth of 30 million people, and China’s second Silicon Valley with a university that mass-produces computer science graduates. China has strengthened the center against the periphery by draining the periphery of population and concentrating them in new urban centers.

For well over 2,000 years, Chinese emperors have reinforced the center by recruiting the most talented young men into the Mandarin managerial caste, aligning their personal ambitions with the Imperial court. The present Communist dynasty has done the same thing but on a vastly larger scale; 10 million Chinese students take the university entrance exam each year, a path to personal success for the clever and industrious. That does not eliminate the centrifugal forces inside the Chinese empire, but it gives Beijing considerable room to control them.

In passing, Blumenthal allows that “the results were arguably the fastest creation of national wealth in human history,” but he does not mention that per capita consumption rose nine-fold during the past 30 years.

Throughout, Blumenthal’s arguments about China’s vulnerability rest on misleading or erroneous presentation of the facts. A glaring example is the aging of China’s population, which Blumenthal mentions on a dozen occasions as a harbinger of national decline.

He merely asserts this, and provides no supporting analysis. Aging is the inevitable result of China’s one-child policy, replaced by a two-child policy five years ago without yet showing an impact on fertility. Nowhere does Blumenthal compare China’s predicament to those of its competitors. Japan, South Korea, Taiwan and Italy are aging faster than China, according to UN projections, and the US is not far behind. Without Hispanic immigration (which contributes disproportionately to fertility), America’s rate of aging would be about the same as China’s. China has a problem, but so does the whole industrial world. Blumenthal notes that China lacks a Western-style pension system to support its retirees, but he fails to mention that Chinese households have accumulated enormous retirement assets:

They save nearly a quarter of their income (and until recently saved two-fifths), compared to a global average of 8% and a US average of 6.5% between 1990 and 2019. China has a demographic problem, but it won’t change the power balance within any meaningful strategic horizon. In the meantime, China is incorporating into its economic zone Southeast Asia, with its 600 million people, and offshoring much of its labor-intensive industry to Vietnam and other neighbors.

Similarly, Blumenthal finds it “staggering” that the assets of Chinese state-owned enterprises in 2018 amounted to 177% of GDP, but he does not ask what these assets might be. He also observes that China’s debt level is high at 274% of GDP (the US level is 264%), but doesn’t ask how this debt was incurred. In a 2017 study of China’s largest state-owned enterprises, I calculated that two-thirds of the total was owed by companies that built China’s impressive infrastructure, including 16,000 miles of high speed rail and 93,000 miles of highway, double the length of the US Interstate system. Some Chinese infrastructure is wasted, but most is not. The US accumulated debts to pay for entitlements, while China took on debt to fund infrastructure.

Blumenthal writes, “A further threat to Xi [Jinping]’s geopolitical ambitions is that from June 2014 to January 2017, the total amount of foreign exchange in the People’s Republic of China banking system dropped from $3.99 trillion to $2.998 trillion.” That is true, but misleading: At the same time, Chinese corporations repaid about $1 trillion of their foreign debts, so that China’s net foreign asset position remained unchanged. I am hard put to find a single statistic in this book that is presented accurately and in proper context.

Blumenthal mentions in passing China’s ambitions for technological leadership, but he sees this as a means to the end of military modernization. That is only one side of the story. China now dominates 5G telecommunications, both in equipment quality and network buildout. 5G broadband in turn is a launching pad for what China calls the Fourth Industrial Revolution – smart cities where AI servers match vehicles to passengers and packages, autonomous vehicles, remote medical diagnosis and procedures, self-programming industrial robots, and, as noted, epidemic control.

If AI is the engine of the Fourth Industrial Revolution, data is its fuel, and China’s command of data is unequalled, including the digitized medical records and sequenced DNA of hundreds of millions of its citizens. China aspires to own the “control points” of the Fourth Industrial Revolution and to assimilate Western business into its economic model.

Medical applications of AI have extraordinary importance in a rapidly aging world that requires more affordable medical services. China’s leadership in this field on the back of 5G deployment may give it a dominant position in the largest growth industry of the 21st century.

The March 2020 National People’s Congress – a notionally Communist event whose delegates included a hundred billionaires – advanced a $1.4 trillion, five-year campaign to drive technological advancement. The US has done nothing like this since JFK’s Moonshot or Reagan’s Strategic Defense Initiative.

Blumenthal dismisses China’s capacity to innovate, claiming that its high-tech companies “have invented few new technologies. Instead, they modified existing technologies (many of which were stolen) for the Chinese market without competition from foreign companies.” In fact, Huawei spends more on R&D than its two largest competitors combined, and employs 50,000 foreigners in two dozen R&D centers around the world. By most industry estimates Huawei telecommunications equipment sets the world standard. China’s goal is to export its political model, in Blumenthal’s view, and that is the purpose of the One Belt/One Road (OBOR) initiative to build infrastructure across Eurasia.

“The CCP’s activities to create OBOR,” he writes, “have also demonstrated that, contrary to past rhetoric, China will involve itself in other countries’ affairs, to attain contracts, secure votes in international institutions, and build strategic partnerships to buttress China’s vision of world order. In other words, contrary to its rhetoric and propaganda, China will behave like every other dominant power.” This is an odd way to look at the matter, given that China throughout its history has been incurious as to how barbarians manage their internal affairs. Unlike Soviet Russia, which created Communist Parties throughout the world committed to the overthrow of local governments, or the United States, which from time to time attempts to export democracy, China has remained content with the combination of bribes and bullying that its emperors employed through the millennia.

“Senior American officials have begun distinguishing between their hostility towards the CCP and their desire for friendship with the Chinese people…they must follow it up with actions that consistently show America stands on the side of the Chinese people and will support their aspirations for freedom.” That is a noble sentiment, but of dubious practical value. Mainland Chinese showed little interest in last year’s Hong Kong protests, and have small sympathy with the Uuighur minority, for example.

There are many millions of Chinese who aspire to freedom, but they are a small, atomized minority. Blumenthal imagines that a weak and divided Chinese leadership will fracture; that is improbable, and a poor basis for policy. But many freedom-loving Chinese are among the innovators and inventors upon whom China’s future depends. The United States would do well to encourage a brain drain out of China, recruiting scientists, engineers, and entrepreneurs to contribute their talent to our economy.

That bears on a larger point: China can and does indeed innovate, but America can innovate better – when we make the effort. Top-down programs on the Chinese model focus on specific goals; American innovation is more likely to generate unexpected discoveries. In fact, the most disruptive technologies of the digital age began with a Defense Department grant to a corporate lab that inadvertently stumbled on something vastly more important than the original project goal. One among many examples is the semiconductor laser, the basis of all optical networks, which began with a Pentagon request for night-time battlefield illumination.

We remain in a national state of denial over the magnitude of China’s challenge to us, and Blumenthal’s error-ridden account shows how hard it is to sustain this self-consoling fiction in the face of massive evidence to the contrary. It is high time to focus on what China does right rather than what it does wrong – and undertake to do it better.

Twenty years ago the George W. Bush Administration set out to remake the Islamic world in America’s image, and failed miserably. This is a failure-prone civilization we cannot fix no matter how hard we try. Now the same neo-conservatives want to weaken China, and have the inverse of the same problem: This is a 5,000-year-old civilization we cannot suppress, no matter how hard we try. We can only do better.