The United States and China are headed for a “cold war lite,” says Minxin Pei. What does this exactly mean? And what threat does China present to the U.S. that would necessitate such a confrontational posture? Can China transition to a less export-driven economy or will its growth inevitably slow? What are the root causes of corruption in China? Is Xi’s anti-corruption campaign successful? These and other questions are explored in this week’s episode of Jaw-Jaw.

Biographies

Minxin Pei is the Tom and Margot Pritzker ’72 Professor of Government at Claremont McKenna College. His research has been published in Foreign Policy, Foreign Affairs, the National Interest, Modern China, China Quarterly, Journal of Democracy, and his op-eds have appeared in the Financial Times, New York Times, Washington Post, Newsweek International, and International Herald Tribune, and other major newspapers. Professor Pei is the author of China’s Crony Capitalism: The Dynamics of Regime Decay (2016); China’s Trapped Transition: The Limits of Developmental Autocracy (2006); and From Reform to Revolution: The Demise of Communism in China and the Soviet Union (1994).

Brad Carson is a professor at the University of Virginia, where he teaches in the Batten School of Leadership and Public Policy. He served in the U.S. House of Representatives from 2001-2005 and was Undersecretary of the Army and acting Undersecretary of Defense for Personnel & Readiness in the Obama Administration. He welcomes comments at brad.carson@warontherocks.com.

Links

Transcript

Brad: Professor Minxin Pei, you have recently said that you predict a “cold war lite” between the United States and China in the future. What do you mean by that?

Minxin: Well, “cold war lite” is a term I coined. The meaning is actually very simple. You compare what is likely to happen between the U.S. and China with what the classical Cold War between the U.S. and the former Soviet Union. And then you will say that unlike the old Cold War, which was characterized by an almost unlimited arms race, proxy wars, and a very tense military standoff, and complete economic isolation from each other, when you look at these categories and then ask the question if China and the U.S. are going to reach that point, the answer probably is not. That’s why I call it “cold war lite.” We’re unlikely to see an unrestrained nuclear arms race between the U.S. and China, largely because both countries understand the limited utility of nuclear weapons in a geopolitical competition scenario.

Second, proxy wars are also very unlikely because they both realize how costly it is, and how unprofitable, in terms of generating payoffs. And economic isolation from each other. There’s a lot of talk about decoupling, but decoupling is very costly upfront with uncertain payoffs. We’re going to see a dramatic scaling back of U.S.’ economic relationship with China, but a complete decoupling would be unlikely because the American economic interests, Chinese economic interests, would not permit that. And on top of that, without some form of economic linkage, geopolitical competition is likely to get out of control. So these are all the reasons for a “cold war lite” scenario.

Brad: So why have a cold war, lite or not? We had a cold war with the Soviets. It was because we saw them as a serious ideological geopolitical adversary to us. So, are you presupposing that’s how we will see China as well? I mean, why is China in that role of someone who is obviously adversarial to us in the future, in your mind?

Minxin: Yeah. Interestingly, the real threat China poses to the U.S. is much more diffuse. It would be difficult to say that it is an ideological threat because China really doesn’t have a Marxist ideology or something close to that. I think there are serious differences or conflict of political values. We’re talking about an authoritarian regime versus a democratic regime, but there’s no such thing as an authoritarian ideology, because ideology is a very coherent set of values and theories, and China doesn’t have that. The Chinese government is trying to develop one, but it’s likely to be very difficult. There are a lot of dictatorships around the world. We don’t see Putin’s threat to U.S. as ideological. We see this purely as power-based threat. So I think the most recognized threat today is really power, because Chinese power has grown tremendously in the last 20 years, and the U.S. sees this development as a threat to its position as the global hegemon.

Brad: But should we, I mean, can you imagine a world where China is extraordinarily wealthy, they have incredible both latent power and real power, but they’re like Germany, or Japan, or the U.K., which are also wealthy countries with a lot of latent power and willpower. What makes us think that China will not fall in to have a very peaceful world, one where they’re wealthy, and we get wealthier too as a result of it? You seem to presuppose that this will be an antagonistic relationship. Why do you think that’s true?

Minxin: Yeah. I think for a long time, many American strategic thinkers assumed that as China grew wealthier, it would become also freer and more democratic. But recent Chinese developments, especially the rise of Xi Jinping, who has returned China to a much more authoritarian system, has disabused people of this notion, and they’ve given up on China becoming more like us. They’ve embraced the idea of divergence, which is a, as China grows more wealthy, China is going to be more antagonistic, more authoritarian, and that’s something we cannot allow. That’s why China is unlikely to become another Japan, another South Korea, or another Taiwan.

Brad: Well, just because they’re authoritarian, does it mean that they have to be adversarial to the U.S.? The U.S. is maintaining relations with many authoritarian countries. I mean, I guess it comes to the question of what do we think China wants? Are they going to be a country that is actively challenging the U.S. in our institutional influence in a way that we see as absolutely beyond the pale? What’s the threat that China poses as opposed to being … Yes, it’s a dictatorial government, one of which there are dozens around the world. Why is China unique?

Minxin: Yeah, I think people used to say when it comes to China, it’s all about numbers. Actual size does matter. When you look at China and other potential challenges to American power and leadership in the world, they’re not in the same category. China, 1.4 billion people, very well-educated compared with middle-income countries, a very well-organized political system, in terms of its level of economic development, and very talented people. And if you look at China’s past record, it is easy to project into the future, because if China grows at something like 6 percent, within 10 years, 10-15 years, its economy will be bigger than the U.S. in dollar terms. Today, in purchasing power terms, China’s economy is already bigger. When that happens, actually the world will be very different because that will be the first time in recent world history, last 50 years, that a dictatorship has the world’s largest economy.

Even when you look at Chinese behavior today, it’s very, very different. It has $3 trillion in foreign currency reserves, it has probably the largest aid program for a single country in developing countries, and it moves the market. It accounts for more than a quarter of world’s manufacturing, and its technological development is very fast. Even though I think the Chinese economic development is not sustainable. Past performance does not mean that this kind of performance will continue. A lot of people in the U.S. do worry about the possibility that 10, 15 years from now, a dictatorial China will also be the world’s number one country into economic terms by a big margin.

Brad: Well, it seems quite possible that China does realize that outcome, but I still am uncertain why we should be so concerned about that. Okay, it’s wealthy, it’s extremely wealthy, it is dictatorial, which for Chinese citizens is not a good thing, but why should American citizens be so concerned? Because I mean, I think there is a view out there in some, at least outside of Washington precincts of this country, that people in Washington are being far too hawkish about China, that their rise, while dictatorial internally, can be accommodated into the international system. The nations around it seem to be bandwagoning, not balancing against it. So is this a case, as some people would argue, that the U.S. is kind of, we’re losing our status? That’s painful, but it’s not really a national security threat to us.

Minxin: Well, I think it’s really quite complicated. That is, for people in the U.S. who want to maintain American global leadership or global hegemony forever, that scenario is definitely not welcome. Because they will do everything and anything possible to prevent another country, any country, from displacing the U.S. Especially a country with a dictatorship in charge. Then, at the second level is that there are American treaty obligations, security obligations to its allies in Asia, Chinese neighbors, especially Japan, Korea, and Taiwan.

For the U.S., a scenario in which China completely dominates East Asia is a scenario it cannot accept merely because of its moral obligations to its allies. Because its allies have counted on the U.S. to maintain a balance of power in East Asia, which effectively means constraining China’s rise, and the U.S. cannot walk away from those obligations. So if you are okay with, saying, “Well, these countries will have to live with a new reality,” or you’re okay with the notion that all we need to do is to take care of our own, we don’t have to worry about another country dominating the world, that is fine, but this, at the moment at least, is a minority opinion in the U.S.

Brad: Well, let me continue to push you on that, because you’ve given two reasons why we might be concerned about China. One is you have a very powerful, enormously wealthy dictatorial nation that could perhaps challenge U.S. hegemony around the world, and the second is that we have these security obligations to Japanese neighbors. Let me start with the second one, because if you look at the defense budgets of Japan — even though Abe is trying to push for more — it’s a challenge for him, South Korea, the Philippines, and others, it seems most of the nations in that region are not particularly concerned about Chinese aggression against them. And if they’re not so concerned about it — They’re there, they’re looking to the U.S., as you said, perhaps to back them up. They don’t seem to be concerned, so the idea that we have to be there to protect them seems like it might be fanciful.

Minxin: Well, I think they are not concerned in terms of their military spending, but they’re very concerned in terms of China’s growth in power. They’re not spending because they count on the U.S. to come to their defense. Of course, there’s the problem of freeriding and moral hazard, but the reality is these countries do depend on the U.S., and there’s going beyond that, that the U.S. does not want to have a scenario in which China has so dominated its neighborhood, just as the U.S. does in its own neighborhood, that it has a freer hand to go around other parts of the world to create mischief.

Brad: Well, that goes to the question of what China wants. So, let’s imagine a world where China had what the U.S. does in the Western Hemisphere. They dominate it, more or less, not through arms, but because of economic ties and just sheer gravitational pull. So they have that in East Asia. Do we really think that China has the ambitions of then going and contesting U.S. interest in Latin America or Europe or something like this? If that’s the fear, because you, and a lot of the people we’ve had on the show, they bring up even Halford Mackinder and people like this, right? “Hey, we can’t have a nation that dominates Asia.” Well, I mean, it’s just like, okay, why not? Because I understand Mackinder’s argument 125 years ago, but the idea that China’s now going to come and actually use its political military power to challenge U.S. interests in the Western Hemisphere? Do you see that as something that they might do?

Minxin: First, I think that American fear of China dominating Asia is severely overblown, because China has very powerful neighbors. Most of them have nuclear weapons, and Japan can develop nuclear weapons within 48 hours if it wants to because it has all the technology and the materials. Even if the U.S. withdraws or significantly reduces its presence in East Asia, we can foresee, we can be fairly confident of a new regional alliance that is set up to counterbalance against China. We can see India, Vietnam, Japan, maybe even South Korea, and certainly Russia, banding together against China, and that’s more than adequate to constrain Chinese powers.

So, in the talk about American vital interest in East Asia there is certainly a self-serving element in there, because there are people who really don’t want to see the U.S. ceding East Asian dominance to anybody. But I will say that, because the very presence of U.S. there creates moral hazard, creates dependence, creates freeriding problem, you actually have to push these countries to do the things that actually will cause them, that will force them to do the rising, because these countries want to have it both ways. They want to be on economically friendly terms with China, but they also want to the U.S. to come and protect them. So this, at the moment the U.S. wants to do this, but I think there will be a point at which the U.S. will have to change.

Brad: So, let me give you again the hypothetical. Say the U.S. pulled out of Asia entirely. We abrogated our security guarantees, said everybody’s on their own there, and you can bandwagon with China, you can balance. People like David Kang who’ve been on the show said they’re going to bandwagon, right, that they don’t have a security concern from China, that they see their future as yoked to China. They like the U.S. too, they like to have it both ways, but that they’re not going to have a balancing coalition. At the same time, one of the historic reasons for us to be in both Europe and Asia has been to dampen the security competition there, which we found as dangerous. So, I guess the question being, if the U.S. were to withdraw, would you see a security competition developing?

Minxin: Oh, yes. I —

Brad: You don’t think they would bandwagon to China?

Minxin: They would not be bandwagoning. If you ask the Vietnamese, who know very well their history, their very unpleasant history with the Chinese, bandwagoning with China is the last thing they want to do, and Japan is not going to bandwagon against China because China has shown in the last decade, when its power became much bigger than before, that it could be a very bad bully in the region. Just ask the South Koreans, who are heavily bullied by the Chinese because of their agreement to host America’s antimissile system. The Russians wouldn’t want the Chinese to be the arbiter in Asia, in East Asia. So I actually, I’m very confident that a balancing coalition will emerge. We don’t see it emerging today because there’s no reason for it to emerge, but the underlying dynamics are all there.

Brad: No reason because the U.S. is present there?

Minxin: Oh, yes. So I think what we need to figure out is will that world is much more dangerous than the world in which the U.S. and China are engaged in a serious strategic competition in East Asia?

Brad: The other reason you gave earlier was the idea that the U.S. has incredible influence over the world with its hegemony it’s enjoyed since 1989, the end of the Cold War. So it goes to the question, what does China want? Because there are people who will say China wants to be a regional power, they want to have its rightful place with, it’s kind of the head of the East Asian order, but they’re not aspiring to overturn the liberal international order. They benefit from it immensely. And so to the idea that the U.S. has to have a “cold war lite” against China to keep them from degrading the liberal international order, they will argue makes no sense.

Minxin: Yeah. Well, first let me say that the U.S. under Trump is itself a threat to the liberal international order, so let’s just leave aside the liberal international order. China is a threat to the liberal international order in several ways. China’s immediate objective is to make sure that no outside power, especially U.S., can dictate how the region is run. It sees itself as the region’s veto power. Right now, it cannot achieve that status because it sees the U.S. as an interloper in the region. Second, whether China has other grand ambitions on the global stage really depends on the amount of power China has. Recent events show that China will use its power to pursue objectives when it has the power. For example, China’s Belt and Road Initiative. 10 years ago, it would be viewed within China as a laughable scheme, as a crazy scheme. Today, it is official policy. So it shows that a country’s global ambitions go hand in hand with the amount of power it has.

Brad: So, China’s likely to be wealthy, likely to be powerful, but one of your books is called China’s Trapped Transition. David Shambaugh has been on the show earlier, and he cites your work frequently, and he seems somewhat skeptical of China’s ability to sustain this position. You yourself have already mentioned today that you are too. So if we look 20 or 30 years into the future, where so many of us are frightened perhaps by what China could be, is it in some way an illusion? That they’re not going to be able to sustain this trajectory they’re on, and that they will basically implode, if you will, and therefore that the security concerns that has everyone so rattled will solve themselves?

Minxin: Well, nobody knows how China will end up. There are really three scenarios. One scenario is that China somehow gets its act together, can move from middle income to high income. China today is about a quarter of U.S. per-capita income, so the potential for gaining further development is huge, because the lower the base of income you are at, the greater the potential. China’s GDP measured in dollar terms is roughly 60 percent, 65 percent, so if the Chinese economy should double in size, that still means Chinese per-capita income is only half of the U.S., and that’s eminently achievable. If China reaches that point, then China will be truly a formidable adversary, strategic adversary, to the U.S. So this is a one. There are people who, economists, very well-trained economists, who believe that’s possible unless your scenario is stagnation, which I subscribe to.

Because of the inherent inefficiencies of state capitalism, because of the corruption, the predatory instincts of authoritarian rulers, sustaining economic development from middle level to high income actually is much more difficult, than moving a country from low level to middle income. Because in economic development history, a very small number of countries actually achieved that great leap forward, and these are democratic countries, they’re countries with a rule of law. So, it’s very likely that economic development in China will start slowing down and then stagnating at this level.

Then it could go either way. It could implode, or it could just stay there, because there are many instances in which a dictatorship, stagnant dictatorship, lasts for a long, long time. Just ask Mubarak, right? Ask Mugabe. Eventually, of course, they all had to go. There certainly is implosion. This is really a Soviet scenario. This takes both external pressure such as a U.S.-China “cold war lite” scenario, but also very bad mistakes made by the ruling elites, such as the Soviet Union in the late ’70s invaded Afghanistan, and sustaining an unaffordable arms race with the U.S, and then bankrolling corrupt regimes, bankrupt regimes, all over the world. So, we’re really looking at three possibilities at the moment. I would put my bet on the middle one, the stagnation scenario.

Brad: Let me ask the question about what U.S. policy should be then toward China, and let me preface it with this question. Can you imagine a world where China is enormously wealthy, powerful, has a strong military, is reclaiming what they see as its rightful place in the world order and in the Asian order, but they’re no longer ruled by the Chinese Communist Party? Maybe they have a fractious democracy like India, or a Singapore-style authoritarian democracy. Would the U.S. concerns allayed in that case? In other words, is this a matter where the Chinese Communist Party is the real problem, and a different government, you could see China becoming Japan to us? Or is this a situation where China, because of its history, its power, that you could have a democratically elected leader of China and they’re still going to be a formidable adversary to the U.S.?

Minxin: Well, I would say that for China to get to that point, there had to be a crisis, the outcome of which is a downfall of the Communist Party. So if you factor in a crisis as a precondition for that kind of system to emerge, then you’ll have to factor in a significant reduction of Chinese power, because no country can survive that kind of crisis while maintaining its economic vitality or wealth, very similar to the collapse of the former Soviet Union. Eventually, you will have a different reconstituted country, but it will be much weaker. Now, I would still believe that a wealthy China not governed by the Chinese Communist Party will be viewed as much less of a threat to the U.S., even if it were governed by a strongman. If President Xi Jinping were to announce tomorrow that he’s quitting the Communist Party, he’s banning the Communist Party, he’s going to be emperor for life in China, he will be viewed very differently, because the U.S. really does not like single-party systems. But the likelihood of that happening is fairly small.

Brad: So what should the U.S. policy toward China be? Is it like it could be in two different ways, and they are overlapping. One is to try to keep China from becoming as powerful as the arc it seems to be on will lead it to. The second is to try to undermine the legitimacy of the Chinese Communist Party in some way. Those might overlap in lots of cases, but is our real concern that we should try to find a different form of government in China, and that’s what we should be doing? And if so, how do we go about that?

Minxin: Yeah, regime change is really difficult. I think the U.S. never had an explicit plan for regime change in the former Soviet Union because it was impossible to implement, and as you can see from recent events in Venezuela, and this is in our backyard, and this is a tinpot dictatorship, changing a regime in Venezuela turns out to be a lot more challenging than we think. So I think we have to modify our behavior and our objectives. That is, in dealing with a continental-sized power such as China, you have to be clear about what you want to achieve, and you can of course say a hierarchy of objectives. I would place a defending your immediate security as the key, and then defending your allies’ security as secondary — because they’re connected with your own security — and then in respect to China, do you want to … Because right now in the U.S., you have different opinions. Some would say, “Well, let’s prevent China’s rise, period. That should be our objective.”

The other is … That’s a goal that would be difficult to achieve because we are dealing with a country of 1.4 billion people, and as they are not as dumb as the former Soviet rulers, they are in the global capitalist system, and it’s very hard to kick them out of the global capitalist system. Even though the U.S. can do significant damage to the Chinese economies through decoupling with the Chinese economy, they would advocate behavioral modification. That is, as long as we reach some kind of modus vivendi with China. That is, we recognize each other’s vital interests and we do not challenge those interests. Then we’re okay, because we are going to be much more conservative in what we want to achieve with China. The current administration does not have intellectual capacity to conduct this very serious intellectual debate, so we see a lot of ad-hocery. We see actually, at the moment, a 180-degree swing. That is, you go from engagement to butting head, to confrontation, with no thought given to some kind of a middle ground.

Brad: So, can you imagine a modus vivendi between the U.S. and China? That didn’t give China what the U.S. has in the Western Hemisphere for Southeast Asia. I mean, the South China Sea is a contested area now. Trying to seemingly seize that is in their vital national interest. So can you yourself be supportive of a modus vivendi where China said, “We have what you have in the Western hemisphere, but we’re not going to challenge the international order, the IMF, the World Bank, the global trading rules, things like that, but the price of that is we do want our vital interests, which are the South China Sea, the East China Sea. These are things that are our lakes”?

Minxin: Yeah, well, I think in that particular case I don’t think the U.S. should back down because this is a patently illegal act, building militarized artificial islands in the South China Sea.

Brad: People like David Kang say everyone does that. He says China’s done it —

Minxin: No, the Chinese is not everyone.

Brad: No, but Vietnam has done it, other countries building —Minxin: No, Vietnam does it in a very small scale. When a country like China does it, unless the U.S. stands up, nobody else can stand up. I think this is where I think America should make it clear that … moving back is behavioral modification, moving back from the South China Sea. But killing Huawei, the telecom company, and then economic decoupling, is preventing China’s rise. So these two are very different things.

Brad: So, let’s talk about both of those, then. The South China Sea, they’re building these islands. The U.S. sole response seems to be the occasional freedom of navigation operation, but that’s it. That’s seemingly inadequate to respond. What would you do? If you were the president, what’d you do?

Minxin: I think there are plans in the works for the U.S. to organize multinational naval exercises around those islands just to challenge China’s claims to these islands. The U.S. is beefing up Vietnam’s military capabilities so that China will be deterred from escalating, and the U.S. is giving the Philippines more support so that China … Because Vietnam, the Philippines, are at the forefront of the battle of this sort of island-grabbing in the South China Sea.

Brad: But Duterte seems to be fairly sanguine about it. I mean, I guess we seem to be more spun up about the problem than the Philippines are or that the Vietnamese are, and so I think that goes to the critics of U.S., the U.S. emerging consensus, to say these countries don’t care that much about it. It’s a minor irritation, while the U.S. sees us this as a casus belli, right? We’re going to invest in new bombers and spend hundreds of billions of dollars to find some way to deal with the China threat when the countries there don’t seem to care.

Minxin: Well, I think about the Philippines is the Philippines today, you have to look at countries and their leaders. When President Aquino was the president of the Philippines, the Philippines did care a lot. They took the Chinese to International Court of Arbitration in Hague. The Vietnamese care about this a great deal. They cannot wait for the U.S. to supply weapons and all kinds of support. I think what’s interesting to see in the South China Sea is the Cam Ranh Bay. Because right now, the U.S. faces a serious logistic difficulty. All the ships it sends to the South China Sea for those freedom of navigation operations had to be dispatched from Japan or Guam. Too long. So if they can use Cam Ranh Bay as a base, then it will be a lot less costly for the U.S. to challenge Chinese sovereignty or Chinese claims.

Brad: I mean, can you imagine it happening? People like David Kang say the U.S. is the suitor against Vietnam. The Vietnamese are not interested in the U.S. having that role. They had lots of ships harbor at Cam Ranh Bay, the U.S. did too, but Vietnam’s concern more about is Laos, Cambodia, and China, and good relations there, than they are with the U.S. which is knocking on their door, begging them to be part of a balancing coalition with the Vietnamese. He says they’re not that interested.

Minxin: Well, the Vietnamese are tempted, but they also realize that it’s going to be very costly because China can, once that happens, unless the U.S. is willing to give Vietnam complete military protection, China is going to put the screws on the Vietnamese. And the Vietnamese leadership knows that this is Vietnam’s golden opportunity for economic development. They just don’t want to risk, they don’t want to take significant geopolitical risks because foreign investments will be stopped, and their role as a global supply chain will be significantly adversely affected.

Brad: Let me ask you about corruption in China. One of your books is really the seminal exploration of Chinese corruption, called China’s Crony Capitalism. And you, in that book, document how pervasive the corruption is, and you have public records that name various people who have taken bribes and things like that. One of the things I think was interesting about your book was you explained why it’s an opportunity for corruption. I guess I always had thought, from seeing it from afar, it was just kind of like you find in many countries around the world is this kind of petty corruption, people taking bribes. But there’s actually a structural reason here about their attempt to privatize the economy, but only partially so, and that led to this incredible opportunity for corruption. Can you explain that a bit?

Minxin: Yeah. Because before economic reform began in China, all property was owned by the state, and, over the last 40 years, a significant portion of their properties as land, mines, their natural resources, and factories were privatized. The problem is that in this process, the government still claimed ownership, nominal ownership. The privatized owner is called user rights.

Brad: So, they set up the use rights from the ownership rights.

Minxin: Ownership, yeah. So, actually, the title I think for Americans, this will mean that the title of the property is very unclear. When the title is unclear, a lot of people can lay claims to the title, can actually effectively steal the property. So this is what happened in this process is that a lot of officials who could control the allocation of those rights got into occlusive relationship with private entrepreneurs. So they sell those rights, land, mineral resources, and factories to private entrepreneurs at prices severely under the market.

Brad: So, as they sell the use rights to land that still are resources, they’re still state-owned, technically. And because they’re the decider of who gets the use rights, they’re taking bribes.

Minxin: Yes.

Brad: And their colleagues are, it’s a collusive network of people to give the use rights away for cents on the dollar, in other words.

Minxin: Yes. Yes. That’s why, when you look at very wealthy people in China, they tend to own coal mines, operate coal mines, they tend to be real estate development, mostly because they were able to get coal mines and land for very little. That was the source of their wealth.

Brad: So, should we view, as we see today, the kind of the billionaires from the former Soviet Union, we see them as having robbed the country in lots of ways to make their money. When we see very wealthy Chinese with their money from real estate or resource extraction like mining, should we assume basically the same thing that they’ve plundered the country in lots of ways?

Minxin: Yeah. I think those real tycoons and mine tycoons in China probably don’t look differently or are not that different from the oligarchs from the Soviet Union, because their source of wealth is formerly state-owned property. But China, probably more than half of Chinese tycoons are self-made, when you look at the business they run. One of them actually is a paper recycler. Another made his fortune by building batteries, another by making car windshields. Of course, the most well-known, Jack Ma of Alibaba, just build his online e-platform. But by and large, there are a significant number of tycoons in China whose source of wealth is very questionable.

Brad: Even for the folks who made it on their own, self-made tycoons, as you called them, should we assume that they’re very, very close to the Chinese Communist Party?

Minxin: Oh, yes. Well, they’re close not necessarily to the Communist party, they’re close to Communist Party officials because they have to have protection. So they’re close to a local party secretary, to a vice premier, to a politburo member. Typically, they know them through their children. They would give their children a stake in their companies. That’s protection money.

Brad: So, when we see philanthropists who are Chinese tycoons come to the U.S., give money to places like Yale, others. These are folks who either made their money illicitly, as you said, by robbing the country, or are very, very close to officials in the Chinese Communist Party. So should we basically say, “Look, this is money that is very, very close to the Chinese Communist Party that’s being given to think tanks, being given to universities,” and deal with it accordingly?

Minxin: I think we have to be very careful about taking the money from these people. You have to know how they made their fortune. You have to look at their speeches inside China to see whether they are openly pro the Chinese Communist Party. So I would say exercising due diligence is absolutely necessary for any institution in the U.S. that wants to get Chinese support.

Brad: Xi Jinping has made anti-corruption a hallmark of his time in power. How is that coming along, and is he going after the systemic issues? You said there was a mismatch between ownership rights and use rights that’s causing all of this. As you have said in some of your writings, they’re not dealing with that problem. And it seems to me, if you don’t deal with that problem, you’re never going to get rid of corruption in the country.

Minxin: Yeah. I think his campaign is at best a mixed success. It has certainly made corruption a much more costly crime for people to commit, but it has not eliminated corruption. It simply has driven corruption further underground, and it has not really deterred … Well, judging by the number of officials that he has arrested in the last six and a half years, it seems that those officials continue to engage in corrupt after the beginning of the corruption campaign. So it means that the real effect on official behavior probably is much more limited, but there’s absolutely no question that the anti-corruption campaign has been key to Xi Jinping’s success in consolidating power.

Brad: Is Xi Jinping himself free of corruption?

Minxin: We don’t know. I think American news organizations such as Bloomberg or the New York Times have documented activities by Xi’s family members. His sister, for example, do show that Xi’s family members are very wealthy, probably worth several hundred million dollars.

Brad: The military, the People’s Liberation Army, is also historically rife with corruption. Can you talk a bit about how corruption might affect their fighting ability, and whether things are improving under Xi’s kind of reorganization of the PLA?

Minxin: Yeah. We don’t know how the reorganization of the PLA has panned out because one of the signature reform programs under Xi is the radical reorganization, I might say along the American model, because they’ve divided up their regional regions into combat commands. In terms of corruption, what we know for sure is that military appointments, until recently, inside the Chinese People’s Liberation Army were made through bribes.

So, if that’s the case, then we have to have significant doubts about the capabilities of Chinese military commanders. If they bribed their way into their positions, then could they actually fight? So that’s the real worry about the capabilities of Chinese military as a fighting force. Luckily … Oh, well, not luckily, but when we look at what has happened in the last six years is that a lot of these people have been brought down, have been purged during the anti-corruption campaign. We don’t know, but still, we don’t know whether their replacements are picked because of their skills as military commanders, or because of their political loyalty to Xi Jinping.

Brad: Does the PLA and the Chinese Communist Party in general have serious aspirations for military action toward Taiwan, in your mind?

Minxin: I think they have dreams of using military means as a coercive instrument to bring Taiwan back. I don’t know whether they are seriously contemplating taking Taiwan back by invasion, which will be a very risky and costly act to do, but there’s no question that one of the Communist Party’s aspirations is to seek a reunification of China.

Brad: We end every episode of Jaw-Jaw by asking our guests to give two or three books that they would recommend people read who might want to follow up on these kind of issues. What would you recommend on that score?

Minxin: I think the book I would like to recommend, first one, is Elizabeth Economy’s book, The Third Revolution. It is a very good analysis and account of the rise of Xi Jinping and how he has changed the Chinese political system and foreign policy.

The other book I would like to recommend is Nicholas Lardy’s book called The State Strikes Back.It is a very balanced analysis of both China’s economic potential, but also how and why Chinese state capitalism, instead of being a juggernaut, is actually its own worst enemy. It shows why state-owned enterprises are so inefficient that if China keeps them, China is unlikely to keep its economic growth at a satisfactory level.

And the last book I will recommend is my own. My second book, the one you referred to, is called China’s Trapped Transition. It was published quite some time ago. It’s 2006, actually. It was the first book that lays out at a theoretical level a story, or theory, of why a dictatorship can never grow rich. It’s a good antidote to the theory that China is an unstoppable juggernaut.

Brad: So let me just ask you then, as someone who’s watched China, who has a long writing career about it, are you a pessimist or optimist about China’s trajectory over the next 30 years?

Minxin: Well, I’m a pessimist for the Communist Party. That means I’m optimistic for China. But the story will not be a very happy one with essentially my China, say, 10-15 years down the line, is a China ridden with crisis, but out of which a new China will be born.

Brad: Professor Minxin Pei, thank you for being a guest on Jaw-Jaw.

Minxin: Thank you.

Music and Production by Tre Hester

Image: Courtesy of Remko Tanis