Over its history, the People’s Republic of China has cycled through softer and harder periods of authoritarianism. This is known in China as the “fang-shou cycle.” Today, we are seeing a harder period of Chinese politics. The country’s leader, Xi Jinping, is consolidating power and cracking down on both corruption and civil liberties. What does this mean for the future of China? What lessons did the Chinese Communist Party learn from the color revolutions and the fall of the Soviet Union? Can China avoid the “middle-income trap”? Professor David Shambaugh and Brad Carson discuss these issues in the third episode of “Jaw-Jaw,” the newest addition to the War on the Rocks family of podcasts.

Biographies

David Shambaugh is a professor of political science and international affairs at The George Washington University, where he is also director of the university’s China Policy Program. The author of many books on China, his most recent include China’s Future (Polity Press, 2016) and China Goes Global: The Partial Power (Oxford University Press, 2013).

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 to 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.

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Transcript

Brad: Welcome to “Jaw-Jaw.” I’m your host, Brad Carson. I served in the U.S. House of Representatives under President George W. Bush, and the Defense Department under President Barack Obama. Now, I’m a professor at the Batten School of Leadership and Public Policy at the University of Virginia.

And this season on “Jaw-Jaw,” we’re going to talk about China, one of the great questions of our time. Today’s guest is Professor David Shambaugh. A professor of political science and international affairs at the George Washington University, here in Washington, D.C., and the author of many books on China, but most recently, the terrific book, China’s Future.

Professor David Shambaugh, a long-time watcher of China, you’ve written about the “fang-shou cycle” and Chinese history. Can you explain what that is, and how it explains, in some ways, what’s going on in China today?

David: Sure. First of all, it’s a pleasure to be on your program, and I look forward to the conversation. The “fang-shou cycle” is a term that some Chinese intellectuals have used over the last three decades to describe the trajectory of their country. This is not a historical concept. This is very much a contemporary, recent concept, and it dates back to the 1980s, when China began its reform process under Deng Xiaoping. For the four decades since, and we’re actually right on the cusp now, of the 40th anniversary of what’s known as the Third Plenary Session of the 11th Central Committee, which took place in December 1978, and was generally thought to be the event that marked Deng Xiaoping’s return to power, and the beginning of the reform period. So, we’re right at the four-decade anniversary of that.

Over the last four decades, we’ve generally seen China oscillate back and forth between a hard authoritarian and a soft authoritarian approach. Those are my terms, actually. But, “fang” in Chinese means to open. “Shou” in Chinese means to close. “Zhōuqí” is the word for cycle. So, the Chinese intellectuals have talked about this oscillating pattern in their own country, over the last four decades of oscillation between opening and closing, relative closing, fang-shou. Normally, the patterns, and there have been, I think, seven such cycles since 1978, there about six years of opening, followed by, generally speaking, two years, sometimes one, of closing and tightening.

This has to do with liberalization. The opening refers to political liberalization, but also economic liberalization. The closing has to do with repression, political repression, but also economic repression. So, as I say, we’ve seen about seven cycles of this six years of opening, followed by one to two years of closing, followed by another six years of opening. So it’s sort of been this two steps forward, one step back pattern, as I say, going all the way back to 1978.

What’s different is, we’re now by the way, in a closing cycle, but what’s different is that this closing cycle is now in year eight. It started in 2009, and shows no signs of shifting back to a more open liberalizing cycle. That’s what’s meant by the concept. It’s oscillation. China’s not been on one singular path for the last four decades. In fact, it’s been oscillating. That’s the whole point. Many Chinese are quite concerned, and for an observer, I can say, China-watchers are wondering, will China ever get back to opening, more liberalizing path, or is this current period of repression and closing indefinite?

Brad: Do you think they will get to a new path, another opening in the foreseeable future?

David: Nothing’s absolute, first of all. Everything is a matter of degree in China. One can certainly make the argument that there are elements of economic opening going on. Not many. In fact, we can talk about the third plenum economic reform program that Xi Jinping laid out in November 2013, where we are today, six years later, but will they get back to an opening? I argue no. It’s hard to see under the current regime. It’s very hard to see.

Xi Jinping, there’s not a liberal gene in his DNA. This is a very authoritarian leader with a nostalgia for the 1950s, the Maoist period, but I would argue the Stalin period.

So, right now, there’s unfortunately, no real indicators that the oscillation is going to go back to a liberal phase, but there are a lot of liberals in that system, I can tell you. Inside the Communist Party itself, and inside various institutions in China, and certainly inside the middle class in Chinese society, who would love to go back to a more liberal system, and they are complaining a lot, at present, about the direction Xi Jinping is taking the country in.

Brad: Can you talk about Xi Jinping pulled it off, really? You’ve talked about, in your 2016 book, China’s Future, you spoke about some events in 2007 and 2008 that led to a cracking down, from what had been a period of five or six years of liberalization. How did he manage to both accumulate the kind of power he seems to have today, an unprecedented amount of power, since at least Mao was around, and get enough fellow travelers with him to support a more draconian regime, if you will?

David: Good question. I would argue that the shift in the political orientation of the regime started before Xi Jinping actually became the leader of China, which happened in 2012. I argue that it happened in 2009, ‘10. That was the year in which we saw a real cracking down, and into the previous decade of fang, of opening, that had been undertaken during the end of the Jiang Zemin period, and most of, but not all of the Hu Jintao period.

A man named Zeng Qinghong, who is a senior leader. Not the senior leader, but he was a senior leader, who oversaw relative liberalization during that decade, from roughly ‘97 to 2007, 2008. Then came the global financial crisis. That had an impact on the way the Chinese saw the world, the way they saw the United States. They lost their interest in emulating the American economic model, and it coincided with a kind of hubris, I would argue, about their own developmental success, and even the ability to weather the global financial crisis. You recall that China primed the pump with $644 billion fiscal stimulus package, and it got them through that crisis. It caused longer term problems of debt, which are still with them.

Nonetheless, the Chinese leadership was pretty full of themselves, back in 2009, ‘10. They’d gotten through the Olympic games, but other factors took place in that year, and I don’t want to spend too much time going into it, but there were big riots in Tibet. There were big riots in Xinjiang. There was the retirement of this man, Zeng Qinghong in 2008, leading liberal, and there were bureaucratic factors that had to do with the security services, and a man named Zhou Yongkang, who was then the Politburo member in charge of the internal security apparatus. He’s behind bars today, in prison. He’s been one of the many people who’ve been purged by Xi Jinping.

He, at that time, was in the ascent, as were the propaganda system. There were, what I call the control apparatus in the Leninist Communist party state, began to reassert themselves in 2009, ‘10. They were arguing, in effect, that the liberalization of the previous 10 years was going to lead to further and further discontent, protests, and perhaps the unraveling of the Chinese Communist regime.

So, things really changed in 2009, ‘10, and then have continued ever since. Xi Jinping comes to power in 2012. He just doubles down on the repression. So, a lot of this, I think actually dates, in fact, to the Chinese analysis of what caused the collapse of Soviet Union. That is the most important event in their psyche. Again, I don’t want to prolong the discussion about that, but it was so fundamental, you have to understand that what they’re doing in China today is very much a reaction to what they perceive Gorbachev had been doing in the Soviet Union, and they don’t want to see it repeat. They live in dreaded fear of, not being overthrown necessarily, but imploding from within.

And Xi Jinping came to power in 2012, and he looked out at his Communist party, all 87 million party members at that time, and all the party committees, and he saw an atrophying party apparatus. He saw gradual sclerosis and meltdown on the horizon. He’s taken very stern measures over the last eight years in power, seven years. Has it rescued the party? Yes, temporarily. Will it do so indefinitely? We’ll have to see.

Brad: I think it’s worth talking about something that you have discussed at length in your writings, that they did go to school, not only on the fall of the Soviet Union and the Eastern Bloc Communist nations, but also the various color revolutions that have happened in the last 15 years. And you’ve written that there’s been a couple of competing interpretations of those events that can explain some of the politics, internal politics of China’s leadership. You talk a bit about what they’ve learned from those episodes, and how people might disagree about the future of China, given those events.

David: Very good point. Again, add to that mix in 2009, ‘10, we were just talking about, precisely the so-called Jasmine Revolution in the Middle East, and the color revolutions that had just swept across Central Asia. That produced a real fright in the Chinese Communist leadership. In fact, I know that when President Putin met his counterpart, Hu Jintao, Chinese leader at the time, at one of the Shanghai Cooperation Organization meetings he literally got a hold of Hu Jintao by the lapel of his suit, and said, “If you don’t get a grip on these foreign NGOs operating in your country, China, as we are getting a grip on them operating in our country, Russia, you too, will have a color revolution.”

And that got Hu Jintao’s attention, but indeed this gets to your question. What were the competing narratives and interpretation about these events, the Jasmine Revolution in the Middle East, and the color revolutions? Again, this all goes back to the collapse of the Soviet Union. There were two schools of thought. The Chinese studied not just the Soviet collapse, but the East European uprisings of ‘89, ‘90, very, very carefully. There were two schools.

School number one was, Gorbachev was right, but he was too late. And that the system in the Soviet Union was so fractured by the time he began to introduce his reforms that it just caused the system to crash. Whereas, if they had been introducing those reforms progressively, over time, and managing them, the system would have, indeed, been much stronger, and less brittle, and would not have come down with Gorbachev. In fact, they argue that Khrushchev had been a reformer, and the real problem with the Soviet Union was they overthrew Khrushchev in 1964.

That was school number one. And they concluded that China, the Chinese Communist Party, that is, would have a similar fate of implosion if they did not manage liberalization and opening. In other words, this is a liberal communist perspective, that you can open a society. You can have a relatively open media, NGOs, open society, foreigners in your society, all kinds of things, inside your party, discussions in your party, discussions between your party and other elements of society. It was a much more liberal vision. That’s school number one.

School number two said, “Wrong. You go down the path of trying to manage liberalization, it will cascade out of your control, and you’ll fall from power.” So, the only way to deal with these pressures that are intrinsic to all authoritarian systems, and Leninist party states, is to crack down. That was the second school is, the assertion of repression and control.

You had two contending forces, and this goes back to your original question, Brad, about fang and shou, and that’s why we have seen this oscillation over the last four decades in China. So right now, we have school number two in control in China. Repression. That’s the only way to keep us in power. They got rid of school number one in 2009, who were arguing that, “No, you can manage the opening.” Anyway, that’s the short answer.

Brad: And one of the lessons, you talk about, also, is to never let the security services get out of your control. They look to the Ceaușescu example in 1989, or the Stasi in East Germany, who when asked to crack down, they said “no” to that, and so to make sure that the security forces and the party were very closely wedded.

David: Precisely. They watched what happened in those cases you just mentioned. East Germany, and particularly in Romania. In fact, I was in Beijing when Ceausescu and his wife, Elena, were murdered in the snow by their security services in 1990. But, the Chinese conclusion was one that they had known from the beginning of their time in power, “The party shall control the gun,” Chairman Mao used to say. The gun shall never control the party. You lose control of your security services, you’re sunk, in an authoritarian regime like that.

That’s a lesson they’ve had to relearn. They certainly relearned it in ‘89. The military did finally follow orders. Most of them did, there were 38 court marshals of generals who did not follow orders, but nonetheless, the military undertook the suppression in Tiananmen Square in Beijing in ‘89. Ever since that time, they’ve gotten increasingly in control of their internal security services, and certainly, their military.

Last point on that: corruption. Xi Jinping comes to power 2012, launches a massive anti-corruption campaign across the society, across the party, across this government, and across the military. Recent statistics published by the Chinese government, 16,000 officers, 120 generals, and 4 central military commissions, senior military leaders, have been purged during this anti-corruption campaign, just in the last six years.

Well, corruption is a way in which, that undermines the cohesion of any security service, in any military. Xi Jinping comes to power, and he realizes, “Boy, our party’s in danger if we don’t have control of the gun, and who has control of the gun? Money. Personal interests.” So he’s really cracked down very hard, not just on the People’s Liberation Army, but the People’s Armed Police, the Ministry of State Security, and the Ministry of Public Security.

All Leninists, maybe even authoritarians who are not a Leninist, they get it. If you don’t control the repressive apparatus, you’re going to lose power.

Brad: Does this in some way jeopardize Xi’s control? Because if he needs to have the army very close to him, you would think purging it is a risky proposition, right? That many people in the military would oppose that. At the same time, he’s cracking down on many of his predecessor’s acolytes. Some of the Shanghai gang. Jiang’s crew. Hu Jintao’s crew. Which also seems to be, just from a raw, political standpoint, to be a risky thing to do. So, how does he manage that? There have been rumors in the past of some attempts to oust him, even. Does he have a secure grip on power in Beijing?

David: That’s a great question, which I speculate about and think about, but have no evidence on. I don’t think anybody really does. As you suggest, there have been repetitive rumors of attempted coups and attempted assassination attempts against Xi, and even the Chinese regime itself accused the Sichuan [correction: Chongqing] Communist Party leader, a man named Sun Zhengcai, of plotting a coup. He was overthrown about a year ago. When he was overthrown, he wasn’t overthrown for corruption, he was actually accused of mounting a coup. The regime, you know? The last person who was accused of mounting a coup was Lin Biao in 1971. But the regime didn’t give any details of what Mr. Sun’s coup was supposed to be and who was part of it. But that caught observers’ attention.

There have been a lot of these rumors. We just don’t know what basis of fact there are. But as you quite correctly suggest, and as I just said, Xi Jinping has really gutted the security services through the anti-corruption campaign. Yes, they were corrupt. They found unbelievable amounts of hoarding of gold bars, of cash, of mistresses, of villas. I mean, the corruption is not dreamt up. But your question has to do more about loyalty of security services, and I would argue that he is not exactly endearing himself, he, Xi Jinping, to the security services by hitting them with this anti-corruption campaign.

On the other hand, maybe through intimidation tactics that’s the only thing that will get through. We just don’t know. But my instincts tell me that the security services, as well as parts of the party and the state, the government, that is, are really on the defensive under Xi Jinping, and that his aggressive anti-corruption campaign has caused him a lot of enemies. That we know. There is a lot of enemies. A lot of people who would not be at all dissatisfied if he tripped up. Some might say they already have their, you know, the long knives are out, proverbial phrase.

Brad: And the anti-corruption campaign has also stymied some of the economic reforms he’s wanted to do, as the bureaucracy has been frozen in place as they feared being purged themselves.

David: Exactly. The Chinese have a term, they call it [foreign language 00:19:16] which means, “To freeze up.” Also used for sclerosis, but that is exactly right. Who wants to take an initiative, in an atmosphere, in a climate of this anti-corruption campaign? Because you get caught out. So, everybody has hunkered down. The bureaucrats are physically not going to the office, or at least, up until about a year ago there was a lot of absenteeism. They’re not implementing the policies they’re instructed to do. That’s one reason we haven’t seen the Third Plenum economic package of 2013 implemented.

This is not just a Chinese phenomenon. Bureaucrats all over the world, right? It’s rule number one of bureaucratic opposition. You don’t like what the boss tells you to do, you tell the boss you’re doing it, but you don’t do it.

Brad: Right. Passive-aggression.

David: Passive-aggression. You sit on your hands. We’re seeing a lot of that in the Chinese bureaucracy. There are many reasons the economic reforms are stalled, but that is one of them.

Brad: And you’ve written that for China to get out of what you’ve termed the middle-income trap, that phrase being a developmental economics phrase, they need to, in your mind, liberalize, move toward what you’ve characterized as a Singapore-style democracy, or they won’t get through this middle-income trap. Can you talk a bit about what the middle-income trap is and why you think the only solution for that, in China’s case, is to move toward, if not a full Western-style democracy, at least one that Lee Kuan Yew would appreciate?

David: Sure. Well, the middle-income trap is certainly not my phrase. As you say, it’s a developmental economics concept. The World Bank tells us that from 1960 to 2012, 101 countries graduated from the developing economy status to middle-income status. The World Bank divides all economies into three categories: developing, middle-income, and developed. So, as I say, over that long period of time, 1960 to 2012, 101 countries escaped being developing countries and became middle-income countries, which is measured by $9,000 per year per capita income. Okay? That’s what you call a lower middle-income country. Once you hit, I think it is, $13,500, or $14,000 per capita, you become an upper middle-income [country]. Then, when you get to $18,000 or $20,000 per capita income, you graduate to become a developed economy.

Okay. So, of the 101, 89 have never graduated. Only 12 countries have become developed economies, having become middle-income economies. Hence the term “trap.” Eighty-nine out of 101 get trapped. They never get through it. So, the minority, distinct minority, 12 out of 101, as I say, have made it, and in those cases, there are two commonalities of the successful, which you might call the successful 12. Commonality number one: democracy. Commonality number two: innovation.

Those are related themselves. You don’t have an open intellectual environment and political environment, innovation is going to be difficult, to put it mildly. To get out of a middle-income trap, basically, economies have to change from being … They have to add value to their products. They can’t just depend on surplus labor, low wages, and producing low-end consumer goods, which is what the Chinese have basically been doing for the last three decades. Not unusual. In most developing countries, that’s how you get out of being a developing country. You export your way out of it, basically.

But, then you become a middle-income country and you have to start innovating. Creating knowledge-driven, value-added goods, hence the need for innovation. That’s where China is today. So, the big question is, is China going to be country number 13? Or country number 102? Sorry, country number 90? We won’t know. It’s going to be a long time before China hits $19,000 per year per capita income anyhow. My guess is that the historical pattern is that China is going to follow the pattern. Unless they liberalize. I did not say democratize, I said liberalize.

And democracies, by the way, come in a variety of stripes. You mentioned Singapore. That’s one stripe. That’s one type, that, in fact, the Chinese have studied very carefully in the last 40 years, particularly during the 1980s. But anyway, if they don’t liberalize their political system, even if the Communist Party maintains hegemonic political control, I don’t think they’re going to get through the middle-income trap. Or, at least, the history would suggest they’re not going to. This is not David Shambaugh’s theory, this is the World Bank’s data on all countries since 1960. Long story short, no liberalization, no innovation. No innovation, no escaping the middle-income trap. That simple.

Brad: We’ll come back to that, but I want to ask about one person in particular, because I think he’s always been a fascinating figure in Chinese history, which is Zhao Ziyang, who was secretary general of the Communist Party in the late 1980s, during the Tiananmen Crisis. Had been premier before that. You characterize him as a true reformer, and I think in the West we saw him as someone who was going to be a great liberalizer. He was, of course, purged, as the hardliners got into power, or reasserted themselves after Tiananmen. Would China be on a different course today if, say, Tiananmen had never happened, Zhao had stayed in those kind of roles, perhaps even ascended higher, and perhaps pursued that reform agenda? Or were there so many forces working against that reform agenda that he was going to be stymied from what, perhaps, his dreams were?

David: That’s a great question. I have to confess, first of all, I have a soft spot in my heart for Zhao Ziyang. I wrote my first book, a biography of Zhao Ziyang, back in the late 1970s, early ‘80s, and it was very sad for me to see him overthrown in 1989. I had the pleasure of meeting him. I think he was probably the greatest leader China has had since the Maoist era. That includes Deng Xiaoping. In fact, a lot of things that Deng Xiaoping is given credit for was Zhao Ziyang’s ideas. The economic reforms of the ‘80s, that was all Zhao Ziyang. That wasn’t Deng Xiaoping.

The political reforms of the 1980s was Zhao Ziyang and Hu Yaobang. China, I mean, you ask a good but hypothetical question. Where would China be today if he had not been overthrown in 1989? It’s speculative. We don’t know. But it would be a lot further along than it is today. The middle-income trap would probably be a non-issue, for example. Just imagine. He was taking China on a path of Singaporean style, what he called neo-authoritarianism. He was consciously studying Singapore. That was his vision for China. That’s where he was trying to take China.

The conservatives in the party at the time knew exactly that’s where he was trying to take China. So, they were trying to undercut him, undermine him, complain to Deng Xiaoping about him. They were trying to trip him up long before the demonstrations of the spring of 1989. And then, the demonstrations, of course, took place. That was the final excuse, or denouement for him, and he was overthrown and put under house arrest for the rest of his life. It’s just speculative. Where would China be today? Well, it’d be a much more open, much more liberal, much more reformed, not reformist, reformed place. Open to the world. It would be, talk about a superpower, you know? In fact, I would argue that Tiananmen set China back significantly. China would be a far stronger and more capable power in the world today, and we in America would be having a very different kind of conversation about China today if it were a liberal, open superpower that it has not yet become.

Brad: You said that China needs to both liberalize and innovate if they hope to escape this middle-income trap. One of the things I think you’ve written quite powerfully is that they’re trying to develop a modern economy on a premodern political system. You’ve already referenced a couple of times the 2013 Third Plenum reforms, which coincided with a report from the World Bank, that Bob Zoellick, and others, where it seemed as if the Chinese leadership, including Xi, recognized some of the changes that had to be made. Can you talk about what changes they perceived? And by 2016 when you were writing in your last book, they hadn’t made much progress. Can you talk about, perhaps, in the last couple of years, how they’ve made progress on those Third Plenum from 2013 reforms?

David: Sure, Brad. First of all, I’m not an economist. An economist can give you chapter and verse on what they have or have not done since 2013. But you’re quite right. I mean, the Third Plenum package had 64 categories, and, I think, 340 or so individual economic reforms in it. It was comprehensive. It was staggering. It was very exciting to see. And, as you suggest, it was modeled on the World Bank 2030 report. In fact, it was almost copied, parts of it were copied, verbatim, from the World Bank 2030 report.

The World Bank wrote that report, actually, during Xi Jinping’s predecessor’s period, Wen Jiabao was the premier at that time. Wen Jiabao partnered with Robert Zoellick to write the 2030 report. Zoellick, in fact, went to Wen Jiabao, he said, “Look, your country’s about to get into the middle-income trap. We, the World Bank, have a little experience in this category, so we would be happy to help you navigate your way through the middle-income trap, and why don’t we do a joint project on it?” Between the NDRC, it’s called the National Development Research Council in China, and the World Bank.

So, they did, and they produced the 2030 report. That, then, morphs into the Third Plenum package that Xi Jinping himself insisted, personally, on unveiling. Well, here we are six years later, and by almost all foreign accounts, only a minimum of that package has been implemented. The only debates amongst foreigners, and you can look at a number, you can look at the Asia Society, the Rhodium Group, the U.S.-China Business Council, the American Chamber of Commerce, the European Chamber of Commerce, a wide variety of foreign analysts say that only between 10 percent and 15 percent of the Third Plenum package has been implemented. Eighty-five percent, therefore, not implemented, or 90 percent not implemented.

That, largely, has to do with decentralization, opening the economy to foreigners, everything from credit cards … Only this week has American Express finally gotten a foothold into the China market. It’s going to take them three years, now, to have to put together a feasibility. The Chinese have let them put together a feasibility study. You know? The Chinese are just not, under Xi Jinping, interested in opening. They’ve closed the economy. That’s why Donald Trump and Robert Lighthizer and others in the American administration are reacting the way they are, because the Third Plenum package has not been implemented. In a variety of sectors, and we just don’t have the time to go sector by sector, and I’m not sure I’m the right person to do it, but one sees no follow-through.

Why? I think, as a political scientist, not an economist, because the kinds of reforms necessary endanger the hegemonic control of the Communist Party. State-owned enterprises, the fiscal banking system, various internal demographic and other controls. So, I think they’re actually political reasons that the Chinese leadership under Xi Jinping have gotten cold feet and not moved ahead on this. That’s just my hypothesis, but I think they’re … There’s also vested interests, right? You’re going to move towards that set of goals, that the World Bank wrote to them, you’re having to undermine a number of deeply vested institutional interests in China. They’ve been there since the 1950s. The SOEs in particular. Xi Jinping has no interest in decreasing the power of the state-owned enterprises. That’s what SOE means. Quite to the contrary. He’s increased it. When he came to power the public sector of GDP had shrunk down to about 20 percent, 21 percent, the state sector. Sorry, not public sector. It is now back up to I think 44 percent. It has doubled. The role of the state in national GDP has doubled in the last six years. Right? Xi Jinping is all about the state and about the party. He said that in the 19th party speech, “The party controls all.” His whole model for economic development is a complete statist model. That’s not what the World Bank had been recommending to him.

Brad: Is it, in your opinion, that he’s not really committed to the 2013-

David: That’s correct.

Brad: -reform or that he can’t implement even if he so chose because of how difficult the bureaucratic march would have to be?

David: More the former than the latter. If he wanted to implement it, the state, and he personally, do have the power to crack heads and make those things happen. This is an intentional choice on his part and on the Communist party’s part. They don’t want to go down that path. Again, it all comes back to party control. You know?

Brad: As a political scientist, you’re writing has suggested that is a short-term approach at best. Over the long haul, this will doom them. As you mentioned, it doesn’t seem as if Xi is doing any of these kind of things, so is your long-term prognosis for China then bearish would you say?

David: I don’t think that it’s necessarily … it’s not going to lead to the collapse of China, if that’s what you’re asking. In fact, I’ve been associated, unfortunately, with the collapse of China thesis, which I do not share, despite the Wall Street Journal’s title in an article I once wrote for them. I have to clarify, again, that was the Wall Street Journal’s title, not mine.

Brad: They control the headlines, I see.

David: They control the headline. No, China’s not gonna collapse just because they’re not implementing the third plenum reform, but they’re going to stagnate I would say, relatively stagnate. If they grow 6 percent, is that stagnation? A lot of countries would like 6 percent GDP growth. That’s not stagnation. It’s the question of quality of growth, not the quantity of growth and the structure of your economy. As I say, unless China can transition to an innovation-driven, a services-driven, and even a consumption-driven economy away from fixed-asset investment, it’s called by economists, that’s like infrastructure, pouring a lot of concrete, and manufacturing low-end consumer goods for export to Target and Walmart, that’s what they’ve been doing for the last 40 years, right? A lot of concrete, a lot of low-end manufactured exports to Target and Walmart. It’s been very successful for the last four decades, but the World Bank would say that’s fine, that’s typical of first-stage developmental economics.

Now you guys have to start moving into a service, innovation, and consumption-driven economy, and even change the structure of your exports. They’re not doing that. It’s like a drug addict who is addicted to a drug. They have to keep pouring concrete. They’re building what they call ghost cities, and rail, and road, and harbors, and all kinds of physical assets they don’t need. They have over capacity at home, so what do they do about that? They export it abroad. One reason for the Belt and Road Initiative is to start exporting some of this infrastructure overcapacity their companies have. What kind of companies? State-owned enterprises. It’s not a … I don’t foresee that this is going to produce some kind of cataclysmic collapse of the Chinese Communist party or the Chinese economy. Quite to the contrary, it’s going keep chugging along and, in fact, we’re seeing some very interesting success in the innovation sector, firm-driven innovation, in and around Shenzhen.

We’re also seeing expansion of the service industry, so there are actually some encouraging economic developments, but there’s some very discouraging ones too. Such as the level of debt, which is now close to 300 percent of GDP. That’s red light flashing zone economists will tell you. The Chinese economy is a complicated, big economy. There is no magic bullet for it. It’s not going to crash tomorrow. The Chinese stock market though has really lost a lot of value. There’s a lot of uncertainty in China, but it’s not gonna collapse. I would argue it’s going to relatively stagnate. It’s not going to continue to push through this intermediate zone we call the middle-income trap.

Brad: If it does stagnate economically can the Chinese Communist Party continue its grip? Can this repressive approach that Xi has adopted continue or will public unrest with their rising expectations be something that can’t be managed, can’t be bottled up?

David: That’s the $64,000 question. We have not seen a single Leninist state in the history of the world survive without those sorts of economic goods to deliver. You can’t survive just on repression. You’ve got to deliver what they call performance legitimacy and performance legitimacy changes as the structure of an economy changes. What it was for the last three decades doesn’t mean it’s gonna be sufficient for the next three. The party, I think Xi Jinping when he came power in 2012 he was really worried about the state of the party. He’s taken very aggressive action to try and strengthen the party. In the short-term, he has strengthened the party. No doubt about it. I, myself, am still of the view that he has weakened the party in the long term because he’s weakened the various mechanisms within the party and between the party in different sectors of society. In other words, he’s returned the party to a rather mechanical, dictatorial, top-down instrument. It doesn’t have what the Chinese themselves call dǎng jì shēnghuó, inter-party life.

It all goes back, again to that debate about the Soviet Union, what types of parties can survive, open parties or closed parties? Can you survive just on repression or a combination of repression and opening? No Communist party has stopped repressing. I’m not arguing they need to do that or that they would do that, but they need, I think, if they’re gonna evolve economically they’ve got to loosen up their political system. It just doesn’t take a nuclear scientist to recognize that.

Brad: What should be the American approach in light of this? You’ve already talked about President Trump and our trade representatives. Of course, we’re not, if you could argue, in a budding trade war with China. What in your mind, if you’re an advisor to the president of the United States, should our approach be towards China?

David: Well, very good question for which there’s no really simple answer, but let me try and highlight a couple of elements. The first element is that we need to work with other like-minded countries who share the same concerns about China. In other words, it does no good to bash our allies, other OECD countries, who have the same concerns about the structure of the Chinese economy and the barriers to market entry for foreign companies, whether they’re Canadian, German, British, Finnish, Japanese, or anybody else. That’s a mistake on Trump’s part, I think. He’s not mobilized a coalition you might say of countries who have very similar concerns to our own in the Chinese economy. That would be more effective, I think.

Secondly, I think we need to give the Trump administration credit. I’m no great fan of the Trump administration to be sure, but when it comes to China I do give them credit, amongst other things, for recalibrating the narrative and calling the relationship for what it is. What is it? It’s a competitive relationship. This is the first administration in American history that has called China a strategic competitor and has been quite open in the National Security Strategy of the United States, the National Military Strategy of the United States, and indeed Vice President Pence’s speech about all the blemishes, if you wanna put it that way, China has and the problems in the relationship. We have a competitive relationship. No doubt about it. I think it doesn’t do us any good to sort of pretend that somehow we’re gonna get back to a cooperative harmonious relationship with just a few negotiations. Sorry. We’re not getting back to that. This is the new normal.

We’re in a competitive relationship, so now we need to figure out how to go on the offense in a competitive relationship and not just play defense, but actually offense. We have to compete with the Chinese on a global basis, certainly in Asia, and even in our own society against what’s become known as Chinese influence operations.

Brad: The Confucius Centers and things like that?

David: It’s a big multi-pronged issue and we’re going to be releasing a report on November 29th, a 300-page report on Chinese influence activities in the United States, jointly done by the Hoover Institution and the Asia Society’s U.S.-China institute, so watch that space. This is a very complicated issue. Confucius Institutes are just one very small, and frankly not worrisome, element. In fact, we call for the maintenance of Confucius Institutes. They’re not national security threats in the U.S. at all. They’re being pilloried by some people very incorrectly, we argue. That’s not to say they shouldn’t be governed more effectively. We have a number of recommendations about oversight in certain Confucius Institutes, but that’s not a Trojan horse that’s going to undermine American democracy or teaching of China on American university campuses. Anyway, the U.S.-China relationship is a competitive one. That’s the new normal. It’s going to be indefinite.

It shouldn’t be a surprise to anyone. The challenge is to manage it so it doesn’t become a fully adversarial relationship because these two countries could go to war. Your program is called War on the Rocks; well, there is real potential for war between these two powers. Graham Allison’s Destined for War, his book about the “Thucydides’ trap” and his study of similar cases in world history between rising powers and established powers suggest that the majority of them, 14 out of 18 to be specific, result in major power war. We don’t need that. China doesn’t need that. The world doesn’t need that. The question is how do you manage a competitive relationship, go on the offense, push back, stand up for your own American interests, and try and shape a global order without risking war? There are ways to do that, but we need a lot of creative thought in our country, I think, about how to buffer a competitive relationship, how to put a firewall between competition and adversarial relationships. We have to do that together with the Chinese.

We don’t have the mechanisms, for example, in conflict de-escalation or accident management, if our ships or our planes encounter each other in an accident that we had with the Soviet Union. There’s a lot of work to be done, but I credit the Trump administration actually with changing the narrative, speaking the truth, and telling the American people … Vice President Pence’s speech, I thought, was really very good, telling the American people what the nature of this country, China, is and what it means for American interests. Now we have to turn that into a real strategy, right? A speech is not a strategy and I haven’t seen a lot of evidence yet that the Trump administration really has a full strategy.

Brad: Professor, we ask every guest on “Jaw-Jaw” to give us recommendations about books or podcasts they would recommend for people who are interested in learning more about China. Can you give us two or three recommendations of books you think people would be interested in to learn more about this subject?

David: Well, there are a number of good ones coming out all the time. I guess my top-three list would include a recent book published last year, I think 2017, by Carl Minzner entitled End of an Era. It’s about China’s reform program, how it’s come to an end. Second book is Elizabeth Economy’s more recent book, published this year in 2018, called The Third Revolution. It’s the study of China under Xi Jinping. The third book is by my George Washington colleague, Bruce Dickson, called The Dictator’s Dilemma, which also wrestles with the Chinese Communist Party’s strategies for survival. Those three come to mind, but you may wanna take a look at my own book, China’s Future.

Brad: Professor David Shambaugh of the George Washington University, your 2016 book China’s Future is one of the great texts in recent years on the subject, so thank you for being a guest on “Jaw-Jaw” today.

David: My great pleasure. Thank you.

Brad: Thanks for listening to this episode of “Jaw-Jaw.” If you like what you heard, please go to iTunes or your favorite podcast app and rate, review, and subscribe.

Music and Production by Tre Hester