This is an excerpt from China’s Economic Arrival: Decoding a Disruptive Rise, a MacroPolo collection of essays published by Palgrave MacMillan in February 2020. Although I wrote this well before the pandemic, this essay remains relevant, if not more so, in light of current uncertainties. It has been lightly edited.
In recent debates about China’s future, there has been a notable tendency toward fatalism. For many observers and commentators, the “new era” of today’s China is the “end of history” in the country: what is now must always and forever be. Such a view, as the Harvard scholar Julian Gewirtz has noted, seems to have been cemented after Xi Jinping’s elimination of presidential term limits in March 2018.
Yet who could have predicted that Deng Xiaoping’s “reform and opening” would follow the 20 years of chaos and violence under Mao Zedong? So too should we remain wary of narratives that extrapolate linearly from the present—especially post-pandemic—as if China’s future is somehow entirely path dependent.
These narratives take hold because too often “China” is used as an abstract idea to win policy fights or to expose America’s own inadequacies. Op-ed pages regularly feature columns about China’s supposed leadership in some arena and how America needs to wake up to the challenge or risk falling behind.
China has become the all-weather “Sputnik moment” that America needs to jolt it out of its complacency and rise to the challenge. But such narratives rarely reflect the complexities of the world’s second-largest economy and most populous country.
The current US-China technology competition exemplifies this dynamic. In the course of just a few years, China suddenly transformed from the tortoise to the hare in the race. The decades-long narrative of a non-democratic China incapable of innovation has been swiftly replaced with that of an authoritarian tech goliath capable of exporting Orwellian techno-dystopia throughout the world.
But neither narrative maps that closely onto reality. China was never “not innovative”—it had developed a nuclear bomb largely on its own in 1964, three years after the Great Famine ended—nor is it now an unstoppable juggernaut in every technological sphere. China has focused on catch-up and “me too” technologies for many decades, pouring state capital into developing talent, infrastructure, and research and development.
Much investment was wasted, but much met with success. None of it took place overnight, however. While China is now competitive across several technology domains, it hasn’t reinvented the future either. Instead Beijing has busied itself with deploying the present.
This convergence with current technological advancements can be seen in areas such as 5G. Mobile network technology has been incubating for decades in Western economies, and China’s main advantage is in the deployment and scaling of such technology, which would allow its standards to gain global market share. For US companies, it comes down to a matter of neglecting to invest in 5G, having focused on the previous 3G and 4G standards. Now, there is no major American 5G equipment vendor.
A similar situation unfolded with artificial intelligence (AI)—widely considered as another front in the contest for technological supremacy. AI is an old technology pioneered in America decades ago. Yet it was China that made AI a national priority, pouring resources into the academic talent and technical capabilities needed to make AI applications a practical reality. Now that computing power, semiconductors, and data have caught up, China has the AI specialists and data scientists who can implement these technologies, whether it is in the private or public sector.
These nuances matter, because US-China competition is not a blunt head-to-head race, but rather a complex competitive dynamic in which both countries have strengths and vulnerabilities.
China’s main advantage continues to be its impressive ability to deploy and scale existing technology. Where America falters is not in its technological leadership, but in its inability to define national priorities and to scale quickly—an area in which the United States once executed with proficiency. Yet instead of devising solutions to drive and nurture American development, Washington has for now largely resorted to trying to slow China down.
That strategy is far from sufficient on its own. And while fundamental technological breakthroughs are rare and unpredictable, they tend to be propelled by outside-the-box thinking, diversity of ideas, and universalizing appeal. China still lags behind the United States on all three fronts. With only a handful of exceptions, Chinese companies have been mainly interested in innovating within its domestic market, having had moderate success so far in globalizing their innovations.
Such gaps between reality and perception are not confined to technology. On the economy, the usual battles between bulls and bears have metastasized into more extreme polarization: China’s economy is either teetering on the edge of collapse or it is a triumph of a state capitalist model that will be exported to developing nations.
But these debates hover at 30,000 feet and miss the trees. Accumulating enormous debt in the decade after the global financial crisis was a major risk for the Chinese economy, but Beijing seemed to have gotten a grip on the problem when it began to deleverage in earnest a few years ago. Policymakers clamped down on the shadow banking system and then moved to gradually dispose of nonperforming loans, all the while tightening the credit spigot to reduce wasteful investments.
Combined, these efforts were meant to force a reset from the countercyclical stimulus that served as the default position of Chinese economic policymaking. Beijing pumped credit into the system, got immediate growth, and accumulated waste—rinse and repeat. A reckoning had to come at some point, and it arrived in the Xi administration, which has proven to be far more tolerant of austerity than was anticipated.
In fact, most of Xi’s major priorities—from the anticorruption campaign that began under his tenure to the environmental crackdown and regulatory screws imposed on the financial system—have not been conducive to near-term growth. Whether it is corruption in the political system or the economy, this is an administration intent on mopping up the excesses.
This new environment required a psychological adjustment as well, namely a downplaying of the headline GDP growth target that has been central to Chinese economic policy for decades. The Xi administration has gradually watered down its political importance, particularly after its adoption of a new “principal contradiction” in 2018 that laid the groundwork for a post-growth development platform.
As a result, some provinces have abandoned the target altogether. And Beijing just officially abandoned its 2020 GDP target at the legislature meeting last week. Whether an official target makes it into the 14th Five-Year Plan remains to be seen. That these debates are taking place in the open, however, signifies that the earth under the GDP fixation has already shifted. The profound impact this shift will have on the Chinese growth model over the medium to long term should not be underestimated.
Yet these leading indicators within China have yet to change the conventional wisdom that Beijing has an itchy trigger finger for stimulus. Market observers still wonder when Beijing will supercharge growth again and remain skeptical that the government will let the economy slow for the sake of long-term structural adjustment. If the “GDP obsession” has indeed fallen out of favor, then old frameworks centered around that fixation are no longer so useful.
A tendency to consult old frameworks is unsurprising: to understand the present, we often look to the past. This inclination is particularly pronounced when it comes to the current moment in US-China relations.
Whether present tensions are characterized as a “Cool War” or the “New Cold War,” such historical analogies can be risky when applied haphazardly. That’s because they imply policy responses from a bygone era to deal with new and different challenges.
Instead, this evolving bilateral relationship is often best viewed from the ground up, through institutions, organizations, and companies. For example, the aviation giant Boeing has had a front row seat to forty years of change in China, during which the country transformed from an insular society to an international powerhouse.
The firm had to vie for market share with its European rival and to protect itself from Chinese demands for technology—in short, to adjust and adapt as China evolved. Boeing is only one company, but its experience makes tangible what engagement actually means and what severing ties would entail.
Without internalizing these bottom-up realities, “decoupling” remains an appealing abstraction that ignores potentially significant and counterproductive costs. In other words, the debate on US-China needs more “China”—not a crude and blurred caricature but a sharp and realistic portrait of America’s most formidable competitor.
Untangling that complexity is challenging, and it is tied up with the fact that China’s arrival is indisputably a once-in-a-century disruption—from labor markets to global governance and from commodity prices to climate change.
But that shouldn’t be surprising nor is there anything normative about that disruption. All great power rises have been disruptive—America’s own ascent in the 20th century was far from quiescent. If anything, America was so disruptive that it ended up creating a system from scratch to replace the one that produced two successive, catastrophic world wars.
The global system remains one predicated on economic complementarity and openness: America provided a “default setting”—rules, standards, ideology—from which all countries could borrow and attempt to advance themselves within these parameters.
This “open source code” also fundamentally benefitted American interests, because it was the first time a superpower offered a blueprint for governing the world with principles and rules, not merely through territorial claims and warships. Far from perfect, that system nonetheless defined modernity for an entire century, largely kept the peace, and delivered unprecedented global prosperity.
It lifted all boats, especially that of China. So why would China seek the demise of a system in which it was one of the largest beneficiaries? Moreover, Beijing has little in the way of alternative visions for a Chinese-led global system. But China is clearly dissatisfied with some features of the current system, and with its growing capabilities and influence, it wants to modify those features to better serve its own interests. That too should come as no surprise.
But renegotiating the status quo and reprogramming some of that “code”—especially if a new equilibrium requires America to cede some of its preeminent position—was never going to be easy. And it will likely incur collateral damage, especially when this competition involves two countries that constitute some 40% of the global economy.
What will ultimately determine China’s conduct and behavior, however, will be driven much more by what happens inside the country than by Beijing’s responses to US actions. It isn’t some abstract “Frankenstein” bent on overturning the world or able to outmaneuver America at every turn. But it is an ambitious and challenging country, alternately projecting aspiration and insecurity in a bid to assume a status it feels it deserves.
When President Richard Nixon asked what he thought about the French Revolution, Chinese Premier Zhou Enlai supposedly quipped “it’s too soon to tell.” The impact of China’s arrival, however, is already evident and reverberating in both profound and prosaic ways.
A generation of Americans will have grown up amid a geopolitical reality in which China was always a global power and where a brewing contest between the number one and number two seems a fait accompli. As observers of, and participants in, this tectonic shift, a collective and generational reckoning with these realities will be necessary in determining the future. After all, the best kind of history is the one you can take part in shaping.
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