The behavior of Chinese officials at last weekend’s Asia-Pacific Economic Cooperation summit in Papua New Guinea, reportedly barging into the foreign minister’s office to try to cut mildly critical language on trade from a final communique, seemed intended to signal that China won’t budge an inch on US demands. Commerce Minister Zhong Shan has declared that those who assume Beijing will cave to President Donald Trump’s bullying “don’t know the history and culture of China.” As a matter of fact, they might understand it better than he thinks.

Although Chinese nationalists like to cite the “century of humiliation” China suffered at the hands of marauding imperialists to explain why it’ll hang tough now, the fact is that reform in China has rarely come about in the absence of a challenge from the outside world. At key moments in China’s history, external pressure has been the indispensable impetus to change.

This goes back far before China’s reform period began under Deng Xiaoping four decades ago. Toward the end of the last imperial dynasty in the 19th century, for instance, agitation by Christian missionaries helped liberate women from the practice of foot binding, a landmark in China’s tumultuous passage to modernity. Then, as now, the West was viewed as both a bully and a beacon. Foreign experts helped modernize the customs service. International executives in foreign-run treaty ports introduced contemporary ideas of factory production and accounting.

Deng was obsessively keen to emulate the West’s success, and foreign pressure spurred him on. In the international furor that followed the 1989 Tiananmen Square massacre, when foreign businesses fled China and the West imposed economic sanctions, hard-liners tried to roll back his pro-market reforms. He stepped them up instead, and multinationals soon returned to a roaring economy.

The next big wave of liberalization came ahead of China’s entry to the World Trade Organization in 2001. Then-Premier Zhu Rongji used that event to drive a further round of marketization, artfully raising the specter of foreign competition to make painful adjustments in the face of conservative resistance. Tens of millions of state workers lost their jobs during Zhu’s era.

Even now, US pressure has arguably triggered modest concessions, even if Beijing won’t admit it. For instance, China has made good on promises to lift the cap on foreign investment in automotive factories. It’s also acting friendlier to neighboring trade partners, including archfoe Japan.

The key is China’s quest to be respected as great nation. Much as the Chinese elite may resent foreign lecturing, it pains them to see their country branded a recalcitrant in the eyes of the world.

Foreign pressure is even more critical since those arguing for economic reform in China these days are a beleaguered lot. The Communist Party’s reform wing built the institutions that govern the modern economy by scouring the world for best practices. Its leading members studied management at Harvard, and the hybrid development models they came up with worked miracles for China while sending a reassuring message to the world that the country’s economy was headed in a broadly liberal direction.

Under Chinese President Xi Jinping, this “reform and opening” program has slammed into reverse. Xi’s retrograde policies are driving the middle classes overseas to places such as Canada and Australia. Private businesses are displaying their lack of faith in the future by holding off on investments and, with Mao-era politics again in command, the ultrarich fear expropriation.

Good relations with the US are still important; to the Chinese public, how well their leaders are received in the White House is a marker of their country’s prestige. While these resentments haven’t coalesced into anything remotely resembling a threat to the regime, they could if the economy runs into serious trouble. A property market slide would be the most likely trigger.

All this argues for a concerted international effort to change problematic Chinese economic behavior. While trade tariffs may be the wrong lever -- they’ve done nothing to slow Chinese exports and fail to address more fundamental problems in China’s industrial structure -- Trump’s instincts to push back against Chinese mercantilism are well-grounded. At least some aides around Xi likely hope he’ll listen to a message from foreign voices they don’t dare to deliver themselves.

The danger is twofold: Trump could either take his pressure tactics too far or, alternatively, not far enough. The administration’s overblown rhetoric demonizing China on all fronts, suggesting Washington wants to expand a trade war into a Cold War, threatens to alienate friends and allies and thus undercut the impact of any US actions. At the same time, when they meet at the Group of 20 summit in Argentina next week, Trump could just as easily rush into a weak trade deal with Xi, throwing away whatever leverage the US still has left.

For his part, Xi would do well to heed the advice of the liberal economist Zhang Weiying, a rare voice of dissent in China, who recently called on Chinese leaders to stop touting a supposed “China Model” in a way that “sets China (apart) as a frightening anomaly from the Western perspective, and inevitably leads to confrontation between China and the West.” A return to the era of reform -- and an acknowledgement that Western ideas and technologies helped shape China’s modernity and have a role to play in its future prosperity -- is in China’s own interests. In the meantime, the rest of the world has every incentive to turn up the heat.


Andrew Browne
Andrew Browne is the editorial director of the Bloomberg New Economy Forum. -- Ed.

(Bloomberg)