Meeting the China Challenge: We Must Be Bolder

By Roger Garside
Roger Garside
Roger Garside
Roger Garside is a former diplomat, development banker, and capital market development adviser. He twice served in the British Embassy in Beijing and is the author of the highly acclaimed “Coming Alive: China After Mao.”
July 15, 2023Updated: July 18, 2023

Commentary

I finished writing “China Coup: The Great Leap to Freedom” in December 2019, except for a COVID-19 chapter that was added later. What major changes would I make if I were writing the book now?

In the book, I recalled a warning given by U.S. President Richard Nixon in 1967, “The world cannot be safe until China changes,” and I argued that his warning had taken on a new urgency. Since then, Xi Jinping has led the Chinese Communist Party (CCP) in extending its grip over all aspects of society. His readiness to return to the methods and strategies of Mao Zedong has become clearer. The genocide in Xinjiang and the crushing of freedom in Hong Kong have demonstrated the regime’s utter disregard for civilized norms. The threats to use force to seize control of Taiwan have multiplied, and the timescale for doing so has been shortened. The Party’s ambition to dominate the world is more brazen.

At the 20th National Congress of the CCP in November 2022, the real-life men who led my semi-fictional coup d’état against Mr. Xi and started a transition to democracy were removed from power and replaced by people who owe their promotion to Mr. Xi. That Congress reinforced Mr. Xi’s grip on the levers of hard power, the Politburo, the military, and the security apparatus, and appointed him for an unprecedented third term as general secretary of the Party.

In “China Coup,” I wrote, “The challenge now [is] to develop a strategy, combining overt and covert means, to create the conditions in which Xi’s rivals in China would remove him from office and launch a transition to democracy.”

Many readers were astonished and reacted with skepticism; many who read it today react in the same way. Surely Mr. Xi has gone from strength to strength, as China’s economy is set to overtake that of the United States and its military muscle is growing, year by year. How can we hope to do more than accommodate the rise of this nation? Doesn’t prudence dictate peaceful coexistence?

I argued then—and I still argue now—that the totalitarian dictatorship that rules China is doomed and that a transition to democracy and the rule of law will be initiated in the coming years. Three-quarters of “China Coup” is a factual analysis that explains why this will happen; the remaining quarter is semi-fictional and illustrates how it may happen. The men who led my semi-fictional coup have left the scene, but the dynamics that my book identifies as working to undermine the totalitarian rule of the Party have become stronger and more evident since December 2019.

If I were writing the book now, I wouldn’t change the course of future events but argue even more strongly that the liberal democracies must work boldly to help those in China who want political change to achieve it and that the conditions are ripening for success in achieving that goal.

In assessing the true strength and durability of China’s communist regime, we must bear two major truths in mind. First, the regime has great determination and considerable skill in crafting and propagating a unified narrative of its view of the world, which contrasts with the cacophony that prevails in societies where freedom of expression is the norm. Secondly, a Marxist–Leninist polity is well able to concentrate resources on achieving certain goals and is ruthless in using coercion to get its way in some relationships. But look hard at the broader picture, look behind the well-honed narrative, and a very different picture emerges, both domestically and internationally.

The struggle between democracy and autocracy in this century is being waged above all on the economic battlefield, and developments on that front since I finished writing my book in December 2019 don’t favor China.

For years, the International Monetary Fund has been warning that since 2008, China has been misallocating capital on a massive scale (according to Bloomberg, it has reached a world-historical record of 175 percent of gross domestic product), suffering an ever-declining return on investment and piling up a debt mountain of very dangerous proportions. Now, the chickens of misallocated capital and bad debt are coming home to roost.

Before its collapse, the real estate industry accounted for about 30 percent of China’s gross domestic product after considering the whole supply chain and its inputs. Pre-COVID, land sales accounted for 30 to 40 percent of local government income. In 2022, that revenue stream fell by nearly a quarter. Now, according to Julien Garran of MacroStrategy Partnership, in both property development and local government infrastructure spending, Ponzi schemes have become endemic.

Mr. Garran said: “Property developers have sold properties off-plan and raised debt, not to build those properties, but to build the previous round of properties that they had sold off-plan. Local governments, who issue local government funding vehicles to pay for infrastructure spend, and which receive zero returns at best, but pay 4.3 percent interest, have been selling land to generate income to cover the interest. But when land sales dried up last year due to property developer insolvency, local governments created financing vehicles to buy half the land they sold last year, to pay the interest on the vehicles that they had sold previously.”

The collapse of the property sector has had dire consequences not only for local government financing but also for household savings (78 percent of which have been invested in property) and the economy more widely: Unemployment is rising (among urban youths, including graduates, unemployment has reached 20 percent), and far more small businesses are failing than are being created. These problems are hitting a society that has no adequate welfare system.

Deng Xiaoping had the very good sense to realize that if the CCP was to retain its monopoly on power, it had to earn the tolerance of the people by doing an unspoken deal with them: “We allow you to grow rich, and you allow us to rule.” When the people threatened to end that contract in 1989 with one of the largest movements for democracy in world history, the state suppressed the movement with armed force but renewed the contract by enlarging the scope of wealth creation through the largest privatization campaign in world history. To earn and keep the loyalty of the officials who ruled in its name, it structured that privatization in such a way that officials could enrich themselves in the greatest opportunity for corruption in world history.

For decades, those two arms of Party strategy worked well, but no longer. It isn’t just that the economy is now in deep trouble. The respect for managerial competence that was key to maintaining the authority of the Party has been undermined in other ways as well.

The zero-COVID strategy that Mr. Xi boasted would show the world the superiority of China’s political system has shown the reverse. It condemned China to isolation just as the rest of the world, aided by effective vaccines prohibited in China, reopened its borders and returned to business as usual. A combination of popular discontent with the harsh restrictions of COVID-19 controls and the damage they were doing to the economy forced the Party into a sudden, ill-prepared, and ignominious abandonment of it only weeks after Mr. Xi had reaffirmed it.

The strategy of tolerating corruption by officials who retained their loyalty for 30 years is now proving counterproductive. It’s undermining the drive for self-sufficiency in the manufacture of advanced semiconductors. At the highest levels, officials and entrepreneurs supposedly leading the charge have been found guilty of misappropriating huge sums, and throughout the country, regional governments have set up organizations nominally tasked with the pursuit of self-sufficiency but actually to siphon off central government funding for personal gain. Even the simpler task of raising the standard of association football to produce a national world-class team has been mired in corruption.

For three decades, Deng’s strategy of reform and opening gave people hope, some freedom, and new opportunities. Now, regression and closure are alienating the very people upon whose hard work and enterprise wealth creation depends.

It’s not only at home that mistrust and disillusion have replaced trust and hope. The same is true internationally. This was already evident when I was writing in 2019, but events since then have accelerated the process. The world’s most powerful nations have turned from benign partners into hostile opponents. What has caused this?

Three developments stand out. First, the violent suppression of the democracy movement in Hong Kong and the abandonment of the rule of law there in violation of an international treaty, the Sino-British Joint Declaration, which had promised the continuation of “one country, two systems” for 50 years.

Second, the cover-up of COVID-19 in early 2020 showed the world that the regime couldn’t be trusted on a matter of the highest international importance.

Third, Mr. Xi gave Russian President Vladimir Putin the green light to invade Ukraine in 2022. These events came after years in which the theft of intellectual property, the militarization of the South China Sea, the pursuit of power trading in place of free trade, the flouting of the Law on the Sea, and genocide in Xinjiang had gradually led the United States and its allies to the realization that Xi’s regime was deliberately undermining the liberal international order that had been built since World War II.

To these events, the liberal democracies have responded politically, militarily, and, above all, economically. India, Japan, South Korea, Australia, Taiwan, and the Philippines have drawn closer to each other and to the United States in response to the heightened threat from China. At varying speeds and with varying degrees of reluctance, the nations of Europe have followed the lead of the United States and have lost faith in the doctrine of peace through trade.

The recognition that democracies must stop selling to China the technologies to erode their technological lead has been a great step forward and is deeply worrying to Beijing. But we must go further. We must be ready to strike when opportunity offers. The war in Ukraine could create such an opportunity. If Ukraine prevails over Russia on the battlefield, this could doom Mr. Putin and gravely damage the authority of Mr. Xi, whose support for the Russian invasion has been highly controversial among the elite of the Chinese Communist Party. Political instability could create an opportunity to help his domestic enemies.

We must also mobilize the advantage offered by our control of the world’s deepest capital markets and greatest pools of internationally mobile capital. At present, we allow Chinese companies that don’t disclose their full financial information access to our exchanges, and we pour billions of dollars of capital into companies that continually add to China’s military strength. The potential for curtailing access to these assets is a strategic weapon that matches the power of nuclear weapons. We must use it when opportunity offers—or danger threatens.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.