Disengagement Party?

On February 25 China’s Communist Party Central Committee proposed abolishing term limits on the presidency. Political scientists watching China aren’t shocked that this is on the table, but are struck that it is happening now, so early in his term, and most of all at a time when other nations are at a delicate point in deliberations about where they think China is headed in the future. This move further validates expectations of Chinese divergence with advanced economy norms, just as Liu He, China’s senior economic strategist, arrives in Washington for important consultations. While Liu hopes to talk about getting the relationship back on track, the time could probably be used more productively to discuss how to better manage a period of disengagement – if only just in case.

More Signs of Divergence

Market-oriented democracies are concerned about China’s evolution. Confidence in the mutual benefits of engagement has slipped, questions about reciprocity are mushrooming given that China is not as open as advanced economies to trade and investment, and public debate about influence campaigns is on the rise. These foreign policy challenges are still new for Beijing: a few years ago, these topics were confined to limited audiences; today they are widespread themes. The balance of global thinking about engagement with China is, it is fair to say, at a delicate point.

It is against that background that on February 25 China’s Communist Party Central Committee proposed to exempt the President and Vice President from term limits, thus making it permissible for them to serve indefinitely – for life even. If passed, as will likely happen, this would first apply to President Xi Jinping beyond 2023. Most surprising to us about this move is that it takes place now, at a tipping point-moment of discussion around the world about what kind of great power China will be, with no apparent concern about the repercussions on foreign debate.

At this difficult moment, the Chinese official presumed by business and policy observers to be the most plugged into Beijing’s long-term economic plans – Liu He – is visiting Washington. The Chinese side requested this visit. This is an effort to forestall or moderate anticipated trade actions by the Trump Administration. But in light of rapidly moving political developments in China, it would be a better use of Mr. Liu’s time not to talk about preventing a move away from economic engagement, but rather adaptation to post-engagement norms.

Old Cycle, New Skin

Mr. Liu will have a difficult time convincing America’s China watchers to take a benign view of trends in Beijing, or even a wait and see attitude, for the reason that this cycle has been seen before. Dynastic cycles of centralization of power, then tension between capital and provinces, and then love-hate engagement with foreign economic, intellectual and security forces are typical throughout China’s history. Seasoned China watchers in the US are arguing that US policy has come up short – the argument being that Beijing never intended to pursue the types of liberalizations, political or economic, that Washington sought, and that those who believed in a real reform debate in China were naive. This critique is based on a flawed understanding of China’s history. Political vacillation has been a constant, with China sometimes scrambling to absorb liberal concepts and then suddenly shifting to purge anything outside the nationalistic frame.

While admirers often credit China with staying power, cyclical strength followed by breakdown is the norm. Through history Chinese intellectuals have gone back and forth, some blaming foreign forces for China’s ills, others pointing to China’s nativism as the problem and reaching to non-Chinese ideas, technologies, politics, economics and culture as the solution. The pastime of debating which China is real – the one that wants to engage? or the one that sees inside and outside in zero-sum terms? – is not helpful: both are real. What’s needed is not the right choice, but the wisdom not to choose one or the other when both apply.

For Liu He to be helpful at this juncture, and not just reinforce mistrust about China’s “real intentions” he will need to acknowledge to American officials this duality, and concede that Washington and other foreign capitals are entitled to require transparency with regard to China’s influence abroad, and to protect themselves from the consequences of cycles of political and economic instability. At the same time, he will be right to point out that China’s foreign partners have been massive engines of instability in their own right this past decade.

The reason why Liu cannot, at present, promote a coalition to work past a rough patch toward a common, convergent future in which shared material gains is the glue is that Beijing has been increasingly unguarded in saying it is not open to that convergence. That is a change of heart, though many security hawks outside China think it is not a change, just the true colors, long disguised. It is important to recognize that this is in fact a change, because it means there is not a fixed, eternal Chinese attitude about policies and politics, economics or otherwise.

It is a matter of record that Deng Xiaoping, the leader who crafted the era of engagement with the United States, enshrined a two-term limit for China’s heads of state and hedged Party interference in commercial activity precisely because he knew from experience what dangers could come otherwise. There is whispered debate among Chinese economists and political scientists about what the right future path is for their country. That is normal too, everywhere: consider how caustic disagreement is about future debt and inflation consequences of the Trump Administration’s budget and tax policies.

Hope for the Best, Plan for the Worst

While it is up to China to choose its policy course, it is others’ choice to take steps to avoid collateral damage. Given Beijing’s current resurgence of a Party-led economic policy approach, a change in US attitude is to be expected. Liu He and his American interlocuters should manage this shift in the relationship, rather than pretending that what is already happening is preventable. Trade and investment de-coupling could be done in a managed way, rather than through unilateral threats, protectionist measures, retaliation and escalations to intimidate the other side into concessions. It is possible that neither China nor the advanced economies are willing to work toward a convergent future at this time. If that is the case then it is better to state it plainly rather than beat around the bush.

In much of their economic interaction, China and the advanced economies may be able to avoid severing economic ties. These include activity where there is no technology transfer that confers a strategic advantage, where no vulnerability arises from supply or demand dependence upon the other, and there is full reciprocity. Examples might include textile and apparel trade, non-strategic food-stuffs trade and raw materials trade where there is a diverse global marketplace of buyers and sellers. Assuming reciprocity can be achieved, in investment the majority of two-way FDI flows today could probably continue and even grow, since national security screeners have the ability to parse transaction details if they choose, with reasonable modifications to regimes like CFIUS.

This leaves areas of economic interaction where the US and other advanced economies believe the tide of statism in China necessitates higher seawalls and these should be shared among nations wishing to maintain a shared market-oriented pool. That is to say, from a Western perspective the risks associated with interdependence with China may become too great absent compelling evidence of convergent norms, and thus the important task in the relationship becomes peaceful disentanglement rather than engagement. Soon-to-be Vice Premier Liu and his US counterparts can use their time well by developing a vocabulary to manage this process without either side slipping into talk of quarantine, containment, or other Cold War terms.

Finally, in addition to discussing a positive list of trade and investment where we don’t have anxieties, and a more practical approach than “trade wars” for managing disengagement where one or both sides has objections to interdependence absent convergence, Liu and his counterparts could – if they trust each other – discuss mechanisms for re-engagement down the road. The most principled OECD argument for self-protection is that illiberal politics have historically not delivered economic stability beyond the catch-up phase, and if a China now near $13 trillion in size with a $40 trillion banking sector wobbles it will put its economic partners at risk. But what China and others should ultimately focus on is the outcomes. It may be possible to agree on a shared framework for tracking objectively the trends defined as win-win, be those trade balances, market reciprocity or other outcomes, and to use that framework as a trigger for restarting dialogues and more constructive undertakings.