Misreading China

CHINA is such a giant player in the global economy that we must understand how the US-China Contest of the Century for international primacy will evolve.

Westerners, especially Americans, feel so threatened that protectionism, preparations for World War Three and global fragmentation are already on the cards.

Kishore Mahbubani’s pathbreaking 2020 book “Has China Won?” articulates deep misunderstandings between China and the United States, concluding with the paradox that a clash is both inevitable and avoidable.

Last February, the Donald Trump administration, at the prodding of Israel, made a strategic surgical strike on Iran, which has bogged down into another Vietnam War-like swamp of asymmetric attrition.

However powerful America may be, she appears to be taking on four fronts simultaneously: China, the Middle East, Russia/Europe and her own fiscal dilemma of fighting for hegemony using borrowed money.

Financial Times columnist Martin Wolf documents with great insight how “on the eve of the 250th anniversary of her founding, America and the world order it created are in crisis”.

At the heart of America’s quandaries is her unfortunately shallow understanding of China’s complexity and her civilisational mindset, honed from 2,500 years of dealing with both severe internal and external stresses.

China has the oldest surviving bureaucracy in the world, which is too simplistic to be classified as “Stalin-Leninist” or inflexible centralised decision-making.

My own experience in working with Chinese agencies is that they can achieve something at speed, scale and scope not easily conceivable by Western public services, which cannot normally plan beyond electoral cycles.

On the other hand, some of the institutional reforms that Western bureaucracies achieve, such as a centralised pension system, are delayed due to Chinese divisions of power between central and local governments and fiscal traditions that hamper execution.

Every civilisation has its strengths and weaknesses, but what Chinese civilisation has excelled at, even beyond the Roman Empire, is her ability to survive the worst of natural calamities and external invasions, despite perennial internal institutional decay.

Fund manager Ray Dalio is known for his quantitative and qualitative book on the Changing World Order. Writing in the Financial Times, he says this about the Chinese Tribute System, which “was informed by Confucian values – in particular the idea that order comes from having clearly defined hierarchical roles.

“Relations within it are not between equals, but between superiors and subordinates that recognise their relative positions. The more powerful ones in the hierarchy should treat the less powerful well, and the less powerful should treat the more powerful well, so that there is harmony”.

Whilst it is true that China is informed by Confucian values, what most Westerners don’t get is that since the Han Dynasty, China’s essential values are “outwardly Confucian, inwardly Legalist”, meaning that Chinese policy-thinking has deeply ingrained Legalist or ruthlessly realist strategies framed on action, not theory, whereas it must outwardly conform with a humanist, virtuous, traditionalist Confucian philosophy.

Han Dynasty Grand Chancellor Dong Zhongshu invented this dictum to square the circle between ruthless Legalist methods that created the Qin Empire and the Confucian ethos that preserved family and state harmony and stability.

The tribute system first came to Western experience through the British Macartney Mission to China in 1793, after Britain conquered India and ceded independence to the United States of America.

For Macartney, whether to kowtow (kneel on both knees and knock his head on the floor) was a matter of diplomatic “face”. With limited understanding of the rise of Western technology, Emperor Qian Long (1711 to 1799) compromised with Macartney kneeling as he would to his sovereign, but famously rejected opening trade with Britain.

This incident reflected China’s misreading of Western power, and Britain’s accurate assessment of Qing’s insular weaknesses. By 1839, British steam-powered gunboats thrashed Qing’s obsolete armies in the First Anglo-Chinese War, resulting in the ceding of Hong Kong and a century of humiliation.

Dalio’s understanding of the Chinese tributary system is another case of misreading the nuances of Chinese statecraft.

American Chinese macro-historian Ray Huang, who actually fought as a Nationalist general in the Second World War and knew the Chinese bureaucratic mindset from his meticulous study of Ming fiscal records, understood that traditional Chinese dynasties lacked the accounting tools, legal infrastructure, and statistical monitoring or feedback systems to manage a massive empire.

Up to the 19th century, Chinese fiscal revenue was around 10% of gross domestic product, so she could not afford large standing armies to prevent constant invasions or harassment from neighbouring nomads or tribes along her long borders. Maintaining a large standing army was not only expensive fiscally, but there was also the risk of a coup d’etat from dissatisfied generals.

Hence, the cheaper option was to maintain a tribute system whereby neighbouring tribes and dignitaries would come regularly to maintain formal relations and pay tribute (courtesy) to the Emperor.

China would then give the visitors sufficient gifts in terms of silk, porcelain or gold and silver and occasionally wed members from the royal household to maintain peace without resorting to arms.

This asymmetric tribute system, therefore, was one of subtle pragmatic diplomacy in which historically weak Chinese dynasties accepted nominal tributes from invading tribes who acknowledged China as “big brother” to save imperial face, but gave large gifts and trade concessions from the Chinese court in exchange for non-aggression. Strong dynasties used the regular tribute meetings to assess border conditions and tweak efforts to maintain peace through divide-and-rule ploys.

In essence, Huang highlights that the tribute system was a loss-making concern, prioritising prestige over reality.

By maintaining the facade of being the “Middle Kingdom” (within the concept of Tianxia), Chinese emperors “gave much and received little” in tributary exchanges with neighbouring powers.

Eventually, by being defensive and protectionist, China’s market and technological evolution was stifled and left her ill-equipped to face the rise of Western industrial powers in the 19th century.

To paraphrase Sunzi, if you misread your enemy and misread yourself, you will lose without knowing why.