China Macro Reporter
1. ‘Who Likes Facebook's Libra Currency? Not the Chinese.’

<tr><td class="bg-holder"><img width="100%" src="" alt="CHINADebate"></td></tr><tr><td class="nl-post"><p class="caption">PIIE</p><p class="excerpt">‘Thus, ironically, after years of benefitting from copying others, China is wringing its hands over an American tech company copying Chinese innovation.’</p><p><strong>&lsquo;As envisioned by Facebook,</strong> Libra is a currency existing in digital format that could be used to make payments or money transfers,&rsquo; writes <a href="" target="_blank">Martin Chorzempa</a>&nbsp;of the Peterson Institute for International Economics (PIIE) in <a href="" target="_blank">&lsquo;Who Likes Facebook's Libra Currency? Not the Chinese.&rsquo;</a></p><ul><li><strong>&lsquo;Pushed out seamlessly</strong> to Facebook&rsquo;s 2.4 billion users, Libra could transform ecommerce and finance overnight.&rsquo;</li></ul><p><strong>&lsquo;China&rsquo;s top fintech companies</strong> have over a billion users accustomed to carrying out commercial and business transactions in what is becoming the world&rsquo;s biggest cashless society.&rsquo;</p><ul><li><strong>&lsquo;Chinese fintech companies</strong> are among the world&rsquo;s most valuable.&rsquo;</li><li><strong>&lsquo;They are already</strong> expanding into the United Kingdom and Southeast Asia.&rsquo;</li><li><strong>&lsquo;With Libra,</strong> Facebook could leapfrog China by pushing out its currency to almost 2.5 times the user base of WeChat or Alipay overnight, with a worldwide reach.&rsquo;</li></ul><p><strong>&lsquo;Facebook&rsquo;s new business&nbsp;</strong><a href="" target="_blank"><strong>strategy</strong></a><strong>&nbsp;</strong>is exactly how WeChat in China became a super app.&rsquo;</p><ul><li><strong>&lsquo;Mark Zuckerberg&nbsp;</strong><a href="" target="_blank">wants to</a> &ldquo;build more ways for people to interact on top of [private messaging], including calls, video chats, groups, stories, businesses, payments, commerce, and ultimately a platform for many other. . .services.&rdquo;&rsquo;</li><li><strong>&lsquo;Thus, ironically,</strong> after years of benefitting from copying others, China is wringing its hands over an American tech company copying Chinese innovation.&rsquo;</li></ul><p><strong>&lsquo;WeChat and Alipay</strong> turned China into a cashless society where people use their apps for everything, while Americans still use billions of checks and carry plastic cards.&rsquo;</p><ul><li><strong>&lsquo;So far, Chinese super apps</strong> have been truly successful only in their protected home market, where Facebook and Google are blocked and foreign payments companies cannot legally operate.&rsquo;</li><li><strong>&lsquo;Outside China,</strong> Ant Financial and WeChat must start from scratch because they lack the users and ecosystems that made them so successful at home.&rsquo;</li><li><strong>&lsquo;American tech is</strong> the opposite. US tech companies have succeeded wildly beyond American shores.&rsquo;</li></ul><p><strong>&lsquo;Facebook&rsquo;s nearly 2.4 billion total users</strong> attest to the company&rsquo;s enormous advantages in data, users, and technology.&rsquo;</p><ul><li><strong>&lsquo;There is no telling</strong> what additional advantages could accrue from its model being successfully applied to finance.&rsquo;</li><li><strong>&lsquo;The Libra project</strong> signals that American big tech&rsquo;s timidity over entering finance is coming to an end.&rsquo;</li></ul><p><strong>&lsquo;Globally Facebook</strong> has the same strengths that Chinese tech had domestically, so China knows Libra could rapidly make Facebook a financial powerhouse.&rsquo;</p><ul><li><strong>&lsquo;That is why Chinese officials</strong> see Libra as an economic and geopolitical threat.&rsquo;</li><li><strong>&lsquo;They have long been unhappy</strong> about the dollar&rsquo;s dominance in the global financial system and are frightened by the prospect of an American company dominating the future world of digital money.&rsquo;</li><li><strong>&lsquo;Former governor Zhou Xiaochuan</strong> of China&rsquo;s central bank, the People&rsquo;s Bank of China (PBOC), who is one of the foremost cheerleaders of fintech in China,&nbsp;framed&nbsp;Libra as indicative of a larger movement to create a &ldquo;currency that's more conducive to globalization.&rdquo;&rsquo;</li></ul><p><strong>&lsquo;Wang Xin,</strong> research bureau director at PBOC, said Libra has lent greater urgency to the central bank&rsquo;s own plans for a&nbsp;<a href="" target="_blank">digital currency</a>, which have been in the works since 2014, in partnership with Ant Financial.&rsquo;</p><ul><li><strong>&lsquo;He&nbsp;</strong><a href="" target="_blank"><strong>noted</strong></a><strong>,</strong>&ldquo;We had an early start&hellip;but lots of work is needed to consolidate our lead,&rdquo; and he lumped Facebook in with the US government, warning that Libra could lead to a world with &ldquo;one boss, the Dollar, America.&rdquo;&rsquo;</li></ul><p><strong>&lsquo;China has the strictest&nbsp;</strong><a href="" target="_blank"><strong>regulation</strong></a><strong>&nbsp;</strong>on cryptocurrencies and initial coin offerings in the world, fearing a loss of control that could be posed by rival currencies to the Chinese renminbi, financial risk from speculation, and evasion of its capital controls.&rsquo;</p><ul><li><strong>&lsquo;But in a striking reversal,</strong> Wang suggested that China may loosen its control to ensure China has a home-grown digital currency that would &ldquo;mainly be used to compete with Libra.&rdquo;&rsquo;</li><li><strong>&lsquo;He seems to be fine with anyone</strong> but the United States or an American company launching a digital currency, suggesting that individual countries could be forced to issue their own or that the International Monetary Fund (IMF) could issue one based on the basket of currencies in the Special Drawing Rights (SDR), which includes the Chinese yuan.&rsquo;</li></ul><p><strong>&lsquo;Another PBOC official,</strong> Payments Department Deputy Director-General Mu Changchun,&nbsp;<a href="" target="_blank">warned rightly&nbsp;</a>that Libra adoption could lead many to dump their national currencies, producing "a deterioration in local people's own economic conditions.&rdquo;&rsquo;</p><ul><li><strong>&lsquo;He said,</strong>&ldquo;We must prevent [currencies like Libra] from becoming monopolies,&rdquo; going as far as suggesting that international institutions will need to &ldquo;control Libra&rsquo;s circulation and monitor currency exchange rates&rdquo; or even &ldquo;lead to the emergence of an international central bank.&rdquo;&rsquo;</li><li><strong>&lsquo;In other words,</strong> China wants Libra bogged down in as many regulatory hurdles as possible, is warning other countries against allowing adoption in their jurisdictions, and if that fails, suggests an international effort to wrest control of Libra from Facebook.&rsquo;</li></ul></td></tr>

2. ‘Does China rule the Fortune 500?’ Pro & Con

<tr><td class="bg-holder"><img width="100%" src=",1080" alt="CHINADebate"></td></tr><tr><td class="nl-post"><p class="caption">Fortune</p><table class="intable"><tr><td class="intable-border"><h5>Fortune 500: &lsquo;It&rsquo;s China&rsquo;s World&rsquo;</h5><p class="excerpt">&lsquo;American companies account for 121 of the world&rsquo;s largest corporations by revenue. Chinese companies account for 129 (including 10 Taiwanese companies).&rsquo;</p><p><strong>&lsquo;For the first time </strong>since the debut of the Global&nbsp;500 in 1990, and arguably for the first time since World War&nbsp;II, a nation other than the U.S. is at the top of the ranks of global big business,&rsquo; according to <strong><em>Fortune </em></strong>in <a href="" target="_blank"><strong>&lsquo;It&rsquo;s China&rsquo;s World.&rsquo;</strong></a></p><ul><li><strong>&lsquo;American companies</strong> account for 121 of the world&rsquo;s largest corporations by revenue.&rsquo;</li><li><strong>&lsquo;Chinese companies</strong> account for 129 (including 10 Taiwanese companies).&rsquo;</li></ul><p><strong>A few</strong> details:</p><ul><li><strong>&lsquo;Chinese companies&rsquo;</strong> revenues account for only 25.6% of the Global 500 total, well behind America's 28.8%.&rsquo;</li><li><strong>&lsquo;The No.&nbsp;1 nationality</strong> among the top&nbsp;50 companies in this year&rsquo;s Global&nbsp;500 is American; among the bottom&nbsp;50, it&rsquo;s Chinese.&rsquo;</li><li><strong>&lsquo;82 of the Chinese firms</strong> in the Global&nbsp;500 are state-owned enterprises - &ldquo;SOEs&rdquo;&mdash; which receive generous subsidies that advantage them over the West&rsquo;s private sector.&rsquo;&nbsp;</li></ul></td></tr></table><table class="intable"><tr><td class="intable-border"><h5>&lsquo;Does China rule the Fortune 500?&rsquo;: Derek Scissors</h5><p class="excerpt">&lsquo;But the list reveals more weakness than strength, unless you believe that being permanently sheltered from competition constitutes strength.&rsquo;</p><p><strong>&lsquo;The latest list</strong> of the world&rsquo;s largest companies by revenue has 121 American companies on it, and 119 from the People&rsquo;s Republic of China&rsquo; writes AEI&rsquo;s Derek <a href="" target="_blank"><strong>Scissors</strong></a> in <a href="" target="_blank"><strong>&lsquo;Does China Rule the Fortune 500?&rsquo;</strong></a></p><ul><li><strong>&lsquo;Fortune</strong> itself has decided to&nbsp;hype this.&rsquo;</li><li><strong>&lsquo;And it is true</strong> that China is, in fact, large.&rsquo;</li><li><strong>&lsquo;But the list reveals</strong> more weakness than strength, unless you believe that being permanently sheltered from competition constitutes strength.&rsquo;</li></ul><p><strong>&lsquo;It&rsquo;s worth noting</strong> at the outset that disclosures from Chinese companies are not reliable.&rsquo;</p><ul><li><strong>&lsquo;On their own,</strong> Chinese firms make&nbsp;ugly mistakes.&rsquo;</li><li>&lsquo;<strong>Further,</strong> the Communist Party does not like bad news, about&nbsp;its economy or its&nbsp;mainstay enterprises.&rsquo;</li><li><strong>&lsquo;There certainly</strong> are very large Chinese companies, but many of them may not be permitted to report declines in the revenue Fortune measures.&rsquo;</li></ul><p><strong>&lsquo;Tying together</strong> size and lies is ownership.&rsquo;</p><ul><li><strong>&lsquo;While 119 out of 500</strong> is impressive, one out of 100 is not.&rsquo;</li><li><strong>&lsquo;There is one private Chinese firm</strong> in the Fortune 100 by revenue: Pacific Construction Group at 97.&rsquo;</li></ul><p><strong>&lsquo;Ping An reports</strong> itself as &ldquo;non state-owned,&rdquo;&nbsp;which Fortune and many others&nbsp;wrongly treat as private.&rsquo;</p><ul><li><strong>&lsquo;It has foreign investors</strong> but was founded by&nbsp;state-owned China Merchants.&rsquo;</li><li><strong>&lsquo;It was later treated</strong> as a state majority-owned company.&rsquo;</li><li><strong>&lsquo;It was never announced</strong> as privatized and its ownership structure&nbsp;remains opaque.&rsquo;</li><li><strong>&lsquo;Huawei claims</strong> to be private, but telecom is required by law to beabsolutely controlled by the state&nbsp;and the firm has an ownership structure&nbsp;designed to obscure.&rsquo;</li><li><strong>&lsquo;If it is also labeled</strong> as non-state-owned, Chinese participation in the top 100 consists of 20 state-owned enterprises (SOEs) and three &ldquo;other.&rdquo;&rsquo;</li></ul><p><strong>&lsquo;The same issues</strong> occur in the rest of the list and a good estimate is about 100 SOEs in the top 500 and about 20 non-state.&rsquo;</p><ul><li><strong>&lsquo;This should not</strong> be surprising and it renders the Chinese performance not just less impressive, but a sign of low productivity and innovation.&rsquo;</li></ul><p><strong>&lsquo;To illustrate,</strong> Sinopec Group is second globally only to Walmart in revenue.&rsquo;</p><ul><li><strong>&lsquo;Walmart</strong> has some monopoly characteristics but, to maintain its dominant position, has to battle Amazon, smaller competitors, and any other firms which wants to enter.&rsquo;</li><li><strong>&lsquo;In contrast,</strong> Sinopec is&nbsp;guaranteed monopoly rightsin a range of oil and petrochemical activities in southern Chinese provinces.&rsquo;</li></ul><p><strong>&lsquo;Fortune number four</strong> China National Petroleum is guaranteed those rights in northern provinces.&rsquo;</p><ul><li><strong>&lsquo;Number five</strong> State Grid is the northern&nbsp;monopoly power distributor(its southern counterpart is #111).&rsquo;</li><li><strong>&lsquo;The five Chinese banks</strong> in the top 67 are the only ones allowed to engage in certain large-scale business.&rsquo;</li><li><strong>&lsquo;None of the SOEs</strong> in the top 500 can ever fail due to commercial competition.&rsquo;</li></ul><p><strong>&lsquo;If anything,</strong> profits rankings are more disturbing than revenue. China has four entries in the top 10 for total profits, but they are all state banks. There is no good interpretation here.&rsquo;</p><ul><li><strong>&lsquo;One possibility</strong> is that the banks are simply lying, given that&nbsp;we knowtheir reports of&nbsp;non-performing loans&nbsp;are lies.&rsquo;</li><li><strong>&lsquo;Cue outraged</strong> government officials claiming non-performing loans are low.&rsquo;</li><li><strong>&lsquo;But if banks aren&rsquo;t lying,</strong> then they are state instruments profiting at the expense of ordinary depositors and SOE borrowers to the tune of $140 billion just for those four.&rsquo;</li><li><strong>&lsquo;Of course,</strong> this could make sense if there was, say, something&nbsp;fundamentally wrong with state financesthat is never fixed year after year.&rsquo;</li></ul><p><strong>&lsquo;If China matched the</strong> US in private firms, it would have size and productivity.&rsquo;</p><ul><li><strong>&lsquo;As it is,</strong> China has undermined the potential indicated by its size. SOEs and state banks are handed a huge market and&nbsp;effectively told to stay out of trouble.&rsquo;</li><li><strong>&lsquo;Why would they innovate?</strong> Why would productivity be high?&rsquo;</li><li><strong>&lsquo;The huge sum of revenue</strong> at Chinese firms in the Fortune 500 primarily represents waste.&rsquo;</li></ul></td></tr></table></td></tr>

3. ‘China's Private Firms Continue to Struggle’: Nick Lardy

<tr><td class="bg-holder"><img width="100%" src="" alt="CHINADebate"></td></tr><tr><td class="nl-post"><p class="caption">PIIE</p><p class="excerpt">‘Has the access of private firms to credit improved?’ The latest data show that this trend has continued despite pledges by Chinese leadership to support lending to private sector enterprises.’</p><p><strong>&lsquo;The plight of China&rsquo;s private firms,</strong> which produce about two-thirds of China&rsquo;s GDP, has received widespread attention, as private credit to these firms has lagged behind the flow to state-owned enterprises.&rsquo;&nbsp;</p><ul><li><strong>&lsquo;The latest data show</strong> that this trend has continued despite pledges by Chinese leadership to support lending to private sector enterprises.</li></ul><p><strong>&lsquo;Has the access</strong> of private firms to credit improved?&rsquo;</p><ul><li><strong>&lsquo;The latest data show</strong> that this trend has continued despite pledges by Chinese leadership to support lending to private sector enterprises.&rsquo;</li></ul><p><strong>&lsquo;One metric commonly</strong> taken as a proxy for private firm access to credit is bank lending to micro and small enterprises (MSEs).&rsquo;</p><ul><li><strong>&lsquo;But this</strong> measure is flawed.&rsquo;</li><li><strong>&lsquo;For years</strong> in which the central bank has presented bank borrowing by firm size cross-classified by ownership, only about a quarter of new loans to MSEs are to private companies while two-thirds are to state companies.&rsquo;</li></ul><p><strong>&lsquo;A better proxy metric</strong> is lending to &ldquo;people-run&rdquo; (民营) firms, frequently mistranslated as private.&rsquo;</p><ul><li><strong>&lsquo;The People&rsquo;s Bank of China&rsquo;s coverage</strong> of people-run entities includes lending to private, collective, as well as foreign firms, with private accounting for about two-thirds of the total.&rsquo;</li><li><strong>&lsquo;On this metric,</strong> the flow of loans to private firms continues to lag.&rsquo;</li><li><strong>&lsquo;Loans to people-run firms</strong> in the first quarter of 2019 rose only 6.7 percent, according to a&nbsp;<a href="" target="_blank">statement by central bank deputy governor Chen Yulu</a>.&rsquo;</li><li><strong>&lsquo;This is half</strong> the 13.7 percent pace of growth of overall bank lending.&rsquo;</li></ul><p><strong>&lsquo;The flow of bank credit</strong> to private firms collapsed after 2013, shortly after President Xi Jinping came to power (see figure above).&rsquo;</p><p><strong>&lsquo;Private firms</strong> partially compensated by turning to shadow banks.&rsquo;</p><ul><li><strong>&lsquo;But starting in 2017, </strong>China&rsquo;s deleveraging campaign reduced lending by these less well-regulated institutions.&rsquo;</li><li><strong>&lsquo;Consequently,</strong> the growth of private firms has slowed relative to state firms, dampening China&rsquo;s growth.&rsquo;</li></ul><p><strong>&lsquo;And as shadow banks </strong>called in their loans, many private listed companies were left with no choice but to sell shares, in many cases to better financed state firms.&rsquo;</p><ul><li><strong>&lsquo;In the process,</strong> some private firms were nationalized as state entities became majority owners.&rsquo;</li><li><strong>&lsquo;And large numbers</strong> of non-listed private firms exited, many through bankruptcy.&rsquo;</li></ul></td></tr>

4. ‘Does China’s “Invisible Hand” Steer Funds to State-Owned Firms?’

<tr><td class="bg-holder"><img width="100%" src="" alt="CHINADebate"></td></tr><tr><td class="nl-post"><p class="caption">CFR</p><p class="excerpt">‘This finding is powerful evidence that the government is guiding banks to lend to SOEs on much more favorable terms.’</p><p><strong>&ldquo;Market outcomes,&rdquo;</strong>&nbsp;U.S. Trade Representative Robert Lighthizer told Congress in February, must &ldquo;determine winners&rdquo; in China,' write <em>&nbsp;</em><a href="" target="_blank">Benn Steil</a><em>&nbsp;and&nbsp;</em><a href="" target="_blank">Benjamin Della Rocca</a> of the Council on Foreign Relations in&nbsp;<a href="" target="_blank">&lsquo;<strong>Does China&rsquo;s &ldquo;Invisible Hand&rdquo; Steer Funds to State-Owned Firms?&rsquo;</strong></a></p><ul><li><strong>&lsquo;It can no longer</strong> be &ldquo;state capitalism.&rdquo; As a precondition&nbsp;for any trade deal, Lighthizer insists that China halt aid to state-owned enterprises (SOEs), a practice that disadvantages both domestic and foreign private competitors.&rsquo;</li></ul><p><strong>&lsquo;China, however,</strong>&nbsp;while acknowledging that it subsidizes companies in strategic industries, insists that it does not favor state-owned firms over private ones.&rsquo;</p><ul><li><strong>&lsquo;&ldquo;We have no special institutional arrangements,&rdquo;</strong> said a government spokesperson last month, &ldquo;for additional subsidies to state-owned enterprises.&rdquo;&rsquo;</li></ul><p><strong>&lsquo;</strong><strong>This carefully hedged statement</strong>&nbsp;may be valid, insofar as one cannot find laws or regulations defining &ldquo;special institutional arrangements&rdquo; for SOEs.&rsquo;</p><ul><li><strong>&lsquo;But it does not preclude</strong>&ldquo;invisible hand&rdquo; interventions on their behalf.&rsquo;</li><li><strong>&lsquo;We therefore</strong> set out to see if these exist, in terms of preferential financing arrangements.&rsquo;</li></ul><p><strong>&lsquo;In a competitive market,</strong>&nbsp;it is axiomatic that more profitable firms pay lower borrowing rates than less profitable ones.&rsquo;</p><ul><li><strong>&lsquo;Greater profitability</strong> means lower risk of insolvency.&rsquo;</li></ul><p><strong>&lsquo;But what about in China</strong>&mdash;does this relationship hold there?&rsquo;</p><ul><li><strong>&lsquo;The blue bars</strong> in the figure above show that private firms in China are vastly more profitable than state-owned ones.&rsquo;</li><li><strong>&lsquo;We would therefore</strong> expect them to pay commensurately lower interest rates on loans.&rsquo;</li><li><strong>&lsquo;Yet the red bars</strong> show this is not the case: private and state-owned firms pay almost identical interest as a percentage of their liabilities.&rsquo;</li></ul><p><strong>&lsquo;This finding</strong>&nbsp;is powerful evidence that the government is guiding banks to lend to SOEs on much more favorable terms.&rsquo;</p><ul><li><strong>&lsquo;In short,</strong> Lighthizer is right that China offers an un-level playing field for private and state-owned firms, to the detriment of U.S. companies operating, or wishing to operate, in the country.&rsquo;</li></ul><ul><li><strong>&lsquo;The challenge</strong>&nbsp;he faces is in eliminating a subsidy whose existence can only be seen in data studies like ours.&rsquo;</li></ul></td>

5. ‘Party Loyalty in China Helps Private Companies Get Cheaper Loans’

<tr><td class="bg-holder"><img width="100%" src="" alt="CHINADebate"></td></tr><tr><td class="nl-post"><p class="caption">Bloomberg</p><p class="excerpt">‘A new government program offers low-interest “red loans” to firms supporting Xi Jinping and Chinese Communist Party’</p><p><strong>&lsquo;President Xi Jinping</strong>&nbsp;has overseen a resurgence of party influence in China over everything from corporate boards to houses of worship,&rsquo; says <em>Bloomberg</em> in <a href="" target="_blank"><strong>&lsquo;Party Loyalty in China Helps Private Companies Get Cheaper Loans.&rsquo;</strong></a></p><ul><li><strong>&lsquo;He has famously</strong> used a phrase from Mao Zedong: &ldquo;East, west, north, and center&mdash;the party leads everything.&rdquo;</li><li><strong>&lsquo;Nowadays it appears</strong> China&rsquo;s Communist Party even controls which private companies get bank loans.&rsquo;</li></ul><p><strong>&lsquo;To accumulate political capital,</strong>&nbsp;Qiu Rongquan, chairman of Zhejiang Taida Miniature Electrical Machinery Co., began making a concerted effort to promote the party at work about four to five years ago.&rsquo;</p><ul><li><strong>&lsquo;&ldquo;The party-building work has paid off,&rdquo;</strong> Qiu says. &ldquo;We have got the government support. It means a lot.&rdquo;&rsquo;</li><li><strong>&lsquo;The company was granted</strong> a so-called &ldquo;red loan&rdquo; under a new local government program that rewards successful companies that promote the party.&rsquo;</li><li><strong>&lsquo;Taida pays</strong> the benchmark interest rate of 4.35 percent on its 3 million-yuan ($445,500) loan.&rsquo;</li><li><strong>&lsquo;Usually,</strong> it would have paid 20 percent to 30 percent more.&rsquo;</li></ul><p><strong>&lsquo;Red loans</strong>&nbsp;are now available in an area with a population of 14 million&mdash;more than Hong Kong and Singapore combined.'</p><ul><li><strong>&lsquo;The size of loans</strong> and their interest rates are based on an index that quantifies an organization&rsquo;s party loyalty, the local government says.&rsquo;</li><li><strong>&lsquo;The criteria for scoring high</strong> on the index include participating in study groups, donating a portion of income to the party, and wearing pins with the party flag during business hours.&rsquo;</li><li><strong>&lsquo;Taizhou businesses scoring</strong> at least four stars out of five qualify for loans of 500,000 yuan to 10 million yuan.&rsquo;</li></ul><p><strong>&ldquo;If you move toward a system</strong>&nbsp;where the most loyal party supporters get more money from the financial system, the outcome is not likely to be very good, either in terms of supporting economic growth or maintaining the health of the overall financial system,&rdquo; says Nicholas Lardy of the Peterson Institute for International Economics.&rsquo;</p><ul><li><strong>&ldquo;Foreigners don&rsquo;t understand</strong> us Chinese people,&rdquo; says Taida&rsquo;s Qiu. &ldquo;They think companies are not related to the government. But in China, businesses are always related to the government.&rdquo;&rsquo;</li></ul></td></tr>

6. 'Why the United States doesn’t need to return to a gentler China policy'

<tr><td class="bg-holder"><img width="100%" src="" alt="CHINADebate"></td></tr><tr><td class="nl-post"><p class="caption">Washington Post</p><p class="excerpt">‘The main fruit of a generally cooperative policy from Washington, at least during the Obama years, has been an emboldened China eager to reach for more.’</p><p><strong>A few weeks ago</strong> I reprinted <a href="" target="_blank"><strong>&lsquo;China is not an enemy,&rsquo;</strong></a> a letter signed by, at last count, more than 150 leaders from business, academia, diplomacy, and the military and addressed to the President and members of Congress. It was published in the <em>Washington Post</em>.</p><ul><li><strong>The letter</strong> generated commentary for and against and in between.</li><li><strong>Below</strong> is an especially thoughtful response from <a href=""><strong>John Pomfret</strong></a>, <a href="" target="_blank">&lsquo;<strong>Why the United States doesn&rsquo;t need to return to a gentler China policy</strong></a><strong>, </strong>also in WAPO.</li></ul><p><strong>&lsquo;Near the end of the Vietnam War,</strong> American historian Barbara Tuchman came up with a theory on how the United States got into the ill-starred conflict&rsquo;:</p><ul><li><strong>&lsquo;It was,</strong> she said, because of a failure to cultivate Chinese leader Mao Zedong in the 1940s.&rsquo;</li><li><strong>&lsquo;Tuchman&rsquo;s supposition, </strong>which she spelled out in an&nbsp;<a href="" target="_blank">essay in Foreign Affairs</a> in October 1972, argued that had the U.S. government seized the opportunity to befriend Mao during World War II, it could have mellowed Mao&rsquo;s radicalism and averted the Vietnam and Korean wars.&rsquo;</li><li><strong>&lsquo;Never mind that Mao</strong> was an avowed Marxist-Leninist who idolized Joseph Stalin. Tuchman viewed the Chinese Communists almost as if they were a whiteboard upon which Americans could map out China&rsquo;s future.&rsquo;</li></ul><p><strong>&lsquo;</strong><a href="" target="_blank"><strong>Subsequent work</strong></a><strong>&nbsp;</strong>by Chinese and Western historians has debunked the theory.&rsquo;</p><ul><li><strong>&lsquo;But the impulse</strong> behind it remains relevant today because it is indicative of something else: a profoundly paternalistic strain in the U.S. view of China.&rsquo;</li></ul><p><strong>&lsquo;I was reminded</strong> of this story last week when I read the&nbsp;<a href="" target="_blank">open letter</a>&nbsp;signed by scores of prominent experts on China.&rsquo;</p><ul><li><strong>&lsquo;Like Tuchman,</strong> they deny agency to the Chinese Communist Party by placing the bulk of the blame for the current crisis in U.S.-China relations at the feet of the Trump administration.&rsquo;</li><li><strong>&lsquo;The letter nods</strong> to China&rsquo;s misbehavior but focuses far more attention on what it calls the "many U.S. actions&rdquo; that &ldquo;are contributing directly to the downward spiral in relations.&rdquo;&rsquo;</li></ul><p><strong>&lsquo;To be sure,</strong> it&rsquo;s easy to criticize the Trump administration when it comes to China.&rsquo;&nbsp;</p><ul><li><strong>&lsquo;</strong><a href="" target="_blank"><strong>Pulling the United States out of the Trans-Pacific Partnership&nbsp;</strong></a>weakened U.S. leverage over China.&rsquo;&nbsp;</li><li><strong>&lsquo;</strong><a href="" target="_blank"><strong>Tariffs</strong></a> are on one day and off the next.&rsquo;</li><li><strong>&lsquo;And the failure</strong> of federal agencies to make their case to the public has sparked&nbsp;<a href="" target="_blank">fears</a> that Chinese Americans are going to be racially profiled as U.S. law enforcement cracks down on espionage.&rsquo;</li></ul><p><strong>&lsquo;But to blame the president for</strong> the current crisis with Beijing is redolent of an old view of China that has been around since the days of Christian missionaries.&rsquo;</p><ul><li><strong>&lsquo;Treat China as an enemy,</strong> the tired chestnut goes, and China will become one.&rsquo;</li><li><strong>&lsquo;Treat China as a friend,</strong> and China will become a friend.&rsquo;</li></ul><p><strong>&lsquo;It&rsquo;s as if China</strong> has no role to play in this drama whatsoever.&rsquo;</p><ul><li><strong>&lsquo;Can&rsquo;t we bury</strong> that notion once and for all?&rsquo;</li></ul><p><strong>&lsquo;The CCP is far more responsible</strong> for what happens in China &mdash; and for the current crisis with the United States &mdash; than any American.&rsquo;</p><ul><li><strong>&lsquo;Since the financial crisis of 2008</strong> and the rise of President Xi Jinping, China has stopped&nbsp;<a href="" target="_blank">market-oriented economic reforms</a>, launched a massive crackdown that has resulted in the incarceration of&nbsp;<a href="" target="_blank">more than 1 million Uighurs</a> in Xinjiang,&nbsp;<a href="" target="_blank">ramped up</a>&nbsp;efforts to steal Western technology,&nbsp;<a href="" target="_blank">broken a promise</a>&nbsp;made to a U.S. president not to militarize the South China Sea and tried to export&nbsp;<a href="" target="_blank">its system</a>&rsquo;</li><li><strong>&lsquo;It has squeezed aspirations for democracy </strong>in&nbsp;<a href="" target="_blank">Hong Kong</a> and launched a campaign to undermine the democratic system in&nbsp;&rsquo;</li></ul><p><strong>&lsquo;The main fruit</strong> of a generally cooperative policy from Washington, at least during the Obama years, has been an emboldened China eager to reach for more.&rsquo;</p><ul><li><strong>&lsquo;Last week&rsquo;s letter</strong> continues in this wrongheaded vein by repurposing the tired trope that we should tailor our China policy to support &ldquo;Chinese leaders who want China to play a constructive role in world affairs.&rdquo;&rsquo;</li><li><strong>&lsquo;But all the evidence</strong> I have seen from living in China for nearly 20 years indicates that there are no such &ldquo;Chinese leaders&rdquo; waiting in the wings. Xi has&nbsp;<a href="" target="_blank">purged</a> many of them, and others &mdash; reading the tea leaves &mdash; have changed their tune.&rsquo;</li></ul><p><strong>&lsquo;At root, the letter</strong> seems to misunderstand the nature of power in a Marxist-Leninist system such as China&rsquo;s.&rsquo;</p><ul><li><strong>&lsquo;Many in the American China-watching community</strong> have what former assistant secretary of state for East Asian affairs Kurt Campbell has called a &ldquo;<a href="" target="_blank">romantic</a>&rdquo; attachment to China.&rsquo;</li><li><strong>&lsquo;They want to be friendly toward China</strong> and, in truth, there are millions of everyday Chinese people who feel the same way.&rsquo;</li></ul><p><strong>&lsquo;What many of these experts fail to grasp</strong> is that the people who run the Chinese Communist Party are of a different ilk.&rsquo;</p><ul><li><strong>&lsquo;&ldquo;These guys think</strong> and go to school on power on a regular basis,&rdquo; Campbell noted in a&nbsp;<a href="" target="_blank">wide-ranging interview</a> last year on the <em>Sinica Podcast</em>.&rsquo;</li><li><strong>&lsquo;Campbell </strong>also had another observation that was unusual for a former official in a Democratic administration: &ldquo;President Trump has basically received and gotten more Chinese leverage,&rdquo; he said, &ldquo;&hellip; by this brutal approach than we got by treating China as a partner and with deep respect.&rdquo;&rsquo;</li></ul><p><strong>&lsquo;Indeed,</strong> when Trump bellows about China, as he has over and over, he doesn&rsquo;t blame his &ldquo;<a href="" target="_blank">good friend</a>&rdquo; Xi or previous Chinese leaders for stealing our lunch.&rsquo;</p><ul><li><strong>&lsquo;He blames</strong> past U.S. administrations for allowing it to happen &mdash; and he is talking about the very people who signed this letter.&rsquo;</li></ul><p><strong>&lsquo;As is often the case,</strong> China&rsquo;s reaction to these types of proposals is telling.&rsquo;</p><ul><li><strong>&lsquo;China&rsquo;s state-run media lauded</strong> the open letter and cherry-picked some quotes. A spokesman for China&rsquo;s foreign ministry&nbsp;<a href="" target="_blank">called</a> it &ldquo;rational <strong>and objective.&rdquo;&rsquo; </strong></li><li><strong>&lsquo;The <em>China Daily&nbsp;</em></strong><a href="" target="_blank">praised</a> it, and it even made the nightly national&nbsp;<a href="" target="_blank">news</a>.&rsquo;</li></ul><p><strong>&lsquo;It&rsquo;s not clear that Trump</strong> is going to be able to carry out his strategy to introduce reciprocity into U.S. relations with China.&rsquo;</p><ul><li><strong>&lsquo;To accomplish this,</strong> the United States is going to need help and, given Trump&rsquo;s mercurial nature, cooperation with our allies has been scattershot.&rsquo;</li><li><strong>&lsquo;But the Trump administration</strong> is the first one in decades to tell China that the status quo is broken.&rsquo;</li><li><strong>&lsquo;What China watchers</strong> should be doing is building on that insight, and not returning to promises of a kinder, gentler policy that wouldn&rsquo;t have worked in the 1940s and won&rsquo;t work today.&rsquo;</li></ul></td></tr>