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Why there is no solution to our age of crisis without China

For decades, the West has ignored the significance of China's rise – but we must recognise that it will be instrumental in all our futures

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In the summer of 2021 the Chinese Communist Party (CCP) is marking its centenary. It has much to celebrate. The most powerful communist party and by far the most powerful political organisation in the world, it has presided over the largest surge of economic growth ever witnessed. For both the West and China’s immediate neighbours, this unsettling and unexpected fact defines the early 21st century.

China’s rise has undone any assumption that social and economic progress naturally leads to liberalism. Hundreds of millions of people have been lifted out of poverty in 40 years by an authoritarian one-party regime, dedicated to what it calls “Marxism for the 21st century”.

Against the backdrop of this triumph, the CCP is planning its second century. In Europe, the US and Asia, the political classes are scrambling to keep up. American strategists have designated a newly minted world region, the Indo-Pacific, as the arena for a battle royal between democracy and authoritarianism.

Some influential voices on both sides of the Atlantic relish this confrontation. Others are suffering from a sense of shock. They hanker after the 1990s or early 2000s, when coexistence seemed assured – an era that contemporary hawks dismiss as a period of naivety when the China challenge was underestimated.

Historical perspective does suggest that the era of calm was the exception. After all, the West’s sense of historic pre-eminence rests on what in China is known as a century of humiliation. Reversing China’s decline has been an ongoing struggle for more than a hundred years, a struggle that has involved commerce, communication, creativity and exchange. It has also involved violence, sometimes on an epic scale, both within China and in battles with foreign powers.

Analysts talk darkly about the “Thucydides trap” – the ancient historian saw war with Sparta as an inevitable consequence of Athens’s growing power – and cite the clash between imperial Germany and the British empire in 1914 as an analogue. This trivialises the significance of China’s modern ascent. By leaping from the distant past to the near future, it also elides the fact that China’s history since the 19th century can be written as series of clashes in which efforts to modernise China were thwarted by domestic opposition or violent intervention from abroad. We need a longer history than one that only goes back as far as Xi Jinping’s rise to power in 2012, or the Western financial crisis of 2008, to understand where we currently find ourselves.

[See also: China's Covid cover-up?]

In his classic book Imperialism (1902), the economist JA Hobson mapped different futures for the 20th century depending on the trajectory of China’s history. Whether China was broken up, subordinated to a foreign power or asserted itself as a nation state, the Middle Kingdom would shape the future. Hobson’s insights were forgotten in the West over the course of the 20th century. But his observation is what confronts us today.

In 1902, the Qing dynasty was decrepit. China’s once-mighty economy was overshadowed by the Industrial Revolution in the West. The First Opium War with Britain between 1839 and 1842; the 14 year Taiping Rebellion, which began in 1850; and the Second Opium War with Britain and France between 1856 and 1860 fatally weakened the empire and enabled European powers to establish spheres of influence around coastal enclaves. China was then defeated again in the 1894-95 Sino-Japanese war. The Boxer Rebellion of 1899-1900 brought on the further indignity of an eight-nation imperialist intervention to repress it.

Emerging as a world power, the US favoured keeping China intact but neutralising it. Washington’s “Open Door policy”, promulgated in September 1899, aimed to ensure equal access to China for all foreign investors and traders – not equal rights for Chinese – and was embodied by the Chinese Maritime Customs Service, which was run by foreigners to ensure repayment of foreign debts.

This devastating sequence of events was humiliating to China, but it also confirmed Hobson’s point: all the major world powers were in China because they believed they needed to be.

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Although China became a global battlefield, its political class were not passive victims. As with other empires in crisis – Russia in 1905, Iran in 1906, the Ottoman empire in 1908 – China’s elites tried to preserve national autonomy through domestic modernisation.

The reformers of the late-imperial era; the revolutionaries of 1911, who overthrew the Qing dynasty and established the Republic of China; the nationalists of the Kuomintang (KMT) founded by Sun Yat-sen at the end of the 19th century; and even the warlords who divided the country after 1916: all of them sought to shape a national future. Self-strengthening though economic development, military modernisation and cultural reform was their aim.

In 1917, China entered the First World War as part of the Allied coalition, only to suffer more humiliation at Versailles when the former German concession in Shandong was given to Japan. The wave of nationalist protest that followed – the May Fourth Movement of 1919 – supercharged the development of popular Chinese politics. It also opened new opportunities for outside influence. Revolutionary Russia and Germany’s Weimar Republic gained an advantage over their former rivals by recognising the Chinese Republic as a sovereign state. As outsiders to the Versailles order they had nothing to lose. It was in keeping with this policy that Moscow sponsored the formation of the CCP in July 1921.

Along with Soviet advisers, the CCP supported the nationalist project of reunifying China through conquest that began in 1926. Allying themselves with the Kuomintang, now led by Chiang Kai-shek, was a high-risk strategy for the communists. In 1927, it backfired. As CCP and KMT fighters entered Shanghai and confronted the European imperial powers, the KMT turned on the communists, massacring party members and driving them into the interior, where by the 1930s they established their revolutionary bases, most famously at Yan’an in the remote northern province of Shaanxi.

Britain and the United States accommodated themselves with the nationalist regime in its capital of Nanjing, and provided financial and military support to Chiang Kai-shek during the Second World War. But for Japan, the other major imperial power, the prospect of China’s national consolidation was ominous.

After seizing Manchuria in 1932, in 1937 Japan launched a full-scale invasion south of the Great Wall. The communists had no more than a bit part in the war with Japan, biding their time in the most remote mountainous regions. The wider damage to China in its war with Japan beggars belief. If the Soviet Union suffered between 20 and 27 million casualties during the Second World War, China’s death toll ran to somewhere between 15 and 20 million.

[See also: How the Chinese Communist Party’s foundation determines Xi Jinping’s leadership today]

War and politics dominated China’s history in the first half of the 20th century. But it was clear that without economic development it would never chart an independent course. With the Soviet Union struggling to establish itself, the prevalent models among Chinese modernisers were state-socialist ideas borrowed from Germany and Japan. China’s high-speed rail network of today was prefigured by Sun Yat-sen’s first development plans for a new nation.

China’s first central bank was founded in 1928. In the 1930s the nationalist regime consolidated the currency and in 1936 announced an ambitious three-year industrialisation plan. In 1940, even in the midst of the war with Japan, Chiang Kai-shek launched major infrastructure works. He had no choice. Without roads, railways, electricity supply and steel mills, China could not hope to withstand the Japanese onslaught.

In the 1940s, these visions were stillborn. China was too poor and fragile to combine heavy investment with the demands of total war. The final round of the civil war ­between nationalist and communist forces – a struggle that consumed millions more lives between 1946 and 1949 – was fought amid hyperinflation greater than that in ­Weimar Germany.

The communists took control of a society seemingly mired in poverty. For all the humiliations China suffered in the 19th century, it was after 1945 that the gap between China and the economies of the West widened. This was the moment at which the notion of the “third world” was coined, when Europe’s empires fell and the globe was divided into a hierarchy of national economic development.

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As a communist country, China was second-world, but third-world revolution was its métier. For Mao Zedong, who led the CCP from 1935, an “intermediate zone” of countries between the US and Soviet superpowers – in Africa, Asia (excluding Japan) and Latin America – would compose a revolutionary force against imperialism. From the mid-1950s, international aid from China flowed to developing countries on a scale to rival, in proportional terms, the CCP’s One Belt One Road infrastructure initiative of today. China’s influence in Africa, for example, did not start in the 2010s. In the 1960s, Chinese engineers were already competing with those from the US to build railways in East Africa.

At home, the CCP was divided over economic policy. Impelled by the struggle with the US and its allies in the Korean War between 1950 and 1953, Beijing embarked on Soviet-style forced industrialisation. But the centrally planned model had powerful enemies. Mao himself despised bureaucracy and pushed decentralisation and the activation of the peasant masses. The mania of the Maoist vision twice exploded into open crisis. First, in the Great Leap Forward between 1958 and 1962, when Mao sought to accelerate rural collectivisation while decentralising industry to the villages. Then in 1966, when Mao unleashed the Cultural Revolution on the CCP’s own apparatchiks.

Tens of millions paid with their lives. But China never descended into the anti-modernist madness of Pol Pot’s Cambodia. Basic education and healthcare were extended across rural areas. What was at stake in the internal party battles was the future of China’s economic development and the implications this would have for the revolutionary project. By the late 1960s economics as an academic subject was anathematised. The party dismissed its own experts and banished them to the provinces. Veterans such as Chen Yun, who had managed the communists’ war economy in the 1940s and had overseen the stabilisation of the economy after the civil war and the Great Leap Forward, were demoted to the factory floor.

[See also: One year on from China's national security crackdown, Hong Kong is a changed place]

By the early 1970s, China was largely shut off from international trade. Relations were severed not only with the US but also with the Soviet Union and its ally Vietnam. China’s main regional ally was the murderous Khmer Rouge. Japan, meanwhile, was roaring ahead. South Korea, under the developmental dictatorship of Park Chung-hee, was embarrassing China’s satellite state in the north. Hong Kong and Singapore were transforming themselves from colonial outposts into global financial hubs.

Against this backdrop, the regime made the double turn that transformed its fortunes. In 1971, Beijing ended its stand-off with the US, which set the stage for China’s opening towards the outside world. The Cultural Revolution was then ended in October 1976 when the Gang of Four, headed by Mao’s wife, Jiang Qing, were arrested. It was at this point that China embarked on the historic reforms that would transform its economy.

It was not simply a matter of incentives, property rights and prices. The very idea of economic growth had to be rehabilitated. Whereas under Mao priority had always been given to revolutionary consciousness and action, now a more orthodox form of materialism reasserted itself. Under Deng Xiaoping, who became the leader of the People’s Republic of China in 1978, developing the forces of production took absolute priority.

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In the late 1970s and 1980s professional cadres – economists, engineers – that left after the Cultural Revolution began to return to Beijing. A coalition emerged between rehabilitated veterans such as Chen Yun and a new guard of intellectuals who developed close connections to Western economists. Alongside the Hungarian János Kornai and the globe-trotting Milton Friedman, a favoured interlocutor for Chinese reformers was Alec Cairncross, a British Keynesian who made his career in the Ministry of Aircraft Production during the Second World War.

In 1983, the World Bank’s first report on China was both laudatory and prescient. The communist regime, for all the violence of the revolution, had laid the foundations for growth. The World Bank was convinced that China’s “immense wealth of human talent, effort and discipline” would enable it “within a generation or so, to achieve a tremendous increase in the living standards of its people”. As tantalising as the prospects of China’s socialist market economy were, the process of reform was always also a question of power. As Isabella Weber shows in How China Escaped Shock Therapy (2021), Western-inspired reformers such as Wu Jinglian relished the prospect of full-scale overthrow of the communist system. Eastern European activists, including George Soros, envisioned China as a battering ram with which to breach the Soviet fortress.

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On his visits to China, Friedman touted the example of Ludwig Erhard, the father of West Germany’s economic miracle, who, Friedman claimed, had overcome the death-grip of Hitler’s planned economy through currency reform and price liberalisation. The problem was that liberalising prices in the first instance meant raising many of them. Would the CCP’s authority survive the resulting inflation?

The stakes were high. When Soviet president Mikhail Gorbachev visited Beijing in 1989, there were students camped in Tiananmen Square. The protests were a nationwide movement, whose origins went back to 1987 when the economic reforms began to unsettle urban and rural China. The protesters demanded civil rights and democratisation, but also an end to corruption and economic mismanagement. Some in the party glimpsed an opportunity for liberalisation.

 After his visit, Gorbachev presided over the political and economic collapse of the Soviet Union. The CCP, by contrast, cracked down. With the backing of the army, the party restored control. Instead of a crisis-driven course of shock therapy – in which a state-controlled economy is rapidly transformed into a market economy, as in Russia in the early 1990s – in China the hard men of the revolutionary generation, led by Chun Yen, remained in control of economic policy.

The liberalisation of prices would proceed, but at a gradual pace set by the CCP. It is this fateful choice that makes 1989 the pivotal moment for Xi Jinping and other senior members of the current politburo. In their thirties at the time, they were horrified by the collapse of the Soviet Union. Xi and his cohort may be creatures of China’s decades of growth, but for them that growth is indissoluble from the party’s continued power.

[See also: Politics for the end of the world]

There was a price to be paid for the repression of 1989. Relations with the West soured. But at the height of American primacy, the Tiananmen massacre was taken by Washington less as a political statement about the power of the party than as a human rights violation, egregious but transient. The George W Bush administration soon restored most- favoured-nation (MFN) status to Chinese exports and American businesses swarmed to China. In 2001, China joined the World Trade Organisation, the moment that truly inaugurated the era of modern globalisation. China’s factories flooded world markets with cheap manufactured goods. Labour unions in the West protested at unfair competition and China’s rigged exchange rates, but a bipartisan commitment to globalisation among the American and European elite held that opposition in check.

From the late 1990s, hundreds of millions of peasant workers migrated from the countryside to China’s booming cities. Tens of millions of workers were shed from outdated Mao-era, rust-belt heavy industry. Workers’ protests were contained by policing and the introduction of a new system of individualised labour-dispute arbitration and basic welfare provision for those registered as official urban workers. The market governed the price of goods, but Beijing never followed the Washington consensus. It retained its undervalued fixed exchange rate and limitations on the movements of capital. Some Western economists even spoke of a “Bretton Woods 2.0”, by which the global economy would be reformed unilaterally by Beijing.

The significance of that decision became evident between 1997 and 2001 when the rest of East Asia, Russia, Turkey and Argentina were shaken by devastating financial crises. With economic crisis  came political change. In Indonesia, the dictatorship of Suharto fell. In Turkey, following the IMF’s intervention in 2001, Recep Tayyip Erdogan emerged as a popular champion. Vladimir Putin took power in Russia amid the crisis of 1999. Having avoided the lure of shock therapy in the 1980s, this was the CCP’s second great escape. As China’s exports boomed, its national exchange reserves soared. China’s banking system in the 1990s was fragile, but Beijing neutralised the risks by hiving off unpayable debts into bad banks. What emerged were a series of financial giants which in terms of assets are now rated as the three largest banks in the world.

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If the late 20th century saw the take-off of China’s socialist market economy, the first two decades of the 21st century confirmed both its resilience and the relentlessness of its growth. China’s financial system was unaffected by the turmoil of the 2008 financial crisis. Beijing compensated for lost export revenue with a giant stimulus. After 2010, China watched with bewilderment as Europe was reduced to appealing to the IMF for assistance in managing the Greek debt crisis.

It is common to focus on Xi’s emergence in 2012 as the turning point in China’s relations with the West. But in 2009, the incoming Obama administration felt a noticeable stiffening of tone from Beijing. At the Copenhagen climate talks in December 2009 Beijing’s attitude was positively belligerent. It was Hillary Clinton, as US secretary of state, who in 2011 initiated the American pivot to Asia. Joe Biden’s team is full of Obama-Clinton veterans, the most prominent of whom in China affairs is Kurt Campbell. As of July 2021 Campbell still believes that, “China and the US can coexist peacefully… But… this challenge is going to be enormously difficult for this generation and the next.” The era of “engagement” has been replaced by one of “competition”.

Given the heightened rhetoric of the moment, it is worth reminding oneself of what China is not. It is no longer the Mao-era promoter of third-world revolution. It isn’t an oil-rich, religiously sanctioned absolutist monarchy like Saudi Arabia, spawning terrorism and bankrolling repression. It isn’t a nuclear peer state that sends “little green men” to occupy the territory of its neighbour. Nor is it a military hyper-power that dispatches drones to kill its enemies around in the world, engages in wars of choice and destabilises fragile states in pursuit of “responsibility to protect” operations.

[See also: Trapped in the Cold Web]

China is clearly engaged in international espionage. It exercises soft power through its Confucius Institutes and grants. It polices Chinese subjects living abroad. In Tibet, Xinjiang and Hong Kong it rules with an iron fist. China makes expansive claims to territorial waters. It bullies foreign fishing fleets and spars with India over their frontier in the Himalayas. It wants Taiwan brought back under Beijing’s rule. It behaves, in short, like a large, assertive nation state. But no other nation state is, or ever has been, of China’s scale. No other state has ever had its power increase as rapidly as China’s has. There is no regime in the world today led by a party with the CCP’s sense of mission to restore what it believes is its natural dominion over “everything under the heaven”.

For two decades, overconfidence, complacency and myopia made it easy for the West to ignore the significance of China’s rise. In 2018, Larry Summers, a veteran of both the Clinton and Obama administrations, asked: “Can the US imagine a viable global economic system” in which it is no longer the dominant player? Could an American “political leader acknowledge that reality in a way that permits negotiation over what such a world would look like?… Can China be held down without inviting conflict?”

At his first press conference as president, Joe Biden gave his answer: on his watch China would not become “number one”. Meanwhile, in Washington, DC, the security establishment is targeting ever more sophisticated measures at denying China access to key areas of technology, and a small industry of analysts busies itself identifying the weak spots in China’s development model, from failings in its vocational training system to its dwindling demographic advantage and the instabilities of its financial system.

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This analysis is framed in terms of obstacles to China’s ascent, rather than matters of common concern. It ignores the fact that China’s economy is by far the most important driver of global economic growth. Even now, Western investors continue to place their bets on Xi’s China dream. Despite escalating tension, 2021 has so far been a bumper year for foreign investment in China. Apple has added to its supply chain there. The UK’s Chancellor, Rishi Sunak, has declared that the City of London is once more open for business with China.

In November, the UK will host the Cop26 climate negotiations, where all eyes will be on China. Responsible for 28 per cent of global CO2 emissions, it emits more than the entire OECD, the US, Europe, Japan and the rest combined. There is no solution to the climate crisis without huge and expensive commitment from Beijing. Only China has the clout necessary to move the energy exporters of the world, especially Russia, to begin preparing to move beyond oil. Beijing, quite literally, holds the future of the humanity in its hands.

It is unlikely that any power is ever going to be as dominant as the US once was, even the US itself. The basic fact of our world is its multipolarity. The China-sceptics may be right – China may never overtake the US. But whether it does or not is beside the point. If China is the second- or third-largest economy in the world, that is enough to attract America’s suspicion and hostility. That it is large, alien and aspires to full sovereignty is enough. The rhetoric of the US and its allies focuses on Xi’s authoritarianism. They do so with good reason. But for the US, value claims are also always claims to power. As Summers suggested, it is not clear that American politics can digest plurality other than from a position of dominance.

In 2021, 100 years after the foundation of the CCP, the consequences are dramatic. It turns out that if you challenge the pre-eminence of the US and its values, your access to capital markets and technology over which the US holds sway is not secure. It opens a new chapter in the CCP’s history, but what Hobson predicted for the 20th century is even more true for the 21st. Whether you’re for or against, China shapes our ­common future. 

Adam Tooze is the author of “Shutdown: How Covid Shook the World’s Economy”, published by Allen Lane in September

Adam Tooze is the author of “Crashed: How a Decade of Financial Crises Changed the World” (Penguin)

This article appears in the 21 July 2021 issue of the New Statesman, The Chinese century