China, Friend or Foe? Jude Wanniski May 24, 1995

All of a sudden, the news media are reporting that the People’s Republic of China, which has been considered a friendly place hospitable to U.S. investment, may soon turn out to be an unfriendly place. The first notice was a month ago, when Jim Mann, an extremely competent reporter in the Los Angeles Times Washington Bureau, wrote a provocative piece under the page one headline: “U.S. Starting to View China as Potential Enemy.” Mann advised that “For the first time in decades, U.S. military and intelligence officials are beginning to cast a wary eye at China as a possible long-term rival, a future threat to American interests in Asia and the Pacific.” The piece indicated that while defense officials do not now consider China a threat to American interests, for the first time in decades there is official discussion underway of a possible “containment policy.” This is an ominous development in and of itself, as Joseph Nye Jr., an Assistant Secretary of Defense, noted in a recent interview: “If you treat China as an enemy, China will become an enemy. It will become a self-fulfilling prophecy. If you have a policy of containment toward China now, you’ve written off the chance [that China won’t become an enemy].” If Beijing believes the world’s superpower is actively preparing for an adversarial relationship, it of course has no choice but to prepare for that eventuality itself.

In Monday’s New York Times this week, William Safire ran the idea up the escalator in his column “China’s ‘Four Fears,’” practically predicting civil war in China, “which today is showing all signs of being on the brink of a major upheaval.” This upheaval is simmering to a boil as Deng Xiaoping prepares to “meet Marx,” he argues, with the nation’s 1.2 billion people confronting fears of Inflation, Unemployment, Corruption, and Industrialization, the latter leading to “food shortages” as factories subsume farmland. Safire, of course, cut his Cold War teeth at Vice President Richard Nixon’s side during the famous 1958 Moscow “kitchen debate” with Nikita Khrushchev. He remains the unofficial Chief Spokesman for the old Cold Warriors -- the grizzled Minutemen who expect Moscow and Beijing to become global menaces at any moment. This is an “extremism in defense of liberty” group that actively encouraged the dissolution of the Soviet federation on the grounds that a splintered empire would be less of a threat than a USSR which had converted to “market socialism.” 

In yesterday’s Times we get a follow-up analytical piece from Patrick E. Tyler, the paper’s competent Beijing correspondent: “The U.S.-China Slide.” He tells us China’s leaders, who thought they were supposed to be involved in a partnership with Washington, “now suspect that the United States is developing a ‘containment strategy’ against China through a military pact with Japan, weapon sales to Taiwan and the deployment of an anti-missile system in the Pacific that will neutralize China’s strategic arsenal.” Tyler reports that a senior foreign policy expert told him “that when Chinese leaders get together these days, the country they express the most anger toward and dislike for is the United States.” 

Part of this rising tide of resentment is the result of China’s ruling class enjoying the rising tide of prosperity sweeping across the vast nation. The good news is that William Safire’s economics still are as bad as Richard Nixon’s. The “four fears” of which he writes are not those of the masses, who are happily elevating their living standards by leaps and bounds. They are the fears of Safire’s Cold War counterparts in Beijing, who complain about the “excesses of capitalism” the same way liberal Democrats and Hoover Republicans complain about the “excesses of Reaganism.” 

On our side of the ocean, the more realistic anxiety is of a China that knows what it’s doing, and will in another generation have the biggest economy in the world. The 20% inflation that Safire cites as state robbery of citizen savings is merely a one-time adjustment in the general price level that inevitably followed the January 1994 monetary reform -- which merged the domestic currency and the international trade currency. In September 1993, as a guest of the People’s Bank of China in Beijing, I advised them to gradually deflate the international rate to the domestic rate instead of the other way around, on the grounds that internal commerce needed the relief more than international transactors. Instead, the Bank split the difference, inflating the domestic yuan partially and now appreciating the unified currency glacially, but steadily, against the dollar. It’s hard to find fault with this decision on any grounds now that we see it unfold. 

To those who believe it is in our interest to have China fly apart, it is of course terrible news that China is fixing its money. This is the one thing it must do to hold the realm together. To those of us who view economic expansion as a predicate to the expansion of democratic institutions, it’s great news. It is worth noting that Robert L. Bartley, editor of The Wall Street Journal and a China skeptic, has begun to come to this optimistic conclusion. Writing from Beijing on May 17 on the editorial page, Bartley wrote of “The Challenge of Capital Flows,” thoroughly impressed with the wisdom being shown by China in dealing with this challenge. “We have to wish China all success in developing these institutions, since its smooth development would contribute to a successful world economy. And with the shocks of leadership changes, political development and Hong Kong lying ahead, we have to wish China’s leaders all success in using these institutions to manage capital flows successfully.”

There is now in the news the conflict between Washington and Beijing over the visit next month of Taiwan’s President Lee Teng-hui, to speak at his alma mater, Cornell University. Beijing is protesting President Clinton’s decision to allow him in for the event, fearing a slippery slope that will lead the United States to revert to a two-China policy. The move does feed the fears of those in China who worry about a U.S. containment policy, but I’ve explained to my Chinese friends that it is the right thing to do. The 104th Congress was unanimous in voting to permit Lee to speak at his school. There is no infringement of China’s sovereignty. And they know and we know that it is only a matter of time before Taipei and Beijing resolve their differences and become one China again. The more open the discussion, the sooner this will occur. 

At a China conference in Washington in March, James R. Lilley, former ambassador to Beijing, warned against taking the Taiwan issue too seriously: “There’s a great deal of gong-banging, stage-acting and posturing: Both sides trying to use the Americans against the other side -- a very old game. Please don’t get sucked in. The Chinese and Taiwanese are working very, very closely to straighten things out -- when they really put their mind to it. But it’s much more fun for each one to use the Americans to bash the other side. So be careful here.”

It is always good advice to be careful, which is why we can’t fault the Old Cold Warriors for keeping their eyes peeled for signs of revanchism. We don’t see any need for a national debate on a “containment” policy, however, since there’s no need for the squandering of tax dollars to develop self-fulfilling contingency plans to deal with a country of 1.2 billion that wants to be friendly. As carefully as we look, we find fewer Maoists in the Chinese government than we do in Washington.