Thursday, January 5, 2017

Sino American Relations Since Ping-Pong Diplomacy

Published in 2016 annual issue of Diplomatist (India)

On April 6,1971, the 31st World Table Tennis Championship took place in Nagoya, Japan. Today, not many would remember the outcome of the international competition but the world remembers an act of friendship that led to “the week that changed the world.”

When an American player missed his bus after practice and the Chinese players invited him to ride in theirs, the athletes became friends. When this encounter was reported back to Beijing, China’s leader Mao Zedong promptly invited the American team to tour China after Nagoya.

The White House interpreted Mao’s invitation as a clear signal that China was interested in re-establishing relations with the U.S. In response, President Richard Nixon sent Henry Kissinger to Beijing to secretly arrange for Nixon’s visit to China.

Nixon went to China in February of the following year and he wrote that his diplomatic breakthrough with China was the week that changed the world. The encounter that led to his visit became known as Ping-Pong diplomacy. History would remember the event as the beginning of a new bilateral relationship between China and the U.S.

Cynics in the West attributed the entire matter to calculated manipulation by Mao rather than innocent friendship between athletes. Then again, pundits in the West tend to see ulterior motives related to anything that China does.

In reality, officials from China and the U.S. had been maintaining low-level diplomatic contacts for sometime and both sides had reached the conclusion that resuming official diplomatic relations was of mutual interests.

President Nixon felt that it was not realistic to isolate a quarter of the world’s mankind indefinitely and Mao realized that Nixon wanted to get out of the Vietnam quagmire and could use China’s help. Both were interested in forming a united front in face of a common adversary, namely the Soviet Union.

Shanghai Communiqué

At the end of Nixon’s visit in China, the U.S. and the PRC jointly issued the Shanghai Communiqué. In the Communiqué, the U.S. acknowledged that there was only one China and that Taiwan was a part of China. This acknowledgement was absolutely essential to China in order for Nixon’s visit to be considered a success.

The Communiqué has indeed served the bilateral relations well. Every US president since Nixon has pledged to honor the terms contained in the joint agreement. Despite or perhaps because of the latitude for interpretation by the ambiguity in the document, Beijing has been sufficiently reassured by the American pledge.

To the Chinese, the American pledge means that the U.S. will not interfere in the evolving development of the cross-straits relations between Taiwan and the mainland. Washington would add to China’s understanding with “so long as the cross-straits relations proceed peacefully.”

Formal normalization

The next milestone in the U.S. China relations was the formal normalization between the two countries on January 1, 1979. One can see the greatest importance Beijing placed on this agreement for normalization when the People’s Daily splashed the news in the form of a proclamation, printed in a special one-page extra edition in bold red ink. The only previous occasion when such a special edition was published was to announce the detonation of China’s first atomic bomb (and much later when China put a man in space).

Mao died in 1976 and by 1979, Deng Xiao-ping had returned to power and he celebrated the normalization with a grand tour of the U.S. in mid January. Despite his diminutive physical stature, he was a media sensation. Photos of Deng wearing a ten-gallon cowboy hat charmed the American public. What followed after Deng’s visit was a decade long honeymoon in Sino American relations.

While Deng got the bilateral relations off on an up-beat note, he was busy leading the reform of China’s economic policy. Where the central planners used to set the production goals and allocate the resources, now state control was gradually loosened. China went through a transitional phase when it was called a market economy with socialist characteristics. Eventually China dropped any pretense and simply referred theirs as a market economy.

Deng begins reform

During this period, the world came to know Deng by a number of his favorite aphorisms. By “to get rich is glorious,” Deng was recognizing that as market dynamics were allowed to exert their influence on the economy, some individuals would become wealthy before others. He saw that it was inevitable and the country would be better off than when everybody remained equally poor under Mao.

“It doesn’t matter if it’s a white cat or black cat, so long as it catches mice, it is a good cat.” This expression was a salute to pragmatism as Deng decided to move away from total state control to policies that will encourage individual initiative and entrepreneurism.

“Crossing the river while groping for the stones,” reflected the experimental nature of the policy changes that Deng had embarked. Sometimes this meant one small cautious step at a time and measure the impact before taking another. Other times, policy changes were applied to a small region to fully understand the impact before introducing the change on a national scale.

These quotes reflected Deng’s move away from ideology and dogma toward a pragmatic approach that was to stimulate China’s economy and set China on the road of more than three decades of double-digit growth. Deng’s pragmatism meant allowing foreign direct investments to participate in China’s economy, i.e., opening some windows even if it meant letting in some (Western) flies.

Tiananmen resets the relations

The next major marker in the Sino-American relations was June 4, 1989. The previous nightfall and early dawn was when the People’s Liberation Army tanks rolled into Tiananmen Square and dispersed the student protesters gathered there. On the way to the square, some PLA soldiers were assaulted and some bystanders and protesters were shot and killed. To this day, official tally of the casualty is not known.

Ironically, Soviet leader Gorbachev made a state visit to Beijing that May with a large contingent of western media in tow. The media noticed a ragtag group of student protesters in Tiananmen that had been there since April.

The students had been protesting official corruption and unfair and arbitrary job assignment following their graduation. After interacting with the western media, the student protest was energized and turned into a full-blown protest, ostensibly in quest of democracy.

After Gorbachev returned to Moscow, the media stayed behind to follow the student protest that in part they had inadvertently rekindled. Thus in the confrontation that ensued, the western media had front row seats to witness the shootings, the bloodied civilians, the bodies on the street and the world famous image of the lone young man standing in front of a column of tanks.

The world was shocked by the images shown on their TV as transmitted live from Beijing. China was loudly condemned for gross violation of human rights. Some members of the U.S. Congress were particularly vehement and vociferous.

Gorbachev was a mere two years away from presiding the total implosion and disintegration of the Soviet Union. The USSR menace had been fading for some time and therefore so was the importance and relevance of the Sino American alliance to oppose the USSR. Tiananmen marked the end of the long Sino-American honeymoon.

Overseas Chinese invests in China

After the Tiananmen debacle, some of the western companies already in China hesitated or even retreated from China. Deng strived harder than ever to open up China with economic reform. His historic tour of Shenzhen in 1992 as one of the first Special Economic Zones launched the transformation of a sleepy fishing village into an eventual megapolis that was to become more Hong Kong than even Hong Kong.

A popular notion was that the developed countries with advanced economies and technologies came pouring into China in response to the open windows. In reality, for the first decade after Deng’s southern tour, the major influx of foreign direct investments did not come from the West.

The first chunk of FDI came over the border from Hong Kong Chinese industrialists. They were the first to move their manufacturing operations to Shenzhen and surrounding area to take advantage of the lower wages and to enjoy various incentives.

The Taiwan companies were the next wave to follow and move their operations into China. Their lines of businesses, such as electronics, were generally more sophisticated than the Hong Kong products. Both groups of investors enjoyed not only government incentives but also the ability to operate in an environment of a common language and culture.

Often overlooked and not given enough credit, these Hong Kong and Taiwan companies introduced good manufacturing practices into China and helped raise the quality and productivity of the workforce in China. Local Chinese operations were forced to discard the lackadaisical attitudes ingrained by years of state control (popularly known as iron rice bowl mentality) and raise their productivity in order to compete.

By the time western companies entered China in significant numbers to set up their manufacturing plants, the effectiveness of the Chinese workforce already had the benefit of a decade or more learning from the presence of Hong Kong and Taiwan companies.

Beginning of the age of terrorism

When bin Laden’s gang of terrorist attacked New York’s world trade center on September 11, 2001, a lot had already changed in the Sino-American relations.

The neoconservatives in the U.S. saw the collapse of Soviet Union as the opportunity to project American might and move toward world domination as the sole superpower standing. Others in need of a replacement adversary to continue to justify the massive allocation for the national defense budget began to look at China as the most likely candidate.

The idea of American hegemony and a strong military budget often goes hand in hand among policymakers in Washington. They were the same folks that believe a shock and awe blitzkrieg in Iraq would lead to quick celebration of American soldiers as liberators in Baghdad—a horrendous miscalculation that continues to exact a toll in human suffering today.

Thus consistent with a warmongering mentality, politicians from the left and right derived political profit by attacking a demonized China and accusing their opponent of not being tough on China. At every presidential election, aspiring candidates invariably attacked the incumbent for being soft on China.

Once the winning candidate moved into the White House, the newly elected president had to face the reality that the relationship with China was too important to be treated as a throwaway piece in the game of domestic politics.

By 9-11 2001, China’s economy, doubling every 7 years, had become too large to dismiss in the name of politics. Its economy fueled by low cost labor and being export driven complemented perfectly with the U.S. economy driven by conspicuous consumption that needed low cost imports from China.

Economists, not politicians, observed that the two economies were just like Siamese twins joined at the hip. Killing one would be fatal to the other. Some members of Congress, knowing full well that there is no downside to criticizing China, have taken full advantage to pummel China for political points from their constituents.

Thus as the world watched in horror the collapse of the twin towers in lower Manhattan, China’s president Jiang Zemin called George W. Bush at the White House to express his condolences and offer China’s solidarity with the U.S. in the fight against the radical jihadists. Surely, Jiang must have thought that now that the Americans have a real enemy, they can direct their vitriol away from China.

Indeed, in the name of war on terror, Americans marched into Iraq and Afghanistan and now have their hands full dealing with the mess that they created. It was beginning to look like falling into another Vietnam quagmire that will take a long time to extricate. It became more important to get along with China than not.

Financial crisis of 2008

Then came the world financial collapse of 2008. This crisis was caused by the funny money schemes such as credit default swaps and mortgage-backed securities created by the wizards of Wall Street. The crisis caught the world by surprise.

To keep the giant multinational banks that were too big to fail from failing, the U.S. government injected massive amounts of dollars to give the banks enough liquidity to keep their heads above water.

To protect China’s economy from being swamped by the global financial tsunami, Beijing invested heavily in domestic infrastructure projects, such as superhighways, bridges, high-speed rail, ports and airports.

At the end of the crisis, the U.S. government saved its economy and recovered the funds lent to the banks in distress. China got a breathtaking leap in infrastructure improvements that continue to fuel the growth of their economy.

Most damaging of all, the crisis shook Beijing’s faith and confidence in Washington and in the stability of the dollar. To reduce their holdings and exposure to the dollar, China has entered numerous currency swap agreements with many of its trading partners and by-pass having to settle trade transactions in dollars.

Barrack Obama was elected president in 2008 and inherited two hot potatoes. In his eight years, he managed to tame one of them, the financial demon that threatened to sink the U.S. economy and right the ship at home.

On the international front, he was far less successful. Not only did he not end the conflict of Afghanistan and Iraq as pledged in his campaign, Obama’s foreign policy had allowed and even encouraged Islamic terrorism to spread uncontrollably to Syria, Egypt and Libya.

Given the full plate, one would assume that the U.S. would seek to find accommodation with China’s rise, but the opposite has been true. The neocon hawks in Washington has been anticipating, almost gleefully, the inevitable Thucydides Trap between a rising power and the reigning power.

The Trap presaged the collision and conflict between China and the U.S. However, that a rising power and a reigning power must resort to killing each other is very much a western idea based on western experiences tracing back to the days of Athens vs. Sparta. It remains to be seen how far the U.S. can push China into a corner before China gets exasperated enough to become a western state and fight back.

China’s way forward

Partly motivated by not holding vast reserves of US dollars, China’s new leader, Xi Jinping, has been offering a different kind of international relations with his “one belt, one road” initiative along with the formation of the Asia Infrastructure Investment Bank. He is offering to apply China’s experience and expertise in infrastructure projects gained since 2008 to build along the maritime and land silk roads from China to Europe. These projects could be financed by AIIB along with other development banks.

Xi is not going around giving away foreign aid packages. The beneficiary countries would be co-participants and co-investors in the infrastructure projects.  The projects would have to be economically sound with reasonable prospect of payback. Xi believes infrastructure investments will improve the local economy. Eventually the improved economies would be integrated for the benefit of all the economies on the belt or road.

Many countries are already seeing the appeal of being part of Xi’s win-win collaboration. U.K. was the first to ignore Washington’s contrarian advice and rushed to become the first western power to be a founding member of AIIB. When Xi made his state visit to London in late 2015, the British government rolled out the red carpet to make sure that Xi got the message, namely, U.K. considers China’s friendship to be of their highest priority.

The newly elected president Rodrigo Duterte of Philippines seemed to agree with U.K.’s point of view. He has shunned the confrontation on the contested island in the South China Sea favored by his predecessor and signaled a willingness to talk the matter over with China. He too sees value in collaborating with China and being included in the maritime silk route.

Choices for India

For non-aligned nations such as India, there is a choice. On the one hand, India can seek the security that comes with being protected by the military might of Uncle Sam, subject, of course, to Uncle Sam’s whim on whether defending India continues to be in his national interest. Since the U.S. already spends beyond their means for the military, India would be expected to contribute their share of the burden.

America’s reassurance to India on the ties that bind would be based on the fact that both have a democratic form of government. The people of India should be in the excellent position to decide on their own as to how well democracies have worked for them in the past and can function in the future.

On the other hand, India can seek to become an economic partner with China and collaborate on infrastructure development. China will not seek to interfere with how India is governed nor insist on entering into military alliances. India would simply benefit from China’s experience in building and completing giant projects on time and under budget—something democracies are not good at.

Of course, developing relations with China and the U.S. are not mutually exclusive. Keeping friendly relations with both superpowers will simply require skillful diplomacy and bearing in mind that the expectations from the two will be very different.

Just June this year India along with Pakistan has signed the necessary memorandum to be admitted as member nations of Shanghai Cooperation Organization in 2017. SCO has been evolving since it was established 15 years ago with China and Russia as the prime movers. Other current members include Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. With Iran expected to be the next member to be admitted, the SCO alliance will soon cover a huge part of Asia and nearly half of the world’s population.

The primary aim of SCO is to promote mutual cooperation in safe guarding the military and economic security of its members. Non-interference of the internal affairs of the member states is part of the charter. Obviously it is an alignment not designed to please Washington. (The American application to be an observer was rejected in 2005.)

In joining SCO, India shows that it already knows how to hedge its bet. Xi is betting that more countries will see economic cooperation to be more aligned to their national interest than military confrontation favored by the United States.