Concern Mounts in Beijing over Xi’s Aggressive Tactics

Recent days have seen a burst of relatively moderate views from official opinion-makers in China. Global Times chief editor Hu Xijin wrote in his weibo blog last week that “our country has indeed in the recent past adopted some high-sounding rhetoric.” “This has boosted the concern of the U.S. and the West about China’s rise,” said the boss of the Chinese Communist Party (CCP) mouthpiece, known for its hawkish views. “It’s essential to make some adjustments.” “The public will understand necessary compromises [with the West],” he added (Weibo.com, April 20). At more or less the same time, the CCP’s Propaganda Department ordered that the top-grossing documentary Amazing China (lihaile, wo de guo) be mothballed. The work glorifies the stunning advances of China in areas including science, technology and the military (Radio France Internationale, April 20; Liberty Times [Taipei], April 20). Beijing’s apparent turn toward moderation could also be a factor behind the decision by the People’s Liberation’s Army (PLA) to cut short by one day a large-scale naval exercise off Hainan Island scheduled immediately after the Bo’ao International Conference (Global Times, April 13; Tiexue.net [Beijing], April 13). The exercise was kicked off by CCP General Secretary and Central Military Commission Chairman Xi Jinping, who took advantage of the occasion to orchestrate the largest naval troop review by a top leader in recent history.

These unusual developments have mirrored long-standing concerns among liberal scholars that owing to its urge to fulfil the “Chinese dream” of becoming a superpower by 2049 or earlier, Beijing’s projection of hard and soft power may suffer from what Renmin University America expert Shi Yinhong characterized as “strategic overdraft.” (China Brief, May 11, 2017). Pointing to China’s ultra-ambitious agendas in the economic, diplomatic and military fields, Shi indicated that the CCP leadership must “prevent excessive expansionism, which will result in ‘strategic overdraft’” (战略透支) (Phoenix TV, October 4, 2016; Lianhe Zaobao [Singapore], September 21, 2016). In a similar vein, Nankai University international relations scholar Liu Feng has introduced the term “strategic adventurism” (zhanlue maojin) to describe Beijing’s global gambit. “A country on the rise should guard against the problem of ‘strategic adventurism,’ meaning staging in different areas excessively fast-paced and agitated challenges to the big country in control” (Theoretical Research [Beijing], June 16, 2017).

Doubts first raised by the likes of Professor Shi about China’s strategies toward the U.S. – and the country’s global expansionism in general – have been reinforced by President Donald Trump’s April 16 announcement that Chinese Internet giant ZTE would be barred for seven years from procuring American components such as computer chips and software systems. Much more than another facet of the on-going trade dispute between the two countries, Trump seems to be targeting the entire Chinese high-tech sector, which is committed to Beijing’s vaunted “Made in China 2025” goal (BBC Chinese, April 24; Radio French International Chinese Service, April 19). The highly ambitious plan envisages Chinese technology in areas such as ICT, artificial intelligence (AI), robotics, big data and DNA engineering overtaking that of advanced countries such as Germany, Japan and the U.S. in the next seven years. A blitz of technological breakthroughs is key to the restructuring and upgrading of the Chinese economy – and the Trump administration seems determined to counter this through a series of hard-hitting punches against Chinese tech giants. One day after the ZTE announcement, the Federal Communications Commission banned federal funds from being spent on products by PRC companies such as Huawei and ZTE that are deemed to be a “risk to U.S. national security.” Influential American senator Marco Rubio last week accused Chinese tech firms of “hijacking U.S. technology … to prepare for ‘cyber battles of the future’.” Moreover, world-class ICT and e-commerce giants such as Alibaba have been barred from taking over American tech companies (Washington Examiner, April 13; Bloomberg, April 17, Lianhe Zaobao [Singapore], February 8).

The European Union seems to be joining the U.S. in reining in Made in China 2025 and other Chinese efforts to overtake Western technology. One day after Trump’s ZTE announcement, Britain’s National Cyber Security Centre issued a warning to telecommunications firms against dealing with ZTE, citing “potential risks” to national security (The Guardian, April 17). In the past two years, the French and German governments have lobbied the EU headquarters to consider legislation barring Chinese behemoths from acquiring technological companies throughout Europe. Paris and Berlin have also taken measures to restrict PRC companies from buying tech firms in France and Germany (Apple Daily [Hong Kong], April 23; Deutche Welle, February 5; South China Morning Post, July 23, 2017). Other countries that seem equally determined to frustrate President Xi’s technological leap forward have included Australia and India.

The Chinese tech sector’s lopsided dependence on imports of core components is highlighted by an official report entitled “Analysis of the Current State of China’s Integrated Circuit Industry in 2017.” According to the document, close to 100 percent of the microchip needs of the computer industry and the general electronics systems sector (通用电子系统) have to be satisfied by imports from Intel, Qualcomm and other American companies (China Industries News, August 10, 2017). Estimates of the value of annual imports of microchips alone range from $200 billion to $220 billion (Sohu.com, December 3, 2017; CCTV Finance, September 4, 2017). Two years ago, President Xi, who heads the Central Commission for Cyberspace Affairs, admitted that “irrespective of the size and market valuation of an Internet company, it will be tantamount to building a house on somebody else’s foundation if there is a serious dependence on foreign countries for core components” (Xinhua, April 19).

After the ZTE bombshell, various Chinese tech giants including Alibaba boosted investments in domestic chipmakers – and vowed to shorten the time required for full self-sufficiency. It is well-known, however, that there is no quick fix to finding alternatives to imports of American high-tech components including not only chips but also modems, software operating systems and optical instruments. The Chinese authorities have put up a brave front. Foreign Ministry spokesperson Hua Chunying last week decried the U.S. government for “going against the flow” of globalization. “If the U.S. policy is based on all kinds of possible nonsense, it is extremely irresponsible and extremely dangerous,” she said. With reference to the ZTE incident, Hua threatened that the Chinese side was well-prepared to “brandish the sword” (Voice of America, April 17; Sohu.com, April 17).

But other Chinese commentators, and even some officials, have signalled a different attitude toward handling the U.S. threat. A policy paper published by the Research Office of the State Assets Supervision and Administration Commission (SASAC) put the blame of the ZTE crisis squarely on the Shenzhen based high-tech giant. It said many enterprises “have paid a steep price for the short-sightedness and dishonest management of ZTE.” “China’s diplomatic posture and state image has inevitably been affected,” the SASAC document said (Ming Pao [Hong Kong], April 23; Thestandnews.com [Hong Kong], April 23).

Equally significantly, veteran political analyst Deng Yuwen pointed out after the ZTE shock that CCP administration had committed the two errors of “misinterpreting” American intentions as well as “excessive expansionism” in the area of global power projection. Deng noted that Beijing had failed to perceive a sea change in Washington’s China policy: the fact that Trump and his advisers now perceive China as the biggest threat to U.S. power. “[Beijing] has put into practice a ‘confrontational’ mentality of using tough tactics against tough tactics,” he wrote. And China’s aggressive geopolitical gambit, including forming a quasi-alliance relationship with Russia against the U.S., might have “exacerbated the negative image of China among Americans” (BBC Chinese Service, April 23).

Rhetoric aside, the true measure of whether the CCP leadership is genuinely fine-tuning its relatively pugilistic trade and foreign-policy posture—and whether Western governments and multinationals will be placated—will depend on the extent to which Beijing can live up to the open-door goals laid down by Xi at the Bo’ao International Conference early this month. In his keynote speech, the supreme leader outlined four major objectives: “significantly broadening market access”; creating a “more attractive investment environment”; “strengthen protection of intellectual property rights” and expanding imports (China Daily, April 10; Hong Kong Economic Times, April 10). At the same time, Xi announced that Hainan Island, which became a province 30 years ago, would become a pilot free trade port and in effect, the country’s largest free trade zone (FTZ).

Key ministers such as Yi Gang, the new Governor of the People’s Bank of China (PBOC), elaborated on Xi’s Bo’ao pledges following his speech. The U.S.-educated Yi noted that the door to multinational financial services would be opened wider by, for example, removing the foreign ownership cap for banks. Similar arrangements were announced for multinational auto firms.

There are, however, obvious limits to the Xi team’s new open-door policy. Take, for example, the designation of Hainan as “China’s largest FTZ.” The Chinese government pledged to boost the number of FTZs in 2013, since which more than two dozen FTZs have been set up in cities and provinces across the country. However, multinational corporations have not bought into the new FTZs, since other pledges—including partial rollbacks of capital-account controls—have not materialized. For the past year, the regional leaders running these FTZs have seemed more interested in hitching their star to the Belt and Road Initiative (Silkroad.news.com, April 3; South China Morning Post, December 30, 2016). As for the opening of the financial sector, it could be a case of too little too late. Barriers to market entry have kept the total market share of foreign banks in China below two per cent, 17 years after China’s accession to the WTO. It would thus be well-nigh impossible for multinational financial institutions to make a dent on the near-total dominance of the four major Chinese commercial banks, which now rank among the world’s ten largest financial institutions by assets (South China Morning Post, April 11; K.sina.com.cn, January 22).

According to political scientist Wu Qiang, unorthodox views such as those expressed in the SASAC paper reflect the rise of new thinking not only on trade and Sino-U.S. relations but China’s relationship with the U.S.-led global order. “A number of technocrats and professionals are dissatisfied with the fact that ideological concerns such as nationalism have hijacked China’s economic and foreign policy,” said Wu, a former politics lecturer at Tsinghua University. He added that the recent clash with the U.S. has strengthened the view that China should return to the “keep a low profile” foreign policy mantra laid down by Deng Xiaoping – and that China should work with global norms and not circumvent or challenge them (Cable News Hong Kong, April 23). It remains to be seen whether President Xi, who has emphasized “brandishing the sword” in a full range of economic and geopolitical issues, might be amenable to at least toning down Beijing’s overarching policy of attaining superpower status by the 2040s.

Dr. Willy Wo-Lap Lam is a Senior Fellow at The Jamestown Foundation. He is an Adjunct Professor at the Center for China Studies, the History Department and the Program of Master’s in Global Political Economy at the Chinese University of Hong Kong. He is the author of five books on China, including “Chinese Politics in the Era of Xi Jinping (Routledge 2015).”