Blowback, Second Edition: The Costs and Consequences of American Empire

CHINA: THE STATE

OF THE REVOLUTION

On June 29, 1998, on a state visit to China, President Bill Clinton addressed the students of Beijing University in a speech carried live by television to all parts of China and then responded to their questions. One young man asked, “With a friendly smile, you have set foot on the soil of China. . . . So we are very excited and honored by your presence. What the Chinese people really aspire for is the friendship between China and the United States on the basis of equality. And I know that before your departure from the States, you said that the reason for you to visit China is because China is too important and engagement is better than containment. I’d like to ask you whether this is a kind of commitment you made for your visit, or do you have any other hidden things behind this smile? Do you have any other design to contain China?”¹

This was a good question. Two years earlier the president had mobilized two carrier task forces when China launched a dramatic rocket barrage as part of its “military exercises” in the vicinity of Taiwan. These symbolic gestures were clearly aimed by the People’s Republic at the upcoming Taiwanese presidential elections, and were a response as well to an unprecedented visit by the Taiwanese president to the United States the previous year. The exercises were meant as reminders to both governments that the mainland would never look on Taiwan as anything other than a province of China, and the American response, equally symbolic and crude, was a sobering reminder to the Chinese of the massive military forces the United States maintains and is capable of deploying just off their coast. Ironically though, from the point of view of American policy goals, Clinton’s show of force had the unintended effect of helping the government in Beijing overcome its loss of legitimacy following the collapse of communism in Europe and its repression of its own students and workers in Tiananmen Square in 1989. Much as did Japanese aggression in the 1930s, American saber rattling rallied ordinary Chinese behind their government.

Since those aircraft carriers appeared in the waters off Taiwan in the spring of 1996, the United States has signed agreements with Japan enlarging the latter’s military commitments, undercutting its pacifist constitution, and securing its acquiescence in remaining a privileged sanctuary for American military operations. The issue of the territories and waters in East Asia covered by these agreements has been deliberately obscured: the U.S. government insists the area to be “protected” includes the Taiwan Strait, while the Japanese government insists it does not (and neither government has been candid with its citizens about the major ambiguities in the new agreements).

China has protested vigorously any intrusion by the United States and its Japanese client into Taiwanese affairs, but to no avail. The United States continues to sell arms to Taiwan in violation of agreements the Reagan administration signed with China during the 1980s (in the communiqué of August 17, 1982, the U.S. government promised gradually to reduce the quantity and not improve the quality of arms sold to Taiwan). These sales include 150 F-16 advanced fighter aircraft, which President Bush agreed to sell during the 1992 presidential election campaign in order to appeal to voters of Texas, where the airplanes are manufactured. Combined with 60 Mirage fighters from France and sophisticated fighter aircraft that it manufactures itself, Taiwan has an aviation capability superior to anything possessed by the mainland. Taiwan’s ability to threaten Chinese coastal cities, including Shanghai, is an effective deterrent against any mainland attempt to invade the island. This is one reason why mainland China’s leadership seeks to intimidate Taiwan through the threat of a missile attack rather than an invasion and why the U.S. proposal to develop and station antimissile missiles on Taiwan is so alarming to them.

Slightly more than a week after Clinton had reassured his Chinese audience that the United States had no designs on their country, Secretary of Defense Cohen, at a joint news conference with his South Korean counterpart, outlined a military role in East Asia as dangerous as the one the USSR planned in Cuba in 1962—which almost led to nuclear war. Cohen indicated the United States intended to maintain combat troops on the Korean peninsula indefinitely, offering no reason why American troops should remain in a potentially unified Korea or who exactly they were meant to defend against. He also spoke of how any pullout of forces from Japan would create a dangerous power “vacuum” that “might be filled in a way that would not enhance stability but detract from it.” This was interpreted at the time in the Japanese and Korean media as a barely veiled reference to China as a future enemy and as a warning against the possibility that Japan might undertake a foreign policy independent of the United States.

The friendly relations the United States enjoyed with China during the last eighteen years of the Cold War era, following the historic Nixon-Kissinger realignment, were based on a common opposition to the USSR. The collapse of the Soviet Union therefore ended China’s main usefulness to the United States as an ally, while enhancing its new status as a possible long-term rival to American hegemony. In the wake of the Cold War, with the Pentagon intent on maintaining near Cold War levels of military spending, enemies on the global horizon were much needed. With the Soviet army increasingly seen as a disintegrating “paper tiger,” China’s economic emergence as a major power in the Pacific offered one possible fit with the Pentagon’s need for a major enemy. Moreover, China’s continuing disputes with Taiwan, its claims to islands in the South China Sea, its friendly relations with North Korea, its occasional armed disputes with Vietnam, and its modest ICBM forces armed with nuclear weapons all seemed to give evidence—in American eyes at least—of its aggressive intentions; all seemed to indicate that it might someday menace American imperial interests in the region.

In the years from the end of the Cold War to the present there has clearly been disagreement, even bitter acrimony, within the highest levels of the American government, from the White House to Congress to the Pentagon, over policy toward China. The question largely has been whether, like President Clinton, to espouse a policy of “engagement” with the People’s Republic—that is, to emphasize trade as a tool of bringing the country into a regional system still dominated by the United States—or, like Republican congressman Christopher Cox, to espouse a policy of “containment”—that is, to make China the enemy around which an American regional system is to be organized—or even some at present inconceivable combination of the two. In pursuing various aspects of these policies and fighting out internecine, intragovernmental, intrabureaucratic struggles over them, various factions in American officialdom have highlighted issues ranging from human rights abuses to trade policy to potential atomic spying, leaking material to the media, holding inflammatory hearings, and making subtle military gestures.

What no American official seems to have considered is what a policy of “adjustment” to the reemergence of China might look like. To make space for or alter American policies in order to accommodate China’s legitimate concerns as a potential future superpower seems beyond the policy horizons of American officialdom. Adjustment would hardly mean “appeasement”; it is possible that China might miscalculate and undertake some initiative so damaging to the rights of others that retaliation would indeed be appropriate. But the United States seems to assume that such an outcome is preordained, rather than undertaking diplomacy and statecraft to head it off.

The American president says one thing, but the American military presence in East Asia implies another. During the first half of the twentieth century, China often found itself in a similar situation in relation to the Japanese, whose central government expressed a desire for peace while its military simultaneously launched armed attacks on Chinese territory. A distrust of public protestations of peace and the need to draw conclusions from concrete military acts are part of China’s heritage of international relations. They played a role in Chinese thinking during the Korean War, when differences between General MacArthur’s strategic decisions in Tokyo and President Truman’s statements in Washington contributed to China’s decision to intervene. In the same way, the discrepancies between the American military’s bombing of the Chinese embassy in the Yugoslav capital, Belgrade, on May 7, 1999, and the White House’s subsequent protestations that the attack by a B-2 bomber using precision-guided munitions was an accident based on an “outdated map” are particularly hard for the Chinese to overlook. Contemporary American actions in East Asia, as distinct from statements by Washington, help trigger these old memories in Beijing.

The Chinese were sufficiently alarmed by our self-appointed post–Cold War mission of maintaining stability wherever we declared it to be threatened that, according to Helmut Sonnenfeldt (an executive of the Atlantic Council in Washington, D.C., and a close associate of Henry Kissinger’s), they began studying George Kennan’s early reports from the Soviet Union. At the dawn of the Cold War, Kennan was the State Department’s foremost specialist on Russia. In a famous 1947 article in the magazine Foreign Affairs written under the pseudonym “X” and entitled “The Sources of Soviet Conduct,” he first suggested a postwar policy of attempting to “contain” the expansion and influence of the USSR. According to Sonnenfeldt, the Chinese were interested because “now that the United States was turning containment against China, they wanted to learn how [the policy] had started and evolved.”²

U.S. policy toward China, whatever the disagreements about it within the government, is driven by a familiar global agenda aimed at preserving and enhancing a Washington-centered world based on our being the “lone superpower.” Whether it is called “globalization,” the “Washington consensus,” “soft power,” or the “indispensable nation,” it still comes down to an urge to hold on to an American-inspired, -financed, and -led world order. Whereas such hegemonism vis-à-vis Germany, Japan, Latin America, Russia, or the United Nations is only likely to result in imperial overstretch and the probable long-term decline of the United States, attempts to establish American hegemony over China hold out more explosive futures and are in any case doomed to failure.

As the histories of previous empires demonstrate, imperial overstretch can be a long-drawn-out process if all sides are careful to avoid confrontation (the Russian and Ottoman empires come to mind). But such hegemonic policies applied to China are likely to precipitate a crisis. China is the world’s most populous country and has recently achieved an economy that promises to provide it with commensurate wealth and power. It is also an old civilization, whose humbling by foreign imperialists over the past two centuries led to the most sweeping and complex of all the modern revolutions. Its leaders are still working out whether they should seek parity on a global stage as defined by Western conceptions of international relations or try to re-create an older Sinocentric world of tributary states that existed before the arrival of the European imperialists, or perhaps some amalgam of the two.

In any case, China owes no obeisance to the United States. From 1950 to 1953, at great cost to itself, it fought the American military to a stalemate in Korea. A new policy of containment toward China once again implies the possibility of war, just as it did during the Cold War vis-à-vis the former USSR. The balance of nuclear weapons prevented that war, but this may not work in the case of China, where great asymmetries in manpower between China and any single external power or alliance will always exist. China has the capacity to deter an American use of nuclear weapons by threatening retaliation against U.S. cities, and the United States could never mobilize a large enough army to defeat China in a land invasion. There is also a much firmer foundation for a Chinese government’s resistance to external threats in Chinese nationalism than there was at the time of the British, French, Russian, or Japanese depredations over the past 150 years. Many Americans do not evaluate Chinese nationalism correctly, thinking it is whipped up by Communist Party propaganda to suit its purposes. But like American nationalism after Pearl Harbor, it is actually rooted in concrete historical experiences of victimization, including Japan’s attempt to establish a protectorate over China in 1915, its creation of a puppet regime in Manchuria in 1931, and its invasion of the whole country in 1937. The Chinese pose no threat to the territory of the United States, but the Americans (and the Japanese) have done so in the past and conceivably still could directly threaten China. A war with China would almost certainly bankrupt the United States, radicalize China, and tear Japan apart.

Military containment of China is a particularly dangerous policy for Japan (as an American ally) to espouse, since its own emergence onto the world stage began a century ago with its invasion and defeat of China in 1895 and its seizure of the island of Taiwan, which it held as a Japanese colony until 1945. Moreover, because Japan’s devastation of China in the 1930s and 1940s was the crucial factor leading China into the civil war from which the Communist Party emerged victorious, politically aware Chinese remain acutely sensitive to any hint of revived Japanese militarism, just as Russians do to any hint of revived German militarism.

According to a Hong Kong wisecrack, China has just had a couple of bad centuries and is back. The question is whether the United States can adjust to the emergence of a new great power in Asia. Will it deal more effectively and less bloodily with China than, say, the former hegemon Great Britain did in the early twentieth century, when it failed to adjust to the emergence of new centers of power in Germany, Japan, and Russia? The current trend of events is not promising.

In 1949, in proclaiming the birth of the Chinese People’s Republic from atop the Gate of Heavenly Peace overlooking the square of the same name, Tiananmen, in Beijing, Mao Zedong announced that finally “China has stood up.” He was wrong. China had only risen to its knees. Of the two great objectives of the Chinese revolution—ending imperialistic interference in China’s domestic affairs and overcoming China’s economic weakness in relation to the developed world—the Chinese Communists proved able to deliver only on the first. The latter had to wait another forty years, until China finally discovered the secret of the enrichment of East Asia—Japanese-style, state-guided capitalism—and began to act on it. Its economy then started to grow at double-digit rates, threatening to alter the global distribution of power. Without question, the most important element in the current phase of Asia’s empowerment has been China’s belated discovery of the market and its consequent candidacy as the second great power in East Asia, perhaps as the superpower of the twenty-first century.

Ever since the industrial revolution, the cardinal source of friction in world politics has been the economic inequality it produced. This inequality allowed the first industrializers to use their new power to colonize or in other ways subjugate and exploit the nonindustrialized areas of the world. Nationalistically awakened elites among these subjugated peoples then sought in various ways to overcome their relative backwardness, to equalize relations with or achieve supremacy over their victimizers.

But how can peripheral societies, even when they achieve national independence, break out of their economic and political dependency? In the view of the prominent political scientist Andrew Janos, history offers examples of two grand strategies for dealing with this issue.³ The first was for dependent or “late-developing” countries to attempt through war and revolution to reconstruct their environments. This strategy required a militarization of society and the use of a mobilized people to attack and transform the environment. The execution of this strategy has taken the forms of aggression and conquest (Nazi Germany, Japan from 1931 to 1945), support for world revolution (Lenin’s and Stalin’s Russia), fomenting “people’s wars” (China and Cuba), aggressive neutralism (India), and other projects aimed at altering an environment in which “advanced” countries exploit “developing” ones.

The second strategy has been, in Janos’s words, a “drive to imitate the technological innovations of the advanced countries.” This strategy has generally been internally oriented. It is best illustrated by Japan’s state-guided industrialization from 1868 to approximately the Great Depression and again from 1949 to the present. It may involve only the state’s use of tariffs to shelter its own economy from the penetrative power of stronger national economies. This was the strategy of the United States during the nineteenth and early twentieth centuries, in accordance with the ideas of Alexander Hamilton and Friedrich List. A version of this strategy also became policy in West Germany after its defeat in World War II. But such a strategy involving state guidance of the economy, cartelization, and the strategic allocation of industrial finance may so come to dominate a social system that development itself becomes the main legitimating and organizing principle of society, replacing or displacing democratic representation, tradition, or any other set of political or cultural principles. When that happens, the ensuing regime can be termed a “developmental state.”⁴

Needless to say, in comparing the ways each strategy has been used during the twentieth century, it seems clear that the developmental state has proven far more successful than any attempt to forcibly reconstruct the external world, although it is a tricky strategy to execute and has many hidden consequences. It is critically dependent on a permissive international environment, such as the one the United States enjoyed in the nineteenth century or Japan vis-à-vis the United States after 1952.

These two strategies also define the history of the People’s Republic of China since its birth in 1949. From the time Mao discovered that it would not be easy to duplicate a Stalinist program of development in China—that is, when he discovered that his Great Leap Forward campaign to move the country toward heavy industrialization through extreme levels of collectivization had by 1962 resulted in the deaths by starvation of some thirty million people—he experimented with altering the external environment on the cheap. He tried to militarize (he called it “revolutionize”) his own society and to reconstruct the external world by sponsoring or endorsing “people’s wars.” Even though in Vietnam this approach succeeded in tarnishing the image of the United States as a superpower, it did not really alter the balance of power, and the Vietnamese soon resented Mao’s claims of paternity to a strategy they had embarked on without Chinese help. Mao’s massive domestic upheaval, the “Great Proletarian Cultural Revolution,” which started in 1966 and lasted in one form or another almost a decade, was his revenge against the Communist Party after he lost control of it in the wake of the Great Leap Forward. It further discredited him, and communism, in the eyes of his main supporters; after his death in 1976 and the return to power of the purged Deng Xiaoping in 1978, the country devoted itself to reform and recovery from the Cultural Revolution. China began, in short, to experiment with the second strategy for breaking out of its backwardness.

By the end of the 1980s, China had begun seriously to incorporate the lessons of high-speed economic growth pioneered in Americandominated East Asia. Its still ruling Communist Party also began tacitly to stress nationalism rather than communism, which was then collapsing in Russia, to garner political support. On the basis of this new nationalism, China began to reach out and accept investment and other forms of assistance from the fifty-five million overseas Chinese, particularly those living in Hong Kong and Southeast Asia. It also slowly opened the country to foreign trade and investment with capitalist countries, so long as the terms were mutually beneficial. This strategy held the possibility of ultimately delivering on the second goal of the Chinese revolution—namely, the creation of a per capita income approaching that of the other major powers. Since China is by far the world’s largest society in terms of population, if it succeeds it may also become the world’s most powerful nation.

China’s attempt to emulate the economies of Japan, South Korea, Taiwan, and Singapore is, however, fraught with difficulties, above all how to control the increasing gap between rich and poor in a previously Communist country. In terms of relations with the rest of the world, China’s products will never enjoy the virtually unrestricted access to the American market and its sources of technology that Japan and others enjoyed in exchange for their support during the Cold War. This was made clear during 1999 when the United States was caught up in a politically driven panic over allegations of Chinese industrial espionage and imports of technologically advanced equipment for purposes of reverse engineering. On the other hand, China has one major asset not available to most developing nations: the overseas Chinese. This reservoir of talent, capital, and experience is open to a China that stresses nationalism rather than communism. China has so far been very cautious in lifting currency controls and import barriers that protect it from the full pressures and volatility of the international market, a precaution that served it well during the East Asian financial crisis of 1997 and after. China has no choice but to continue to open up to international trade; its development strategy will not work if, as in the Maoist days, it once again isolates itself from the rest of the world. At least for now, however, the news from China is reasonably positive. The peaceful reversion of Hong Kong to mainland rule in 1997 and its maintenance as a global financial center were a clear sign of China’s determination and its capacity to succeed economically.

Throughout much of recorded history China was the world’s largest economy. Today, as it reemerges on the world scene, the World Bank estimates that it has already passed Germany to become the world’s third-largest economy, after the United States and Japan, as well as the fastest-growing economy. The Chinese State Statistical Bureau has calculated that during 1995 it grew by some 10.2 percent, down from the 11.8 percent increase of 1994 but still above the government’s target growth rate of between 9 percent and 10 percent. The global economic crisis that began in 1997 has slowed but certainly not stopped growth. Even if in the future China grows at only 7 percent a year, it will surpass a U.S. economy growing at a 3 percent rate sometime between 2020 and 2030. Needless to say, extending present trends statistically into the future is a deeply perilous activity. It is perfectly possible that environmental degradation, or natural disasters, or a downward spiral into depression and poverty due to fast and messy industrial modernization will cause pressures of a sort we cannot even imagine today and sooner than we think. But thus far, China has a better development strategy than any it has experimented with since 1949.

Since economic reform began in 1978, China’s annual average per capita income has risen 6.7 times but still remains unimaginably small: $464 in China’s cities and $186.75 in rural areas, according to 1995 official estimates (but perhaps as much as $2,000 per capita in terms of purchasing power, given the low prices of basic human necessities). By contrast, Japan’s per capita income in 1993 was $31,450 and that of the United States $24,750. China’s labor costs are still just 10 to 15 percent of those in Hong Kong, Taiwan, and South Korea but on a par with those in India.

The Chinese Communist Party, the world’s largest political organization, no longer has much legitimacy in the eyes of the Chinese people. Although it came to power in 1949 as the leader of the largest and most complex revolution of all, it squandered its great popularity: in rural China because of the famine that followed the Great Leap Forward; among hard-core Communist revolutionaries because of the Cultural Revolution; and, finally, among urban intellectuals and a burgeoning middle class because of the repression at Tiananmen Square in 1989 and the nearly simultaneous collapse of communism in Europe.

The Chinese Communist Party continues to rule through a combination of inertia, improving economic conditions, favorable comparisons with the past, nationalism, and a complex set of inducements and penalties. There is every reason to believe that it will be able to do so for the foreseeable future, despite occasional periods of instability. Taiwan, whose government comes from a similar background (single-party rule by Sun Yat-sen’s political party, the Kuomintang, which Chiang Kaishek inherited), offers strong evidence that the mainland could also slowly evolve into a prosperous, relatively open society. Pressure for democratization will probably become a serious internal issue, if it ever does, only around the year 2010, when some 30 percent of the mainland population might have reached a per capita income of about $4,000. Until then, the bulk of the Chinese population will probably remain content with economic progress, better health care, and other practical concerns.

From the Politburo down, most Chinese now believe in pursuing economic reforms, even if different groups support the reform process for different reasons. There is also something of a consensus on the necessity of maintaining a powerful, independent political authority to implement such reforms. The Chinese leaders are firmly convinced that authoritarian rule is indispensable to the success of their market-driven policies, and there is evidence that the Chinese population accepts this view because of the economic achievements of recent years. In this view, without authoritarian political control, economic reform will rapidly breed new economic interests and corruption, already a serious problem. Long-term success requires some authority capable of occasionally cracking down on corruption, complete with public executions as warnings to others. The more corrupt interests become entrenched, the more resentment against them is likely to generate a cycle of political protest, followed by economic instability. Always before the Chinese leadership is the example of the virtual collapse of the former Soviet Union and the resulting impoverishment of large sectors of the Russian population when authoritarianism was allowed to lapse and the economy was “reformed” in accordance with the theories of American economists.

In general terms, the greatest weakness of the development-state strategy is that it both causes and can be crippled by domestic political turmoil. In the other East Asian economic success stories, turmoil has been kept in check by authoritarian political systems of various sorts, the reasonably equitable distribution of incomes, and the promotion of distinctive “Asian values” focused on condemning the alleged selfishness of Western individualism and sometimes of Western democratic institutions as well. Asian leaders have often argued that democracy undercuts development. Lee Kuan Yew, the legendary first prime minister of the rich city-state of Singapore and a persistent critic of U.S. foreign policy in Southeast Asia, is the most articulate exponent of this view. As Lee has put it, “With few exceptions, democracy has not brought good government to new developing countries. Democracy has not led to development because the governments did not establish [the] stability and discipline necessary for development.”⁵ It should be noted that in the 1990s, Singapore, which may not be as pleasant a place for an individualist to live, nonetheless has had a higher per capita income ($23,565) than Australia ($19,960), something that lends a certain credibility in Asian eyes to what its leader has had to say.

All of the Asian capitalist developmental states have been characterized by what I call “soft authoritarian” governments.⁶ Democracy—understood as a political system in which the force of public opinion makes a difference, a balance of powers exists within the government (what Americans call the “separation of powers”), and free elections can actually remove unsatisfactory officials—exists only partially in Japan, South Korea, and Taiwan, thanks to the pervasive, potent influence of unelected bureaucrats. In none of the three has an independent judiciary or the rule of law ever fully developed. In South Korea and Taiwan, movements for democratic reform have in recent years finally succeeded in bringing formerly “hard” authoritarian governments under more popular controls. In Japan, public opinion exerts a powerful influence over the government, but mainly through informal and traditional channels rather than the formal institutions of parliament and the courts.

If the government of Japan and its emulator states—South Korea, Taiwan, and even Singapore—can be characterized as soft authoritarian, at least during their decades of high-speed economic growth, then China may be an example of “soft totalitarianism,” on a par with governments like Suharto’s in Indonesia or Chiang Kai-shek’s in Taiwan, and considerably softer than the truly totalitarian worlds of Hitler, Stalin, and Mao.

A soft totalitarian regime directly restricts freedoms of speech and the press, thereby curbing the effect of public opinion on the government. Under soft authoritarianism (as in Japan, for example), such freedoms exist on paper but are attenuated in part by cartelization of the news media—press clubs in Japan can impose collective or individual penalties on journalists who report news that irritates the state—and also by narrow channels of access to advertising, state-owned broadcasting, and state licensing of school textbooks. The public is better informed in soft authoritarian countries because there are always ways around press clubs and cartels, but public opinion remains only a mild constraint on the government. Whereas a soft totalitarian state will employ direct suppression of offending books, imprisonment of authors, state control of Internet servers, and dismissal or imprisonment of dissidents, soft authoritarianism achieves its ends through peer pressure, bullying, fear of ostracism, giving priority to group norms, and eliciting conformity through social sanctions of various kinds. Under both types of regimes, elections are usually to one degree or another only formalities, behind which permanent state officialdoms actually govern.

An ideological shift from an all-embracing communism to an all-embracing nationalism has also helped to hold Chinese society together, giving it a certain intellectual and emotional energy and stability under the intense pressures of economic transformation. One of the weaknesses of communism was its quasi-religious claim to scientific truth, which, once exposed as fraudulent, undermined the values and ideological cement of the regimes that had embraced it. Since the collapse of communism in Eastern Europe and Soviet Russia, the Chinese Communist Party has tried to foster a consensus among mainland and overseas Chinese based not on scientific but on historical claims to power, prestige, and wealth—as well as on a belief that China is once again destined to reclaim its position as the preeminent civilization in Asia and become a global superpower. The People’s Republic of China used to proudly call itself Communist China. Today, the term commonly used is just China, and this new “China” borrows endlessly from its past glories but also plays powerfully on its century-long experience of humiliation at the hands of European, American, and Japanese imperialists. Present-day China is clearly in transit toward some new self-concept, not to speak of a new system of relationships with other countries; it is not yet clear, however, what form or forms these will take.

To be sure, there are factors that could derail China’s emergence as a major power, the most obvious of which are inadequate education and uneven development within the country. In the Republic of China on Taiwan during the 1990s, for example, the president, premier, and half the cabinet had doctoral degrees. In fact, its impressive record in producing a college-educated populace is one explanation for Taiwan’s increasingly successful transition to democracy in a context of high, reasonably equitable per capita income distribution and huge reserves of foreign currency. Such educational achievements—close to 40 percent of Taiwanese aged eighteen to twenty-one are enrolled in institutions of higher learning—are almost unimaginable on the mainland. China, with a total population of 1.2 billion, has the staggeringly low total of about 7 million college graduates to help run a massive and massively modernizing economy and society. There are a total of 1,065 institutions of higher learning in China today, with about 2.5 million students.⁷

China also sends thousands of students abroad for advanced degrees, but many of them do not come home. This means China has no access to the sort of meritocratic officialdom with which Japan, South Korea, Taiwan, and Singapore have managed their systems of privately owned but publicly guided enterprises. The Communist Party itself currently has a total of about fifty million members, but only some two million of them are college educated. It can compensate for this educational weakness to some extent by tapping into the talents of overseas Chinese and of interested foreign investors, but such a lack of widespread technical competence may in the long run prove a serious and potentially catastrophic constraint.

Uneven development is a potentially explosive problem. Although in times of dynastic decline or internal weakness China has been prey to strong centrifugal forces, warlordism, and regional movements for independence, this is unlikely to be a major concern in the foreseeable future. A wealthy province like Guangdong, adjacent to thriving Hong Kong, for example, has nothing to gain and much to lose in the civil war that would undoubtedly result from any attempt to separate itself from the rest of the country. The issue of the present moment is not so much keeping wealthy provinces in line as keeping poor provinces quiet and functional with not much more in the way of compensation than the promise that sooner or later the wealth of the country is bound to begin to trickle down to them.

An estimated one hundred million people, more than the entire population of Mexico, are now adrift in China, largely migrants from the interior looking for work in rich coastal areas. They represent what “trickle down” there may be for the poorest rural areas, remitting part of their meager earnings to the interior. The vast and controversial Three Rivers Dam under construction on the Yangtze River will aid interior areas more than any other part of the country by providing cheap electric power to them; for the time being, however, the migrants tend to evade taxes and ignore the country’s draconian one-family, one-child policy. There is also the danger, from the ruling party’s point of view, that they might organize. This would not only reduce their value as an ultra-cheap labor force contributing to the present export-driven boom but also raise the possibility that migrant groups could grow into a Chinese version of Solidarity, the union movement that largely dismantled communism in Poland. This would be the regime’s worst nightmare and is the primary reason for the sometimes harsh application of its otherwise soft totalitarian policies to political dissidents of all sorts, but to union organizers and religious movements in particular. Part of the unholy alliance between China’s domestic autocrats and its foreign investors is that both hate unions and any movement toward workers’ rights, even if for different reasons.

The global economic crisis that began in 1997 in East Asia and subsequently spread elsewhere threatens China almost as much as other Asian nations. But there are several factors in the Chinese situation that leave it in a more advantageous position than many other developing nations. As a start, the country is insulated from currency speculators because its currency is not freely traded on world markets. A year after the crisis began Malaysia, one of East Asia’s earliest-stricken economies, in order to regain control over its own economic affairs, took a page out of China’s book and imposed controls over capital flows so that foreign speculators could no longer freely bring in or take out huge amounts of Malaysian currency. China has one of the highest levels of external debt in the world, of around $120 billion; but more than 85 percent of that debt is in medium- and long-term loans, not the short-term ones that bankrupted South Korea, Thailand, and Indonesia when international lenders began demanding immediate repayment. Most foreign investment in China is also in major manufacturing projects, not in stocks, so there is less danger of sudden capital flight. In addition, China holds the world’s second-largest foreign currency reserves (after Japan), around $130 billion, which exceed its external debt.

China’s main structural weakness is its banking system. The People’s Bank of China estimated that during 1997 at least 22 percent of the nation’s loans, worth more than $200 billion, were nonperforming—that is, they were not being repaid. The borrowers of these funds are the one hundred thousand sometimes woefully inefficient and unprofitable state-owned enterprises left over from the Maoist era, which together employ some fifty-six million people. These companies are the main legacy of the old Soviet-type economic system that the Communists adopted in the 1950s. In 1996, the state-owned sector turned in an overall loss for the first time. By contrast, collective enterprises, owned by local political units but subject to market forces, have doubled their productivity since 1978, while the privately owned sector now accounts for more than 11 percent of all Chinese industrial output.

At the 15th Congress of the Chinese Communist Party, held in September 1997, the party launched a new drive to transform the majority of state-owned enterprises into share-holding or limited-liability companies. If they remain unprofitable, they can then be closed one by one. Zhu Rongji was appointed prime minister primarily to manage this delicate operation, endangering as it does the previously guaranteed lifetime jobs of so many workers. His main problem has been that if he restricts bank credit to state-owned enterprises in order to rehabilitate the banking system, he risks soaring unemployment when many such enterprises go under. Despite the “no pain, no gain” ideology being urged on China by the Western business press, officials are proceeding very slowly with these changes, for overzealous liquidation of state-owned enterprises, with its ensuing massive unemployment and dislocation, could destabilize the entire society. In July 1998, as part of the effort to reform the old economic structure, President Jiang Zemin ordered the People’s Liberation Army to liquidate the fifteen thousand commercial enterprises it runs, often of much greater interest to officers and troops than military preparedness. A distinctive characteristic of the Chinese economy has long been the extensive business activities of the armed forces (and the widespread corruption that has followed in their wake). Intended to increase the competitiveness of state-owned enterprises by stamping out corruption and smuggling, getting the army out of business will not be easy.

China’s long-range economic strategy is to transform its state-owned enterprises into versions of Japan’s industrial groups, the zaibatsu (renamed keiretsu after the war), or South Korea’s chaebol (which, unlike Japan’s groups, are more likely to be family-owned). By grouping profitable and risky enterprises together into developmental conglomerates and supplying bank credit to them on a preferential basis, China hopes to forge its own versions of Mitsubishi, Sumitomo, Daewoo, and Samsung. Needless to say, this will divide the labor force into labor aristocrats working for strategic corporations and ordinary workers in medium and small enterprises who sell intermediate goods to the big companies. This structural feature has long inhibited labor solidarity in Japan and South Korea, and it will have the same effect in China. While American economic theorists generally disapprove of the zaibatsu-type of corporate organization, something Japan invented in the late nineteenth century, the postwar descendants of the original zaibatsu were crucial to the economic development of Japan, South Korea, and Taiwan. China has every reason to try to emulate them.

The real economic model for mainland China, although never mentioned for all the obvious reasons, is undoubtedly neither Japan nor South Korea but Taiwan, where the state and the ruling Nationalist Party own outright or directly control about 50 percent of all corporate assets and account for close to 30 percent of Taiwan’s gross national product. Numerous and successful state-owned enterprises are the single most striking feature of Taiwan’s economic landscape. Even though one of the richest places on earth, largely untouched by the economic meltdown of the late 1990s, it is structurally less orthodox in terms of the American model of capitalism than any other East Asian country.⁸

But Taiwan is not just a covert economic model for China; it is also one of China’s greatest political conundrums. Although an unquestioned part of China according to international law, the island has become so rich that many of its inhabitants would far rather see their country secede and become independent than find themselves integrated into the poorer, more politically repressive mainland. If Taiwan did declare its independence, any number of dreadful developments could follow, ranging from a nationalistic backlash in China that could lead to the overthrow of the regime to an attempted invasion of Taiwan to keep China’s territory intact and a possible larger war involving the United States. The Taiwan problem at the end of the twentieth century is, as it was at the midpoint of the century, still the single most complicated issue of Chinese foreign policy and the most dangerous place where Chinese and American interests intersect. If it is mishandled by either side, the various kinds of blowback that might result could dominate global politics in the next century.