Orville Schell, the Arthur Ross Director of the Center on US-China relations at the Asia Society in New York, provides some insight into how China’s relationship with foreign business has changed over the years.
Q. How has China changed in the way that it handles foreign business, foreign companies and trade relations?
A. It all depends on where you place the starting line. One starting line was in the late 1950s or early 1960s, when we were in a deep cold war and completely separated. China was in autarky and for several decades there was no interaction of any kind going on, whether economic, trade, cultural or otherwise. The end of that period and the next possible starting line was around 1975, still during the Cultural Revolution, when Mao was alive. It was a very important time to see China, because it set a kind of a baseline against which one could measure those things which followed.
And what followed was quite momentous. Deng Xiaoping, the pragmatist, completely transformed China’s economy. And it also looked for a while like he might transform its body politic and its kind of statecraft, but, alas, that came a cropper in 1989. But curiously, his economic reforms didn’t. China had a very awkward formula of socialism with Chinese characteristics, which was marketized, privatized to a greater extent, and which had withdrawn the party from the running of enterprises in several places. It was reform that was both economic and political, so that was an enormous change. I wrote several long series for The New Yorker in the early 1980s about what was happening, and nobody could quite believe what we were seeing. And we had even less idea of where it would lead. The most profound question of all was, to what extent was China actually going to change its system, both economically and politically? And we had a temptation at that moment in the 1980s, to assume that what we were seeing would be a sort of another long-lived period, where China would be catalyzed by economic reform.
Even after 1989, Deng Xiaoping really committed himself to economic reform. And that went on for a decade under Jiang Zemin, and it kind of limped along under Hu Jintao and then suddenly we arrived at Xi Jinping. And things changed again. We got to recrudescence of many of the aspects that I was familiar with, when I first began to study China—more state control, the marketized elements being lessened, private companies having lesser standing than the state owned enterprises. And we’re not quite sure where all that will lead.
So, to say how it has changed. Well, it keeps changing like a kaleidoscope with different sort of quotients of free marketization of private enterprise merged with status control and state owned enterprises, and the kinds of forces that we now see beginning to reappear to be reapplied after this rather extraordinary period in the 1980s and 90s, when China seemed to be irrevocably molting out of its own revolutionary guise.
Q. What continuity do you see in the way that the Chinese system deals with foreign business and foreign trade today versus the Maoist era and the early years of Deng Xiaoping?
A. Well, of course, American businesses were completely shut out until the late 1970s. When Deng Xiaoping came to America and went to the White House everybody in the Congress and businessman from all over flocked to the National Gallery for a reception for him, it was quite extraordinary to see. And that was really the starting gun.
That created an incredibly heady period, where the head of the New York Stock Exchange and all of the large corporations were going over and sniffing around and forming joint ventures and there was a kind of a very reckless optimism that we imagined that at last, China’s doors were open. And in fact, it did. There were remarkable signs of China’s convergence with the rest of the world. However, it never fully abandoned its one party system. And Deng Xiaoping was very clear about that, even in 1981, when he re-articulated what he called the four basic principles, which were very clear in that they reiterated his commitment to a one party system and the Chinese Communist Party was, was the ruling party.
But, you know, it did survive, even through the end of the 1980s and into the 1990s, and American businessmen were incredibly gratified. But when the Soviet Union fell apart, the whole notion of engagement, which had so enthralled businessmen, and made them dream of this vast market opening up in China, well it needed to be re-thought. There was no longer the “bigger” enemy that had been the Soviet Union, so the US-China relationship needed to be redeveloped with new logic. And what was that logic? That logic was that if we traded, if we kept open to China, if we had cultural exchanges, academic exchanges, and a globalized joint economy, that would be the best guarantee of China continuing to evolve in a way that would be less contradictory with the liberal democratic outside world.
So those were glorious heydays, when nobody was imagining that there would be ever again, such a thing as decoupling. There were obviously a lot of problems, with intellectual property theft or with JV structures and all of these kinds of things. But in general everybody assumed that the relationship was a good thing that would bring us together, and that would make the likelihood of conflict much less probable, and would be good for the world. This was the heyday of the World Economic Forum in the 1990s and 2000s and of the notion that globalism is a win-win proposition. And that was the new justification for engaging China, even though it was a one party state, even though it had human rights violations, even though it had its Nobel Laureate in prison. So that was a very subtle but powerful transformation of the logic of interacting between China and American businesses and businesses elsewhere in Europe and around the world. We’re all too pleased to go into China dreaming of you know, that old 19th century dream of “if each Chinese would add an inch to their shirt, the towel of mills of Manchester would spin for a century.”
Q. There is a sense of “us versus them” between China and the US and to some extent the Western world, given the differences between the China system and the Western system, to what extent was this inevitable and what prospects do you see for a resolution?
Well, I hope there will be some prospects for resolution, but I have to say, I’m not particularly optimistic. Not because I think the United States has its problems, we’re all aware of those, but I do think Biden is open for business. He is a diplomat, he would like to work something out. I think the real challenge is that Xi Jinping has a very different view of the world. One thing that the Chinese Communist Party and its narrative of its relations with the world never got over, was that the outside world, the democratic world, was a hostile foreign force that was seeking to bring about regime change through peaceful evolution. And that’s a belief held not entirely erroneously, I might add. And with engagement over, we no longer can justify interactions. Because if you feel you’re dealing with a hostile power, rather than a power that’s in transition and reforming towards something more convergent and soluble, then, why would you trade?
Take the semiconductor industry, for instance, an incredibly important industry, and where are 92% of the semiconductors made in the world? Taiwan, and Korea. So Taiwan, is in a very adversarial state with China, but it’s selling semiconductors to China and the United States. We don’t have very many fabs in the States. So what happens there if things start getting even more hostile or if there is a clash? How do we deal with that market? And this is where the very vexing question of decoupling comes in.
And I might add that decoupling is going on. But it’s not exclusively on the American side. It’s also on China’s side, look at their refusal to allow IPOs in the New York Stock Exchange, that’s a huge decoupling. So we are in this new world, whereas for many decades of my lifetime we were coming together and imagining a horizon of closer collaboration in every realm of life. Now we have entered a world where we imagine ourselves coming apart, bit by bit, and the pandemic has certainly aided and abetted that process. But for businesses, it raises an absolutely unsolvable dilemma of: what do you do with the largest market in the world, with its incredible manufacturing base and supply chain system which we are addicted to both sell into and buy out of? What do we do if there’s more animosity, and there’s increased likelihood of war? And nobody has a ghost of an idea how to act.
Interview by Patrick Body