Black helicopters, U.N. conspiracies and shadowy cabals of all-powerful financiers - this is the stuff that fixates in the feverish imagination of a certain segment of the American populace.

In one of those wonders of globalization (and ideological indoctrination), those same shadowy cabals do double duty as the object of much Chinese paranoia.  This is manifest in the tremendous sales of the book series “Currency Wars,” which indulges such delusions and gives them a veneer of academic respectability.  The books’ author Song Hongbing lays out in great detail how Western investment bankers, having controlled the course of world history for some two hundred years, are now intent on engineering China’s collapse for their own profit (here’s a post by a China-based U.S. economist on the subject).

"Currency Wars"

The real world consequences of this peculiar vein of thought was on display this past week as China’s plans for RMB revaluation were reportedly delayed by a storm of unfavorable public opinion, according to the New York Times.  One Internet rumor that went viral last weekend held that the plan was an American ruse to “to create an economic bubble and financial crisis in China.”  Just as the Ministry of Commerce came around to the consensus view that some strengthening of the RMB would be in China’s interest, the government was tripped up by the deep suspicion of the West it has inculcated in its populace.

The whole affair could be a great case study of the tortured dynamics between Chinese public opinion, its government management and foreign policy decision-making.  Here Wen Jiabao and the highest echelons of the Chinese government, up until last week complicit in a defiant media blitz painting the RMB as a sovereignty issue, clearly were in a pickle once they wanted to change course.  Then again, they may well have intentionally whipped up public sentiment to feign powerlessness in private conversations with pushy diplomats.

The received wisdom in Chinese political studies is that while the government is beholden to public opinion in the short term, it has plenty of latitude to mold that opinion in the long run.  Brookings’ China center director Kenneth Lieberthal said so much in a D.C. forum on March 18, adding “what opinion really counts for actual concrete policymaking in China, I think it’s overwhelmingly public opinion at the highest levels of the system, not out in the broad masses of the population.” The opposition of the masses to any given policy is thus only a temporary obstacle  - it can be assuaged in due time with corrective public opinion management, which is already evident with the RMB issue in newspaper commentary sections.

The first caveat to this dynamic is that mortal suspicion of the West is the one variable of public opinion China’s thought-managers are loath to play with.  Especially in the present moment of domestic uncertainty, the party has a vital interest in playing up its image as lone bulwark against a rapacious West.  This is glaringly evident in a Tuesday Global Times op-ed that, instead of defusing paranoia about the West, actually fans the craziness but channels it into an argument for RMB revaluation.

In “America is exporting inflation to slow China’s rise,” Zhang Jiye (whose work I’ve explored in the past) argues that the “secret [U.S.] plot” to sabotage China’s economic growth is actually to force crippling inflation into China through the fixed exchange rate, not wreak havoc through RMB revaluation.  Never mind that no one forces China to maintain a currency peg, or that Zhang contradicts his conclusion by saying several times how a weakening dollar would hurt China. The point is the only way to prevent this vast and evil stratagem is in fact to decouple the RMB from the dollar.

Evidently, China’s leadership doesn’t find it prudent to dampen the rabid paranoia, or perhaps thinks it’s still too soon to do so credibly. Either way, Zhang’s bravura piece of spin, which would probably earn him respect from the sleaziest U.S. politicos, underscores the messiness of public opinion management in action.  Breathing room to strengthen the RMB is created but leeway to appear conciliatory to the U.S. or Europe is taken away.

It could be that Zhang’s views are actually shared in some quarters of Zhongnanhai, among the top leadership. We know that opinion at the “highest levels of the system,” in Lieberthal’s terms, is actually quite divided on key issues (especially economics and foreign policy), nor should we be surprised if ingrained suspicion against the West has crept into the worldview of China’s most powerful decision-makers.

The second caveat about China’s ability to mold public opinion in the long run is then that, as the leadership cannot always be of one mind about everything, we should not be surprised if the Party’s opinion management work reflects this indecision.  The validity of the conventional wisdom is contingent on elite opinion being unified; otherwise, the sentiments of the masses may yet prove to be a wildcard in foreign policymaking.

The last minute confirmation of Hu Jintao’s attendance at the Global Nuclear Security Summit in D.C. later this month has put to rest fears that China would send a lower-ranking official to the summit in retaliation for arm sales to Taiwan and other bilateral quarrels.  The Western media, recently fixated on the ebb and flow of good will in U.S.-China relations, has zeroed in on the announcement of Hu’s attendance as the surest sign yet of more cooperative ties between the two countries.

While that dimension is certainly newsworthy, China’s apparent motivation to contribute to the work of the summit may yet prove to be the real story.  Dispatching Hu to the Nuclear Security Summit signals the PRC’s desire to play a more important role in international nuclear security, one perhaps befitting a “great power.”  Indeed, Chinese foreign affairs commentators have vigorously argued that the decision on Hu’s visit had nothing to do with the state of U.S.-China relationship. It was rather an expression of China’s sincere concern for global nuclear security as a “responsible world power,” an English-language China Daily editorial claimed.  This may sound like spin, but it isn’t really.

Most likely, China has realized it needs to exercise leadership and influence over the international nuclear security architecture if it wants to be a real global power. With the approaching summit, the Non-proliferation Treaty Review Conference slated for May, and now Obama’s landmark arms-control pact with Russia, 2010 is not a year to sit on the sidelines.

The success of the recent arms pact has especially influenced the Chinese, who are in the midst of upgrading their nuclear weapons and have heretofore had only one military-to-military discussion of nuclear weapons with the U.S. According to American analysts and Chinese officials cited in the WaPo, Beijing senses that with the momentum created by the recent pact,

the longer it waits to engage the United States on the nuclear issue, the more difficult it will be to affect the rules being hammered out between Moscow and Washington.

In addition to strategic considerations about the effect of new arms control regimes on their modernizing nuclear arsenal, it seems possible Beijing was influenced by Obama’s personal involvement in pushing the arms reduction agenda. China’s leadership, eager to maintain the moral authority they accord themselves for their relatively small number of nukes and ‘no first use’ posture, may have decided that it was in their best interest for their top leadership to share the spotlight.

In deciding to send Hu to attend the summit, China’s leadership was reportedly constrained by the fact Hu happened to be the only Standing Committee member also sitting on the Central Military Commission.  Commentary in the Party’s flagship foreign affairs newspaper  however suggests the logic of establishing China’s bona fides as a “diplomatic great power” may have been another important factor in the deliberations.

An April 1 Global Times op-ed by Tsinghua international relations professor Zhao Kejin argued that China cannot afford to withhold its “constructive participation” from such a historically significant cause.   Whether as a matter of China’s “national interest” or its “responsibility for world peace,” being a key player at “a summit where the future course and fate of the world will be determined…is much more important than who talked to who.”  In other words, China mustn’t forgo the opportunity to make a case for its global leadership simply to stick it to Obama for meeting with the Dalai Lama.

Perhaps even more importantly, China has no interest in being seen as a country that would unilaterally frustrate the work of nuclear security out of spite.  To be a diplomatic great power, he writes, China must “persist in its principles…[and] be a country of strategic credibility (战略信誉) in world affairs.”  Snubbing the summit by sending a lesser official would not only set back a cause China takes very seriously, it would send a worrisome message about the priorities of the Chinese leadership and their ” strategic credibility” on such an important (and non-controversial) issue.

To Zhao and ideologically like-minded foreign policy scholars, engagement with the U.S. on nuclear issues highlights more broadly the confident, “great power” diplomatic posture China needs. PRC policymakers should be shaping the world, rather than vice versa.  To do so, they need to shift their focus from foreign countries’ policies towards China - read Taiwan, Tibet, currency issues, etc. - to China’s policies towards the world.

To China, the important issue is no longer foreign regard for our country, but rather what kind of position [it should] take as it plays a role world affairs.

Rather than constantly reacting to other countries’ policies, as a great power the PRC needs to “reorient its diplomatic outlook” outwards and concern itself primarily with furthering its interests in global affairs. In the face of provocative foreign behavior or other challenging circumstances, China should be “tough when necessary” but can be flexible too.  The key is for the foreign policy agenda to not be always captive to a decision of some foreign administration.

The new “great power” diplomatic posture Zhao advocates stems from the premise that China is too big, its participation in multilateral initiatives too essential, to let parlor games over Tibet and Taiwan block out the rest of the foreign policy agenda.  It is quite significant not only as an implicit rejection of Deng Xiaoping’s guiding foreign policy dictum tao guang yang hui, to “hide one’s capacities and bide one’s time,” but perhaps too as a rebuke of excessively “core interest”-driven diplomacy.  Only time will tell how much Chinese policymakers share Zhao’s vision of a new diplomatic style and, if they do, whether the U.S. will truly be more comfortable with the outcome.

UPDATE: the NYT is now reporting on the outlines of Obama’s Nuclear Posture Review, which signals significant new constraints to the U.S. use of nuclear weapons.  Would be curious to know if assurances on these matters were leaked to the Chinese to seal their RSVP to the summit - the WaPo reported that this had been a factor for the Chinese, along with the currency report.

A barren reservoir in China's southwestern Yunnan province

An epic drought is ravaging the Mekong River basin, destroying crops and endangering livelihoods.  From the the river’s origins in western China, where it is known as the Lancang, and along its winding route through the countries of the southeast Asian peninsula, record high temperatures and low precipitation have brought the Mekong so low as to halt river trade. One Chinese analyst surmised the resultant shortages in rice crops could mean inflation in China or further destabilize of North Korea, reportedly once again near famine.

Unfortunately for this beautiful part of the world, a tense regional dispute over dams and river management is compounding this environmental crisis.  As the prospect of global warming and increased water shortages looms, so too does the risk of future geopolitical conflict over the region’s lifeblood, Mekong river water.

The current row pits Thailand and its neighbors against China.  Thailand’s Prime Minister on March 7 called for China to better consider the water needs of downriver nations, and Thai officials have since urged the other member nations of the Mekong River Commission (MRC) - Laos, Vietnam and Cambodia - to jointly exert diplomatic pressure on Beijing to this end.  Thai anger over China’s water management policies - often driven by civil and environmental organizations - has flared up periodically in the last decade, most recently in 2008 when the Mekong flooded.

China, which considers its hydropower facilities a matter of national security, has long frustrated MRC member government officials with its lack of transparency on hydrological statistics and been accused of insincerity in its commitment to cooperate in river management.  This past March 25^th, however, Beijing finally acceded to diplomatic pressure and agreed to share information from two of its dams, partially soothing Thai sentiment, according to the Bangkok Post.

Beijing’s recent conciliatory gesture was appreciated in Thailand, but the Mekong basin nations may not be through the worst of this dispute. The MRC is set to focus on drought response coordination at its at its annual summit beginning this Saturday, but one Thai politics professor predicted this will really be about “discussing how to force China to release water from its dams,” Chinese state media reported. While the MRC’s exact agenda is not yet clear, pressure to make such demands against China is building from influential Thai activist groups, who will insist on stronger diplomatic action against China in a forum to be held alongside the MRC meeting.

China, its own southwest nearing humanitarian crisis due to the same drought, is likely to find such demands galling. One Yunnan University expert interviewed in the liberal Chinese paper Southern Weekend dismissed the dispute as “not really competition for river water as much as a hyping-up of water politics.” Many independent scientists in fact support China’s scientific claims and do not think its dams caused the Mekong’s historically low water levels in Northern Thailand and Laos. Perhaps as a result, Southeast Asian officials have been careful to toe this line.

By all indications, these regional neighbors’ mutual interest in keeping up positive relations will probably win out in this dispute, even if the MRC antagonizes China at this weekend’s summit.

Nevertheless, the odds are that Mekong issues may endure as a source of regional friction in the future. With Himalayan glaciers receding and the number of dams on the Chinese portion of the Mekong set to double, water management disputes may in fact only get worse.  Thailand’s inclination towards environmental activism and China’s penchant for massive environmental engineering projects (and secrecy) is likely to continue to breed conflict.  This clash of styles is evident in Beijing’s repetition of its stance that only 14% of Mekong river water originates within its borders, a misleading statistic that has irked downriver nations.

Some officials are yet more pessimistic on the direction of water scarcity issues.  The head of Thailand’s National Disaster Warning Center, Smith Dhanrmasaroja, had this to say (from Voice of America):

Of course they will fight. Each country they will fight for water. We will have a war, a water war in this region and people when they need to water to drink you know they will fight for everything. So conflict between Lao, Thai, Myanmar, Kampuchea (Cambodia), that thing is going to happen - we will wait and see.

If this statement is indicative of Thai sentiment regarding the likely effect of water shortages, Beijing’s environmental diplomacy will face serious tests in the years to come.  If it doesn’t want to be seen by some in the Southeast Asian public as exacerbating a slowly unfolding regional disaster, China will need to do everything it can to show its sincere interest in being part of the solution.  Treacherous waters may be ahead.

UPDATE: Willy Lam at the Jamestown Foundation has since come out with a detailed piece on “China’s Ecological Woes” and their strain on regional relationships.  He points out the sensitive debate playing out in independent media and the internet on whether the Yunnan drought is a “natural disaster” or “man-made disaster,” with some scientific evidence pointing supporting the latter contention.  Lam also highlights India’s displeasure with China’s plans to dam and divert the Yarlung Tsangpo river, another river that begins in China’s western highlands and then downstream becomes a primary source of water for a foreign region.  In the case of the Yarlung Tsangpo, that region is northern India and Bangladesh.

Finally, China comes to the table on Iran. A few days ago Liu Zhenmin, a former deputy ambassador to the U.N. and lead Chinese negotiator on previous Iran sanctions, reportedly participated in a conference call about U.S.-proposed Security Council sanctions, ending months of disengagement on the issue.

While this is a step in the right direction for U.S. diplomats, there is little to suggest this move represents any real shift in China’s strategy. Li Baodong, the new U.N. ambassador, has since reiterated China’s general commitment to the Nuclear Nonproliferation Treaty and its strong preference for negotiations over sanctions. Nor are the Chinese looking to really jumpstart the process. Liu, China’s negotiator, agreed only to further telephone discussions and not face-to-face meetings.

Security Council diplomats noted too that China’s lukewarm re-engagement to the process was matched by Russia’s noticeably harder line on sanctions. Given Xi Jinping’s concurrent and exceedingly friendly meet and greet with Putin and Medvedev, the whiff of Chinese-Russian collusion is heavy in the air.

What’s more interesting, however, is the disclosure of increased friction between Iran and China. Russia and China were apparently rebuffed in their behind-the-scenes efforts to get Iran to defuse the crisis. From Reuters:

A senior Russian diplomat said that Russia and China have pressed Iran to accept a United Nations offer to replace fuel for an atomic reactor that would require Tehran to ship most of its low-enriched uranium to Russia and France for further enrichment and processing into fuel assemblies.

Western diplomats told Reuters that Russia and China quietly admonished Iran’s government earlier this month, saying they wanted it to accept the U.N.-brokered offer and change its nuclear policy. They added that neither received a satisfactory reply.

Articles in the Global Times earlier in the month suggested Chinese officials’ unhappiness with Iran’s obstinacy. The full-page article on the cover of the March 11 edition, titled “Iran’s Friendliness to China is Belied by a Demand for Help,” was a markedly chilly response to the Iranian Foreign Ministry’s open entreaties for China to withstand U.S. pressure.

Iran’s [Foreign Ministry] spokesmen…seemed to increase the ‘forcefulness’ of his tone, …and said that if China did not help resist Western pressure, it would influence the Iranian-Chinese relationship. One fears Chinese people will feel discomfort upon hearing this kind of language. For every confrontation between Iran and the West over the years, Chinese has been quick to urge reconciliation; it seems [Iran] is a bit ungrateful.

Most Global Times front page articles can safely assumed to be hewing closely to the Party’s daily messaging imperatives, and this one is likely no exception. By sowing resentment against Iran among the Chinese public, such an article prepares domestic opinion for a possible shift against Iran. While this strategy of hedging public support for Iran reveals little about Beijing’s real intentions, it does suggest China may have been looking for leverage over Iran in behind-the-scenes negotiations.

Bizarrely enough, this article can no longer be accessed directly online (above text copied from a hard copy of Global Times).

Forward motion on Taiwan?

China’s positive signals on Iran may well reflect impatience with Iran rather than any real warming to U.S. overtures. But the impact of another recent article hints however at a separate and perhaps positive development in the Sino-U.S. relationship that may have eased bilateral tensions.

In an unusual move, Chinese state media outlets played up tough talk on Taiwanese independence from David G. Brown, a former U.S. diplomat. Chinese media focused on his March 25^th commentary in Taiwan’s Asia Times, which sent a clear warning to Taiwan’s Democratic Progressive Party (DPP). Should the DPP take steps that derail cross-straits talks upon winning in upcoming elections, as they did under Chen Shui-bian’s administration, Brown said the U.S. would “explicitly” oppose Taiwanese independence (as opposed to the current policy of just not supporting it) and would also likely “suspend both arms sales and…consultation on defense issues.” This pointed threat comes about two months after the most recent U.S. arm sales to Taiwan and just a few weeks after senior U.S. officials were dispatched to Beijing.

The Global Times, Xinhua and other media outlets ran a neutral article that quotes Brown’s tough language at length, a departure in tone and content from typical articles about U.S. behavior regarding Taiwan. Most omit positive information about the United States’ Taiwan policy or otherwise seek to cast the U.S. as unreasonable, aggressive or anti-Chinese.

The whole affair smacks of an orchestrated win-win arrangement. Improving communication of U.S. strategic intentions with regard to Taiwan seems to be a goal for U.S. policymakers. This had been hampered up until now by skewed Chinese media coverage that exacerbated widespread paranoia about U.S. intentions, something I discussed in a recent post. On the other hand, Beijing surely appreciates a more forceful position against Taiwanese separatism emanating from Washington. Wide and fair coverage of the Brown commentary in Chinese media certainly has something for both sides.

While it’s difficult to say for sure if this was a quid pro quid negotiated between Chinese and U.S. diplomats, evidence abounds, not least the visit to Beijing by the Assistant Secretary of State that preceded the Brown article by several weeks. The Chinese articles were also tellingly titled “American Expert Claims De Jure Taiwanese Independence Would Damage U.S. Interests,” a surprisingly straightforward statement of U.S. talking points.  As Google and the Renminbi roil Sino-U.S. relations, it’s nice to think that Taiwan may be one spot where tensions are easing behind the scenes.

This past Sunday in Beijing marked the closing of the National People’s Congress (NPC) and its more eclectic sidekick, the China People’s Political Consultative Congress, familiarly known in Chinese as lianghui, or “the two meetings.”

Hu Jintao at the 2010 NPC. Hu is clearly continuing his Mao-inspired fashion kick he debuted at last October's National Day parades.

Both are typically derided as “rubber-stamp” bodies, theatrical reenactments of democracy that give the public a vague whiff of political participation.  While nothing happened this year to alter this assessment, some in China’s media displayed a notably bolder streak in covering the extravaganza and created interesting news themselves.  A few of the interesting developments:

• Bo Xilai, Party royalty and populist hero for his sensationalized crusade against organized crime in Chongqing, has used the NPC to ham it up with the press. In becoming a media darling, he enters uncharted territory for PRC politicians.

• At the outset of the session, thirteen independent newspapers across the country jointly published a front-page editorial calling for reform of the household registration system, a longstanding but unpopular law that restricts internal migration. One newspaper editor and organizer of the bold move consequently lost his job, signaling the Party’s higher-ups are not yet willing to brook such outspokenness. That editor’s letter explaining himself is here.

• Hubei province governor Li Hongzhong provoked a storm of outrage for his imperious treatment of a journalist on the sidelines of the NPC, and has since been pressured into (sort-of) apologizing for his behavior. When asked his opinion on a well-known but sensitive case in his province, the senior Party official snatched the inquiring reporter’s digital recorder and accused her of being an imposter journalist, drawing a furious and overwhelming reaction from bloggers, journalists and the press.

  Most seized upon Li’s behavior as an unacceptably open display of contempt for journalists’ right to question officials and facilitate “supervision by public opinion” (舆论监督), a concept cherished by the public but disregarded by most officials in practice. Although this is hardly the first time in the last few years a Chinese official has gotten in trouble for showing disdain towards the public’s right to know, Li is certainly the most senior-ranking victim to be openly lambasted for such a transgression. The open letter demanding his resignation that has since emerged, signed by 210 journalists and intellectuals, is thus all the more notable.

On a lighter note, Chairman Mao’s grandson Mao Xinyu was on hand as a representative at the China People’s Political Consultative Congress (CPPCC).

Mao Xinyu listening to the Government Work Report at the CPPCC

Among other serious proposals offered by the body’s assemblage of celebrities, sports stars and the occasional leader (one fashion newspaper editor advocated that husbands be legally required to compensate their wives for housework), the portly descendant of the Great Helmsman pitched for “using Mao Zedong military thought to guide warfare in the information age” and “rearm the minds” of the military leadership. Mao is presently a researcher at the People’s Liberation Army’s Academy of Military Sciences and will be promoted to the rank of Major General this July, making him the youngest ranking general in the PLA.

When pressed in an interview to give a specific example of Mao Zedong thought applied to modern warfare, the 39 year-old Mao offered that the concept of People’s War needs to be applied to information-gathering in the modern age, that “as always, the people need to be mobilized to support” such efforts.

In the interview, Mao also claimed “American scholars do not fear China’s military modernization, they fear China’s military’s ‘Mao Zedong thought-ization.’”  This comment drew ridicule from Chinese netizens in some quarters of the Internet.

In the past few months, China’s senior-most officials have all identified structural economic reform as one of the nation’s most important priorities. Hu Jintao, Wen Jiabao, premier-in-waiting Li Keqiang, and Minister for Industry and Information Technology Li Yizhong have each publicly stressed the need for domestic demand to supplant exports as China’s main engine of economic prosperity.

It would seem such unity of purpose among China’s leadership classes would indicate substantial resolve to push through the reforms required. Yet such political will is exactly what is missing. The demand-boosting reform seriously contemplated by policymakers only goes as far as one-off measures that won’t permanently increase consumption, such as rebates on vehicle or home appliance purchases. Given a widespread belief among China-focused economists that fostering domestic demand in the long-term will require short-term pain, many experts are quietly pessimistic about the government’s ability to make good on its goals.

Wu Jinglian

Wu Jinglian, the octogenarian architect of market reform revered by intellectuals as the “conscience” of Chinese economics, recently explained this sentiment in a video interview for New Century magazine. Like many liberal economists, the current State Council economic research fellow believes any rebalancing will falter without dramatic – and nearly impossible – changes to the way the Party-run government does business.

“Unless systemic obstacles are broken down,” Wu declares in his famously blunt fashion, China’s economy “cannot be transformed.” For ‘Market Wu,’ as he was known during the bureaucratic battles over reform in the 80’s and 90s, there are four such obstacles preventing China’s economic transition:

1. “The state has too much power over the distribution of resources.” Local and provincial governments have “de facto control” over land sales and lending. In addition to out-and-out corruption, this situation fosters all variety of inefficiencies – rent-seeking, crony capitalism and so on – that on whole make it difficult for the private economy to flourish. Even more worrisome to intellectuals like Wu, the enriched networks of officials and entrepreneurs guard these privileges jealously and are immensely powerful within the Party.

2. “The evaluation system for party officials creates distortions.” It is “common knowledge” knows that local officials are judged almost entirely upon the economic growth rate figure within their jurisdiction. They then have great incentive to consolidate their clout to “make things big and make them quickly,” i.e. to cut corners or pursue wastefully large projects. As with 1., resources are squandered and the private economy suffers.

3. “Local government finances are chronically strained.” Local governments are weighed down with the burden of shouldering education and social safety net costs, for which their tax revenue is usually inadequate. As a result, local governments “do whatever it takes” to supplement revenue, flipping land, issuing debt or otherwise crowding out the private economy. (The increasing and often hidden debt burden of local governments – estimated recently to be about 7 trillion yuan – is a topic that has many Chinese academics and policymakers extremely concerned. Good articles explain this issue here and here).

4. “Resources are priced too cheaply.” Explicit and implicit subsidies for credit, energy, land and other resources are ubiquitous throughout the economy, but the wealth benefits primarily accrue to state-owned or state-connected corporations. For instance, because bank deposit rates are artificially capped, interest income for depositors – which are usually households, the end driver of domestic consumption – is essentially used to subsidize (mostly corporate) lending. This phenomenon underpins large corporations’ profitability and high savings rates, but is the root of much of the economic waste and environmental damage so common in China.

These phenomena are “systemic,” integral features to China’s state-driven, investment-addicted growth model. Even an enlightened cadre of national leaders has little chance of weaning local governments off of the system that has enriched them so well. They are also problems that will inevitably cut into the mass prosperity – and the coveted domestic demand – that might otherwise accompany China’s Great Urbanization.

If Wu and his fellow market-advocates are correct about China’s “trapped transition”, to borrow Minxin Pei’s famous phrasing, expect things in China to get worse before they get better. Many experts believe the government will be hard-pressed to afford the clean-up following another export- and investment-driven growth cycle. Worse, continued anemic demand, a reflection of stagnant wages and persistent income inequality, would augur yet more social unrest. Such internal fragility already spooks China’s leadership into taking an aggressive line externally on trade and other issues; the prospects of a stalled-out economy could push them towards desperation.

The upshot of the recent trip to Beijing by NSC Senior Director Jeffrey Bader and Deputy Secretary of State James Steinberg? The U.S. got an earful about China’s top three foreign policy concerns: “Taiwan, Taiwan, Taiwan” (courtesy of The Cable).

“It was all about Taiwan,” said Bonnie Glaser, senior fellow at the Center for Strategic and International Studies (CSIS), who got readouts of the meetings from Chinese sources in the know. “The message that the Chinese are giving us is ‘We’ve had enough; we’re fed up. We’ve been living with this issue of U.S. arms sales for too long and it’s time to solve it.’”

The Obama team has been noticing increased confidence on the Chinese side when dealing with the United States, and some officials see that as partly a result of the rise of hard-liners within the Chinese system who advocate a tougher stance toward Washington.

But asking the Obama administration to end Taiwan arms sales shows a profound misunderstanding of U.S. foreign-policy decision making, several experts said.

“Do they really think they have a chance in hell of ending our arms sales to Taiwan? I find that shocking, but that’s what they’re telling us,” Glaser said of the Chinese. “I can’t imagine why they think that U.S. interests have somehow changed on this issue. Ultimately that’s why we sell them, because it’s in our interest, not to piss off China.”

As Glaser’s tone suggests, a sense of exasperation with China’s single-minded focus on Taiwan is detectable in foreign policy circles.  Despite the Strategic & Economic Dialogues, “strategic reassurance,” and other similar trust-building efforts, it would seem the U.S.-China relationship is still afflicted by acute miscommunication.

Deputy Secretary of State James Steinberg in Beijing

U.S.-China relations experts like Alan Romberg believe that China’s deep-set “strategic mistrust” is one of the core difficulties of the Taiwan arms sales imbroglio.  This trust deficit is manifested in the PRC’s claims that arm sales to Taiwan actually “jeopardize” their national security or threaten their “core interests,” accusations that can only be substantiated by cynical or unreasonable interpretations of U.S. intentions.* As America’s China policy set sees it, a pervasive belief that the U.S. ultimately seeks to contain China - economically, politically, militarily or otherwise - is leading the Chinese to their “profound misunderstanding of U.S. foreign policy decision making.”

While this view arguably ignores the symbolism that China has invested in the Taiwan issue, recent commentary from an Chinese expert on the U.S. illustrates PRC policymakers’ misperceptions in action.

In an otherwise thoughtful piece in the Global Times, the scholar Zhang Jiye uses a flawed reading of the U.S. to argue the case for improving American public opinion towards China.  Zhang writes that popular antipathy towards China in the U.S. results in, among other bad things, arms sales to Taiwan:

Congressman and other politicians must, as a political necessity, embrace popular sentiment and attack China over democracy, religion, rights, trade, etc.; the military-industrial complex then uses China’s military modernization and popular fear of China’s rise to promote measures like arm sales to Taiwan.

Later, in reference to the arm sale decisions, he chastises Obama for being motivated by populism:

Moreover, [Obama] should not appeal to populism and ‘fool’ [玩弄] with Sino-U.S. relations for the sake of [domestic] political considerations.

This scholar’s recounting of U.S. motivations for arm sales to Taiwan is, if familiar, also seriously mistaken. In a 2001 poll Americans actually expressed opposition to such weapons sales, and the issue has hardly raised the public’s pulse since (and one doubts there is popular support for such arms sales these days, given widespread anxiety about China, economic malaise and disillusionment with costly foreign interventions). Nor is there any evidence to suggest the Obama administration consciously endangered the world’s most important bilateral relationship in order to make a small concession to an interest group it has otherwise stood its ground against.  In reality, there is simply a widespread consensus among China policy hands that ending weapons sales to Taiwan would just be bad policy, on the merits.

Zhang’s flawed account of U.S. domestic politics isn’t really notable in and of itself; it is substantially the same hackneyed explanation that is peddled in Chinese state media.  It is notable rather because it represents serious scholarship, emanating from the United States research bureau of an influential PRC foreign policy think tank, which lays out a soft power strategy premised on a fundamentally flawed reading of United States politics.

It is conceivable Zhang is consciously exaggerating the importance of public opinion vis a vis Taiwan arms sales to strengthen his proposal for a non-professional audience.   That seems unduly cynical, however, considering it is a core part of his argument and that similar views are aired all the time.

Last, just as notable is the fact Zhang’s readings of U.S. intentions vis a vis Taiwan are actually fairly benign - the U.S. is not actually looking to slight China, or strategically contain it - the issue is more one of happenstance, as if arm sales are just whipped up by U.S. politicians who don’t have anything better to do than pick on China.

Stimson Center Distinguished Fellow Alan Romberg

This gets to the most interesting part of this phenomenon.  As Romberg explores in detail in his article linked above, the various explanations for U.S. behavior with regard to Taiwan offered up in official and unofficial commentary are often not only implausible, they’re mutually contradictory.  This proliferation of inaccurate or paranoid assumptions about U.S. strategy suggests the existence of a taboo within PRC foreign policy circles that mitigates against accepting at face value the U.S.’ avowed intentions for Taiwan.  This would square with reports that resolving the Taiwan arms sales issue has become the single-minded focus - bordering on obsession - of Chinese diplomats,  who are no doubt under great pressure to cash in on their country’s new-found political weight.

*The most recent package of military articles is defensive in nature and objectively does nothing to upset the Mainland’s overwhelming advantage in the cross-strait military balance.  Moreover, as weapons procurement has solidified popular support for President Ma Ying-jeou’s pro-reconciliation stance, the move if anything undermines pro-independence forces on Taiwan.

China can be less “hurried” on the Iran nuclear question, a scholar with a key PRC think tank wrote last week.  Writing in an op-ed for the Party mouthpiece Global Times, Gao Zugui argued for calm in the face of Western pressure over Iranian sanctions and to “be less rushed, more independent, less tied-up.” This bit of guidance from the director of the World Politics Research Institute at the Chinese Institute of Contemporary International Relations, while puzzling, actually suggests important elements of Chinese strategy in managing international pressure over Iran.

The gist of Gao’s piece is that China can effectively demur on Iran by objecting to the terms and stakes of the Iran debate as set by the West. The narrative of the Iranian impasse currently peddled by Western officials posits that only China, with its key vote on sanctions, can prevent military conflict. “In reality, events need not develop in this straight line,” Gao counters, offering that promising diplomatic solutions have yet to be exhausted.

Moreover, Gao writes, China ought to resist the West’s “binding together” all sorts of “important relationships and problems” within the debate, a tactic meant to constrain China’s choices over Iran. Chinese diplomats need to forcefully argue that Sino-U.S. relations should not be so closely dependent on what China does with regard to Iran, or that it is possible for Beijing to generally support Iran without aiding its development of nuclear weapons, something China opposes.  In a nutshell, Gao is exhorting China’s foreign policy community to actively re-frame the debate on Iran to better reflect China’s stance.

Gao Zugui’s article is interesting because its very structure ironically echoes its central message about tactics.  The first half of the piece carefully considers the West’s scheme of isolating China diplomatically on Iran. But the second half more or less abandons discussion of that strategy or the West’s core concerns on Iran, and goes off instead on a seemingly disingenuous critique of the West for not being sufficiently appreciative of China’s ‘nuanced’ (read: untenable) position on Iran.  The concluding paragraph, an assertion of China’s right to weigh “all considerations” in deciding upon its Iran policies, reminds that this diversionary strategy also affords China the rhetorical cover to proceed in the Persian Gulf on its own terms.

This appeal conspicuously avoids addressing Western concerns over Iran’s nuclear intentions, or the impact of China’s material support to Iran, but that may be the point.  Gao’s commentary can be read as further evidence that Beijing’s modus operandi on Iran will be to obfuscate, stall, and perhaps politely frustrate the West’s mission to rein in Iran.

Underscoring the depth of the problems Chinese leaders face at home, a recent report by an authoritative state think tank says domestic law and order will face serious challenges in 2010.  The Chinese Academy of Social Sciences’ “China’s Rule of Law Development Report No. 8″ shows that in 2009 the number of criminal and public security incidents rose by 10% and 20% respectively, reaching a nine-year high.  The report predicts illegal activity will continue to rise in 2010 due to the “societal contradictions” caused by unemployment pressure, widening income inequality, and “increasing numbers of relatively poor people.”

This is unfortunately not surprising to China observers, who’ve long noted that China’s double-digit economic growth of the last decade has been accompanied by increasing unrest.  According to a 2009 report (partially translated here), in 1993 there were 8,700 “mass incidents,” the Chinese government’s favored term for protests, strikes, roadblocks, and other such occurences,

rising to 87,000 in 2005, and surpassing 90,000 in 2006.  In 2008 the level of intensity of mass incidents surpassed that of previous years.  Today social scientists claim mass incidents this year still maintain an increasing posture.

The government stopped publishing the yearly totals of mass incidents after 2006 reportedly due to concerns for public stability.

burned out government offices after a violent "mass incident" in a county in SW China in 2008

When you wrap your mind around these numbers, it is easier to understand why the Chinese government takes such an uncompromising stance on revaluing the renminbi.  While most economists point out how the long-term economic benefits of RMB appreciation so obviously outnumber the downsides, they fail to appreciate how the one big downside -the temporary rise in unemployment caused by a decline in exports - might cause a shock to a public security apparatus that is already straining just to maintain control.  Few outsiders really appreciate the precariousness of Chinese domestic stability, a reality that informs the beliefs of many hardline politicians in China.

"80% of people who are scammed are senior citizens:" a typical public service announcement warning against telephone scams

What the report points out and many observers may not fully realize, however, is the increasing pervasiveness of economic crime that goes on in China.  Besides the ever-worsening problem of official corruption, the report emphasizes that black market lending, investment fraud and petty swindles are all expected to continue to increase.  Especially in small-scale commerce or smaller cities, recent years have seen a proliferation of scamming that typically preys on the ignorance or powerlessness of average Chinese.  The frustration and bitterness collectively caused by these phenomena are real and volatile, judging by how seriously China’s public security takes this issue: Beijing and many parts of China are saturated with public service messages warning people not to believe text messages purporting to be from their tax bureau that instruct them to deposit money in someone else’s bank account, or to otherwise succumb to similar scams.

UPDATE:

The excellent John Garnaut of the Sydney Morning Herald has a great piece out on this exact topic.

In contrast with the powerful, assertive and united China that is being projected to the outside world, [Party insider] Yu Jianrong said his prediction of looming internal disaster reflected on-the-ground surveys and also the views of Chinese government ministers.

Check it out.

Last Tuesday China’s Foreign Ministry spokesman Ma Zhaoxu reiterated his country’s preference for a diplomatic solution to Iran’s nuclear standoff, rebuffing calls for China to back UN Security Council sanctions against Iran. A China Daily editorial released the same day pushed back against such pressure, deeming the singling out of China on the issue by the U.S. and its allies a “trap,” but remained conspicuously silent on its actual degree of support for the embattled Islamic Republic. Behind Beijing’s poker face, there seems to be hardening determination to stay out of the sanctions issue entirely - even if it means risking the security consequences of a nuclear Iran.

The China Daily editorial makes clear China above all wants to distance itself from any responsibility for the Iranian impasse. It highlighted that, “contrary to the fallacy that China is the major obstacle to the UN’s efforts to impose tighter sanctions against Iran,” other U.S. allies like Italy and Japan have substantial economic ties to Iran. Elsewhere it declares China’s opposition “to tighter sanctions…is a natural result of [China’s] peaceful foreign policy,” a phrasing that avoids commenting on the merits of the situation and suggests the refusal to take action is based only on principled opposition to sanctions in general. Nowhere does it defend Iran on its nuclear policy.

The China Daily editorial bristles at the foreign pressure on China to accede to sanctions against Iran, suggesting China is trying to cast its neutral course as legitimate. The editorial repeatedly denounces the West’s efforts as “coercion,” or a “trap,” echoing the tone of other Chinese commentators on the issue. The TV host and columnist Lv Sining wrote earlier in February that “Iran and the West must not kidnap China” for their own purposes in the nuclear standoff. Sining quotes Shanghai Institutes for International Studies  scholar Zhao Guojun, who recently opined that “If China is forced to fully side with either the West or Iran in opposing one or the other, the harm to China will be enormous.” For China, the strategic costs of neutrality on Iran, which merely risks frustrating the West, might be lower than those associated with taking a hard stance either way.

This striking possibility comes into focus at the end of the China Daily editorial. Conflict with Iran may come about, the article admits, but China will not accept the blame for such an outcome. In reaction to rumors that the U.S. might ask Saudi Arabia to sell more oil to China in a bid to persuade it to back sanctions against Iran, China Daily asserts

[l]inking the issue with oil deals is nothing but a trap so that some in the West could again blame China if peaceful solutions ultimately fail.

The wording “if peaceful solutions ultimately fail,” intentionally phrased to avoid specifying agency, suggests Beijing is fully aware of the potential for conflict and is prepared to let that eventuality occur before it chooses one side over the other. This would seem an apparent rebuttal to the U.S. reasoning for why China should support UN sanctions, which is based on the unseemliness of unilateral support for Iran if that country’s nuclear weapons were to spur regional conflict.

For all of the U.S. rhetoric on the matter, China may well have decided that a nuclear Iran, or even a regional conflict, would actually damage U.S. interests way more than its own. As Georgetown’s Matthew Kroenig recently wrote in the New Republic:

An Iranian bomb, then, won’t disadvantage China or Russia. In fact, it might even help them.  Neither country has hidden its desire to hem in America’s unilateral ability to project power, and a nuclear-armed Iran would certainly mean a more constrained U.S. military in the Middle East.

The logic by which China would gain by an Iranian bomb also applies in the case of a regional conflict, which if it escalated could easily embroil the U.S. for years and sap further its already-strained military and economic resources. If China were to keep its nose out of such a conflict, as China seems to want to do and would be crazy not to, the heavy strategic costs imposed on the U.S. would generally be China’s gain. (A regional war involving Iran would presumably imperil U.S. oil imports as much as it would China’s). While U.S. policymakers may complain that this attitude would be a dangerous abdication of China’s responsibility as a major power, the reality is that Iran is one place where U.S. and Chinese strategists may see things very, very differently.

China’s calculus on Iran is painfully obvious to anyone who has ever heard a reasonable Chinese person talk of their profound gratitude to Bush for starting the Iraq War. Many Chinese believe that the weakening of U.S. military capabilities, fiscal position and international legitimacy due to the Iraq misadventure has laid essential groundwork for China’s rise. I wouldn’t be surprised if many Chinese were not secretly hoping for the U.S. to shoot itself in the foot again.