Countries like the Asian “tigers” that experienced rapid economic growth inevitably encounter slowdowns that signal a fundamental shift in their economies. At this juncture, transitioning their institutions and policies often proves to be a most daunting task. Cautionary comparisons like these set the tone for the conference titled “China’s Possible Futures” on May 12, 2017, when the China Program celebrated its 10th anniversary.

As China nears the end of four decades of reforms, “China’s Possible Futures” was a fitting theme to mark the China Program’s first decade at Stanford’s Shorenstein Asia-Pacific Research Center. The launch of the Program in 2007 began with an international conference titled “Growing Pains: Tensions and Opportunities in China’s Transformation,” which resulted in a book of the same title. This year’s 10th anniversary conference appropriately heralded both change and continuity of the themes that were explored in 2007. A decade ago, the conference showcased the tremendous reach and rise of China as an economic and international powerhouse, and in 2017, the conference expanded to highlight the critical juncture that China is again facing on its developmental path.

The full-day conference, held under Chatham House Rule, was divided into four sub-themes with speakers addressing China’s economic future; its political future; the future of its international relations and global economic engagements; and a comparative panel that examined China’s prospects from experiences drawn from Japan, South Korea and former Soviet and Eastern European countries.

Panel I: China’s Economic Future

Speakers agreed that China’s tremendous growth over the last 40 years has no easy parallels in history. Some argued, however, that the policies realized over the next few years will prove critical to China’s long-term growth. Favorable factors, such as demographic, migratory and structural changes supported by a stable international order, enabled China’s spectacular, double-digit growth over the last 40 years. When “miracle growth” countries of Northeast Asia – like Japan, Korea and Taiwan – entered their periods of moderate growth, however, painful readjustments were necessary. Restructuring was required because the very policies and institutions set up to enable rapid growth were counterproductive to creating a foundation for moderate, sustained growth. Speakers variously emphasized China’s need to invest in human capital and undertake financial reforms, urban-rural reforms and state-owned sector reforms.

In addition, several speakers noted that China is facing mounting demographic challenges as its population ages and as its elderly population lives longer. According to one speaker, people who are aged 60 and over in China will equal the population of people aged 0 to 14 within the next couple years; and by year 2045, the population of people who are 65 and older in China will be as large as the entire population of the United States today. This situation implicates rising costs in healthcare and calls for major institutional reforms in China’s health sector.

One speaker spoke of the rapid rise in China’s returns to education, i.e., the rise in income for each additional year of education, over the past four decades, which now looks more closely aligned with that of the international average of approximately 10 percent. Another speaker asked whether China was now pursuing a different developmental model with increasing focus on inland industrial development and explored what this might mean for social inclusion and labor conditions of workers.

Panel II: China’s Political Future

One speaker argued that Chinese President Xi Jinping’s reform agenda does not mark a break with the past, as many have argued, but rather continuity with his predecessors’ policies. Other speakers discussed the scope and scale of Xi’s corruption crackdown; fiscal imbalances in central-local state relations that underpin China’s corruption problems; and the implications of social media on Chinese governance. All speakers spoke about mounting difficulties in the political sphere, including powerful interest groups; local paralysis arising from corruption crackdowns; mounting local government debt and misalignment of central-local interests; and governance challenges stemming from the social media revolution. Overall, speakers seemed to suggest mounting difficulties for Xi’s reform agenda, which the Chinese government must push through to avoid a sharper downturn and slower growth prospects for China’s future.

Panel III: China’s International Relations and Global Economic Engagements

Speakers spoke at length regarding the history of U.S.-China relations since Deng Xiaoping’s “reform and opening”; territorial disputes in the South and East China Seas; China’s “Belt and Road” policy; and China’s outbound capital flows into various regions of the world. The speakers held varying views regarding Beijing’s motivations and intentions in the world, both militarily and economically. Speakers held different opinions about whether Beijing has a well-defined vision for its global role. One speaker questioned whether China’s maritime assertiveness in the South and East China Seas characterizes the expansionary policies of a rising power; or whether it represents something more singular as China protects what it considers its “core interests” in the region. One speaker expressed the view that the United States and the U.S.-led international order is still too important for China’s development for it to threaten its functioning in any meaningful way. Another speaker discerned a “broad brush strokes” of a developmental concept in China’s “One Belt, One Road” policy that the United States might do well to heed as it considers whether to join any parts thereof.

Panel IV: China’s Future: A Comparative Perspective

The conference also included speakers who provided comparative examples from Japan, South Korea, the former Soviet Union and Eastern Europe to inform their views on China’s “possible futures.” One speaker warned against directly applying Japan’s development model to China, warning that Japan experienced a massive credit boom and debt accumulation in the 1980s like China is experiencing today. Zombie firms were a key factor in Japan’s economic stagnation. As the speaker warned, zombie firms also proliferate in China’s economy. Another panel member highlighted Korea’s struggles to attract and retain global talent and drew lessons for China as it strives to escape the middle-income trap and build an innovation-driven economy.

Another panel member spoke of the key difference between China’s political environment in 1978 when Deng Xiaoping announced his “reform and opening” policy and today when Xi is implementing his Third Plenum decision of 2012. Vested interest groups are stymieing the implementation of urgently-needed reforms, especially in the state-owned sector and in China’s financial sector. In 1978, by contrast, the catastrophic results of the Cultural Revolution ironically enabled Deng to successfully champion and implement his agenda because bureaucratic interests had been gutted by Mao. The speaker spoke of the urgent need for Xi to change course in the next 3-4 years and use his personal power to push through tough, market-oriented reforms. Beijing’s leaders must not only craft correct policies and identify the most effective structural correctives, they must also break through the political logjam of entrenched interests that have benefited from the current system.

Panelists pointed to the increasingly difficult challenges that the government faces as China tries to avoid the middle-income trap after four decades of impressive gains and usher in sustained economic growth driven by innovation and domestic consumption. Speakers also agreed that the leadership is encountering a more complex and diverse society, a fractured elite, and the Gordian knot of economic and demographic predicaments, which require not only painful structural adjustments but also tremendous political will to realize policies that will ensure an optimal future for China.

Related links:

Brochure: Celebrating the First 10 Years of the China Program

Former ambassador reflects on US-China relations, Thucydides Trap

The latest American assertion of freedom-of-navigation rights in the South China Sea may have reassured some that new bonhomie between presidents Donald Trump and Xi Jinping won’t lead to abandonment of the region. But questions remain.

On 24 May, the guided missile destroyer USS Dewey transited within 12 nautical miles of Mischief Reef, a land feature occupied by China in the South China Sea. Analysts who had followed and criticized China’s campaign to control the sea, upon learning of this Freedom of Navigation Operation may have shared the same thought: Finally! Not since mid-October 2016 had the US been reported to have conducted such operations in the South China Sea. Since Trump’s inauguration in January, the Pacific Command had repeatedly been denied permission to conduct such a transit. 

Speculation abounds. Was the Dewey’s sail-by a one-off? Or did it augur a resumption of US efforts to forestall Chinese maritime dominion? Defense Secretary James Mattis will speak at the Shangri-La Dialogue in Singapore this week, and perhaps the Dewey’s route is meant to reinforce a message of reassurance for Asian leaders, that the United States is not resigned to Chinese primacy in the South China Sea. News of the Dewey’s trip was not formally announced. Nor was it accompanied by an official promise to follow up with further freedom-of-navigation operations. Any assuaging message, if intended, was thereby undercut, all the more so by Trump’s reputation for unpredictability and impulsiveness. 

Uncertainty abounds, too, as the region is left to wonder whether the Trump administration will make an ongoing commitment or will it offer, by implication, a transaction in the shorter run: suspension of US willingness to check China in the South China Sea, in return for Chinese willingness to check North Korea.

China’s behavior may have made these questions academic. For several years, Washington has watched Beijing turn the South China Sea into a Chinese lake. Impunity has benefited the pace of appropriation, and already some analysts have concluded the game is over. The stronger, less reversible, China’s maritime position becomes, the less valuable – bargainable – an American offer to accommodate it will be. American indifference has facilitated, or at least not impeded, China’s efforts eventually to establish full-spectrum sway over one of the economically and strategically most crucial waterways in the world. A million square kilometers larger than the Mediterranean, the South China Sea is vital for the many countries that border or use it – including China, Japan, India, South Korea, Australia, members of the Association of Southeast Asian Nations and, not least, the United States.

Obama-style “strategic patience” not only failed to lessen the missile-tossing truculence of Pyongyang. It failed to slow Beijing’s drive to dominate the South China Sea. Washington warned Beijing not to build up the land features it controlled; China did so anyway.  Washington warned Beijing not to militarize those properties; China did so anyway despite Xi’s public pledge to the contrary. Freedom-of-navigation operations were few, intermittent and increasingly far between, despite a promise to conduct them twice every three months. 

Meanwhile, ASEAN’s leaders were the objects of vigorous yuan diplomacy by China – attractive gifts and loans repayable in silence and deference. The Obama administration offered principles instead: good governance and navigational freedom. The Trans-Pacific Partnership promoted the first; freedom-of-navigation operations in the South China Sea defended the second.

In San Francisco in February 2016, an astute Malaysian asked his American audience to put themselves in Southeast Asian shoes: The Chinese offer you a stack of cash to spend.  The Americans offer you a stack of principles to follow. Which offer do you accept? It was a rhetorical question.

Trump may have abandoned the Trans-Pacific Partnership’s provisions for reasons of good economic governance. But why was the principle of navigational freedom neglected?  Why were the freedom-of-navigation operations performed less often under Obama and stopped altogether under Trump? 

A one-word answer could be linkage. Obama’s White House, including the National Security Council, viewed US relations with China as multi-stranded. Provoking Beijing with such operations risked losing cooperation on other issues that mattered to Washington: economic discrimination, cybersecurity, global warming, North Korea. As for Trump, initially, discontinuance of the operations could have been due to the new administration’s internal disarray and lack of staff. By May, however, it appeared that Washington might not be restarting them for a different reason: to incentivize Beijing to alleviate American economic concerns and restrain Pyongyang. 

It’s become conventional to distinguish Obama’s “strategic patience” from Trump’s “transactional dealing,” but linkage is present in both approaches. Both subordinate America’s interest in restraining Chinese maritime assertions in East Asia to America’s interest in gaining Chinese cooperation on other matters. In effect, Obama and Trump alike had bigger fish to fry. China’s salami-slicing tactic also made its incremental advances too insignificant to pick a fight over.

The Dewey’s voyage past Mischief Reef has broken a string of seven months without freedom-of-navigation operations, raising more policy questions. If operations do resume, does that mean Washington has also broken the linkage to other issues on which China could be helpful?  Is that freedom were worth defending in its own right? And what if no further operations ensue or follow a haphazard pattern?

Reassurances matter. In May, during his first trip to Europe, president Trump could have recommitted his country to defense of NATO partners by endorsing Article 5. He did not. Europeans now have reason to doubt America’s willingness to defend them against Russia President Vladimir Putin’s desire to destabilize or even retake Russia’s former satellite states. If the Dewey’s journey was not a resumption, but merely a one-time blip, will ASEAN’s leaders echo Germany Chancellor Angela Merkel in doubting America’s willingness to restrain Xi’s maritime ambitions in its own “near abroad”?

Southeast Asian policy elites may already assume that the Trump administration doesn’t care about their region. The gap between what these elites want from the US and what they expect to get emerges clearly in an April survey of more than 300 influential officials, businesspeople, scholars, journalists and activists across the 10 ASEAN countries on “How do Southeast Asians View the Trump Administration,” conducted by ISEAS Yusof Ishak Institute.

Of these respondents, an impressive 70 percent agreed that “Southeast Asia is more stable and secure with active US engagement.” But 56 percent expected the US to become less engaged in Southeast Asia in future, while 52 percent felt that the Trump administration was “not interested” in the region or considered it “irrelevant.”  As to which country or regional organization was the “most influential” in Southeast Asia, a mere 4 percent of the respondents chose the United States, compared to the 18 percent who cited ASEAN and the whopping 74 percent who chose China. An even higher proportion, 80 percent, expected China to fill any “strategic vacuum” in the region that American “indifference” might create.

There is one supportive result for Washington in the April survey: 68 percent of the respondents agreed that “the US will uphold freedom of navigation in the South China Sea.” The Trump administration should live up to that expectation. The Dewey’s sail-by should be followed by additional trips, performed regularly, publicly acknowledged, and justified by stating and restating strategic conviction: that no one country – not the United States, China, Japan nor any other state – should exercise exclusive control over the South China Sea. Such commitment, far from a chip to bargain with, is a key interest of the United States itself.

This piece was originally carried by YaleGlobal Online on June 1, 2017, and reposted with permission.