Why now is the right time for China to recommit to its 2013 reform agenda

  • Douglas H. Paal says Beijing should seize the moment, amid the trade truce and 40th anniversary of opening up, to push on with its reform agenda as a face-saving way to ease tensions with the US
PUBLISHED : Tuesday, 11 December, 2018, 3:01am
UPDATED : Tuesday, 11 December, 2018, 4:09am

Some day, we will look back on the current trade war between the United States and China and wonder how we did this to ourselves. China’s retreat from the reform and opening of the previous 40 years will eventually be reversed in the natural pendulum swing that affects every government over time. The current American obsession with China’s rise is likely to pass into history, as did previous obsessions with the presumed ascendancy of the Soviet Union and Japan.

The questions future historians will explore are why the governments of our time have chosen such costly and counterproductive means of dealing with themselves and each other. How did this come to pass? What were the leaders’ key mistakes? And when were they made? Answering most of these questions will take time.

From a Washington perspective, however, there is no need to wait to find the moment when things went very wrong, or started to go right. The 90-day deadline that started on December 1, when Chinese President Xi Jinping and US President Donald Trump met at the G20 summit in Buenos Aires, is the key turning point, for better or for worse. At the end of this period (which might be extended by mutual consent, but probably not for long), we will know whether the US will experiment with a new cold war on China, and whether China will choose to defy the US and severely test the resilience of its people.

It is readily observable that the two sides are misestimating each other. Washington boasts of strong GDP growth, a high stock market, and low unemployment that history teaches cannot last, while overemphasising Beijing’s flagging GDP growth and depressed stock market. Washington believes that all the blame belongs to China and makes “demands”, not “requests”. Beijing boasts of its capacity for tightening belts, and surpassing the US over time. Probably both are wrong. This is the sort of mutual misperception that has produced tragedies through history.

Looking dispassionately at the two governments, it does not take a genius to observe that the US government is more disorganised and less prepared to seize the moment in these 90 days than is China, where strongman politics are ascendant. This leadership gap, however, may clear a path to a less costly outcome than the one we are otherwise destined for, which could include mutually costly efforts to “decouple” the two economies, a reversal of decades of globalisation, and a competition for military, scientific and technical dominance that could bleed over into confrontation. It puts Beijing in position to seize the initiative back from Washington, instead of bending to the will of the US.

What does this mean practically? December 18 will mark the 40th anniversary of the reform initiatives that put China on the path of modernisation that multiplied the nation’s wealth and power. In recent years, however, successive Chinese leaders have recognised that the economy has become “unbalanced” and “unsustainable”. At its third plenary session in 2013, the 18th Central Committee of the Communist Party saw fit to unveil a plan of action – an agenda for further reforms that were intended to help China resume its march forwards.

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However, although some important but relatively modest steps have been taken in the past five years to implement the third plenum reforms, especially in the financial sector, more notable have been the subsequent retreats from the committee’s pledge to give markets a “decisive role” in the economy. China’s less-efficient state sector is smothering the more vibrant private sector. Beijing still acts as if its giant banks and huge companies are too weak to withstand foreign competition at home. This lies at the root of Americans’ and others’ complaints about China’s unfair behaviour in the global economy.

Ninety days is precious little time, but now is when the Chinese leadership should recommit to the reform agenda it unveiled in 2013 and make concrete efforts to implement it. Doing so on Chinese initiative, on a Chinese anniversary, in an exclusively Chinese atmosphere allows Beijing to save face even under American pressure. Doing so will not quell every foreign suspicion or complaint, but it would mean progress or, at least, the avoidance of a cataclysmic outcome. It will begin to disarm some of the most vocal critics.

Moreover, within China, there is a very substantial, if subdued, constituency that seeks these reforms. It is very difficult to have a conversation with an experienced Chinese leader, scholar or businessperson where the need to resume the reform agenda does not come up. The resumption of reforms should be its own reward, while paying a dividend in the troubled relationship with the US.

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The alternative – making formal offers to seek the reaction of sceptical American officials to reported Chinese demands for changes in 142 different areas at issue – seems a lot more torturous and potentially unavailing. I hope China’s leaders will see the wisdom of taking their own initiative and sparing themselves, and the rest of us, unnecessary costs and risks.

Douglas H. Paal is vice-president for studies and director of the Asia Programme at the Carnegie Endowment for International Peace