The big Red rug

by David Benjamin

“I like Chinese
“I like Chinese
“They only come up to your knees
“Yet they’re always friendly, and they’re ready to please …”
— Monty Python

MADISON, Wis.—Somewhere in the Kunlun mountains that roughly divide China proper from its puppet state of Tibet lies the imaginary paradise of Shangri-La, where life is a dream, prosperity is rampant and people seem to live—smiling all the while—forever.

If you’re a devotee of the business media, this description often seems to describe China itself, a place where the central government caters to foreign investors while keeping its natives contented by steadily improving their standard of living and managing a seemingly eternal global trade surplus in the hundreds of billions of dollars.

This benign vision of the Chinese miracle was thematic last month in Donald Trump’s obsequious treatment of Chinese despot Xi Jinping. In a novel bow to China’s erosion of a U.S. economy that—despite Trump’s tubercular tariffs and private war—remains the world’s richest, the president of the United States rolled out fifty yards of red carpet. There are videos of U.S. soldiers on their knees picking specks of lint off the rug, physically illustrating American subservience to China’s petulant autocrat. Despite his bleats of brotherly love, Trump’s sucking up to Xi was not about friendship. As always, its motivation was the vast fortune that could be harvested from the pockets of the Chinese. It was about the lucrative favors that can be bestowed on U.S. companies by the Chinese Communist Party.

However, just as Shangri-La, a figment of author James Hilton’s imagination, does not exist, the bonanza envisioned in China by American capitalists is an illusion deployed by Chinese leaders dating back to Deng Xioaping in the 1970s. During Deng’s deceptively “liberal” reign, I teamed for a while with Dan Hefler, a veteran “China hand” at the Boston consulting company where we worked. Hefler’s thesis of how Chinese leaders exploit the desires of foreign profit-seekers makes Donald Trump’s red carpet an apt metaphor.

Hefler revealed to me a strategy that Chinese leaders have have applied and refined for decades. China identifies a basic economic problem difficult to solve using its own sources. Dangling the carrot of two billion Chinese consumers, Beijing teases—then rolls out the red carpet—to foreign companies who have the talent and capital to fill the gap. These companies build labs, fabs, offices and factories. They bring in their own staff, but hire and train lots of locals. Pretty soon, just as the foreign company has sunk its investment, built is Chinese infrastructure and begun to look forward to windfall profits, it notices that those local hires have gone to work for domestic competitors. The new Chinese companies that pop up in the same industry have not only acquired the technology and production knowhow of these foreign guests. They are protected from the vagaries of capitalism by government subsidies on a scale so large and protective that the foreign company—even if its products are still higher quality than the Chinese knockoffs—cannot compete either in price or volume.

Zip! There goes the big red rug.

As Trump’s obeisance to Xi demonstrates, this bait-and-boot strategy still works. Bolstered by the lure of those two billion spenders, the prospect of a toehold in China’s economy is catnip to Western capitalists who seem largely oblivious not only to the CCP’s predatory industrial policy but to to the history and demographics of a Chinese “nation” whose grip on unity is tenuous.

I doubt, for example, that anyone in Marco Rubio’s State Department is familiar with the troubled course of 20th-century China, beginning with, say, the Boxer Rebellion and including the overthrow of the Qing Dynasty, the rise of the Kuomintang and the Chinese Republic under Sun Yat-sen, followed by 23 years of civil war interrupted by the bloody occupation of the Japanese, followed by Mao’s tyranny, the separation of Taiwan and ouster of Chiang Kai-shek, the Cultural Revolution and the massacre at Tiananmen Square.

The hosts of the White House feast where Xi was feted with sesame-crusted sea bass and honey-drizzled ice cream, were blissfully unconcerned about those bad old days. They saw, as American entrepreneurs have seen since Mao kicked the Ming vase, a tranquil, no-longer-Red China poised to collegially join the world’s leading economies without a qualm. An evening of Chinese boosterism contained nary a whisper about Chinese politics. Nobody broached the vaguest hint that China, like the former USSR, is a patchwork of disparate regions, cultures and religions covering 56 distinct ethnic groups, 24 languages and 3.7 million square miles.

No one noted China’s chronic struggle with federalism. While Beijing poses to the world as a top-down monolith whose leaders impose a nationwide conformity, the central command has always had an erratic grip on its regional satraps. As Hefler explained, the governors of China’s various provinces, principalities and cities have an annoying habit of taking charge of their own political and economic affairs. When Beijing says, “Jump,” there are fractious chieftains a thousand miles away who respond not with “How high?” but rather, “Make me.”

Western observers who prefer to negotiate with the omnipotent Boss in Capital City are reluctant to ponder the possibility that maybe, someday soon, this whole jury-rigged nitroglycerine truck might hit a pothole and go kaboom.

It’s hard to find an expert willing to warn that one or more of this huge country’s restive outlying districts—Tibet and Xinjiang, for example—might decide they’re not that Chinese, after all, and opt for self-determination, perhaps violently. There don’t seem to be many China hands in Washington nowadays who seem to recall, by comparison, that the chore of turning a few million openly hostile Croats, Serbs, Kosovars, Montenegrans, Herzegovinians, Bosnians and Slovenians into docile Yugoslavians only worked because everybody was too scared of Marshal Tito to start shelling the infidels across the street. And no one sipping champagne at the Trump-Xi state dinner paused to count (fifteen) the number of sovereign states that broke from the Soviet Union once Russia was no-longer-Red. An empire is only as strong as its most pissed-off satellite.

It’s hardly inconceivable that, with the right trigger—perhaps even before Donald Trump slouches toward Mar-a-Lago to tee off into Nietzsche’s abyss—China might cease to be quite so tightly managed, businesslike and compliantly Communist as it is today. The fuse could be another batch of flaming monks, another Beijing purge of Falun Gong religionists, the desecration of a Uighur Koran by a Han soldier, perhaps a famine among the earthquake victims of Sichuan, or maybe just one too many New York Times headlines praising the Dalai Lama as a swell guy.

China ain’t, after all, Shangri-La. And politics has a way of boiling to the surface, after which it tends to upset the best-laid economic programs of the sort of people—even tech bros, automotive tycoons and real estate moguls—who don’t like to bother their little heads with history, politics or the ignominious fate of Puyi.

Who?