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China Played Its Hand Well in 2020. Will It Keep Winning?
While American democracy struggled to cope with the pandemic, economic crisis and political unrest, Chinese authoritarianism could point to notable successes—and rising international clout.
By
Greg Ip
Jan. 22, 2021 11:02 am ET
By
Greg Ip
Jan. 22, 2021 11:02 am ET
In late 2019, a group of international public health experts set out to assess pandemic preparedness around the world. Using criteria such as early virus detection, speed of response and adherence to international health norms, they ranked the U.S. first, China a distant fifty-first.
The experience with Covid-19, which swept the world shortly after that ranking was published, suggests that the experts got it backward. Among major countries, the U.S. has one of the highest per capita death tolls, China the lowest. The pandemic continues to spread in the U.S. while it remains mostly under control in China except for localized outbreaks.
Covid-19 wasn’t the only area in which China outshone the U.S. in 2020. Its economy managed to grow while the American economy shrank. Its political system grew stronger as the Chinese Communist Party (CCP) reasserted control over Hong Kong and China’s unruly private sector. Meanwhile, American democracy took a hit as outgoing President Donald Trump sought to overturn last fall’s election, culminating with a group of his followers violently storming the Capitol. Joe Biden took the oath of office this week behind military-style fortifications guarded by troops.
People emerging from quarantine line up for buses in Beijing, July 11, 2020.
PHOTO: ZHANG CHENLIN/XINHUA/GETTY IMAGES
If the U.S. and China are strategic competitors, as both Mr. Trump and Mr. Biden maintain, then judging by the last 12 months, China is winning. Its centralized, authoritarian model has been ruthlessly efficient at mobilizing individuals, companies and government to combat Covid-19, face down foreign adversaries and deepen its technological know-how in areas such as semiconductors. U.S. efforts over the past year, by contrast, have been repeatedly undermined by the collision of interests within its pluralistic, decentralized system and among its fellow democracies.
The U.S. has successfully adapted to internal and external challenges for over two centuries, and it would be unwise to count it out now. Yet the past year poses uncomfortable questions about whether the American system can meet the challenge of China.
The rankings in the Global Health Security Index made intuitive sense. The U.S. had world-respected institutions like the Centers for Disease Control and Prevention and the Food and Drug Administration, top-ranked hospitals, doctors and public health systems, and wealth. China had a worrisome record on outbreaks like Severe Acute Respiratory Syndrome in 2003, and though it had since invested heavily in its health care system, many of its people still lacked access to affordable, high-quality care.
Fighting Covid-19 required a nationwide mobilization that came much more easily to China’s authoritarian system.
Yet Covid-19 was unlike any previous pandemic. It required the nationwide mobilization of medical, scientific and economic resources and the elevation of collective welfare over individual rights—moves that came much more easily to China’s authoritarian system. After initially trying to cover up the outbreak, Beijing imposed an unprecedented lockdown on nearly 60 million people. Residents of apartment blocks had to pass through guarded check points while neighborhood committees, who once watched for ideological transgressions under Mao Zedong, monitored compliance with health guidelines. The country used its formidable digital surveillance apparatus to find and quarantine infected people, using rail ticket purchases and cellphone location data to track down anyone who had passed through a hot spot. Entire cities have been tested to find unreported cases.
Andrew Batson, head of China research at Gavekal Dragonomics, a research service, says that the country has traditionally been good at “campaign-style” governance: “Local officials in China are really accustomed to being told, ‘OK, drop whatever you were doing yesterday and switch everything to this today.’” Government has become more repressive and less tolerant of dissent under Mr. Xi. Yet public administration has generally become more competent and less corrupt, Mr. Batson says. Invasive as China’s measures were, ordinary Chinese appear to have accepted their necessity.
SHARE YOUR THOUGHTS
How do you think the Biden administration will approach China? Join the conversation below.
In the U.S., by contrast, individual rights are not so easily overridden. Governors who favored lockdowns and mask mandates often clashed with advocates of economic freedom, including Mr. Trump and the courts. “No individual in the history of this state has ever been vested with as much concentrated and standardless power to regulate the lives of our people,” Michigan Supreme Court Judge Stephen Markman wrote in October, ruling that Gov. Gretchen Whitmer’s Covid-19 restrictions had exceeded her authority. “There must now be some rudimentary return to normalcy.”
Of course, the absence of democratic constraints can only explain part of China’s success. Taiwan, which is culturally similar but boisterously democratic, performed even better. And Britain’s record against Covid-19 is as bad as that of the U.S., despite a centralized response including lockdowns and mask requirements.
Still, the U.S. stood out for its lack of national leadership, says Petros Karakousis, a professor of medicine at Johns Hopkins University who studied how the global health security index got it so wrong. Mr. Trump left testing, supply procurement and other duties up to the states, an approach that Mr. Biden seeks to reverse. The advice of experts like Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, was often sidelined by state and local governments and by Mr. Trump. “It is intrinsic to the U.S. system that it’s decentralized, making it difficult to impose these national mandates,” Dr. Karakousis says. “It didn’t help [that] there wasn’t support at the top for Fauci’s message.”
The headquarters of Huawei in Shenzhen, China. The company’s share of global telecom shipments grew in 2020 despite American efforts to curb it.
PHOTO: ALEX PLAVEVSKI/SHUTTERSTOCK
Economic competition between the U.S. and China concerns not just the size and growth of gross domestic product but also who sets the standards for trade and technology. By those criteria, China proved remarkably resilient in 2020. It emerged from its trade war with the U.S. with a larger overall trade surplus, while the U.S. saw its trade deficit grow. And despite American efforts to curb Huawei Technologies Co., its share of global telecom shipments actually grew.
For years China has used subsidies and protection to pursue self-sufficiency in technology. The U.S. assault on Huawei boosted that strategy. Chinese companies, long reluctant to use inferior domestic semiconductor suppliers, became less reluctant when they saw what happened to Huawei. Capital and talent poured into Chinese semiconductor startups.
As for American companies, despite growing dissatisfaction with coerced technology transfer and discriminatory treatment, abandoning China’s market remains unthinkable. Surveys last year show 87% of U.S. and 89% of European businesses had no plans to shift any operations out of China.
A researcher in a semiconductor lab in Beijing, May 26, 2020. Intel, the leading U.S. semiconductor chip maker, has invested in Chinese chip startups.
PHOTO: VCG/GETTY IMAGES
U.S. efforts to counter Chinese industrial policy with its own have repeatedly stumbled over the refusal of American companies, customers and courts to go along. Without an American competitor to Huawei, the Trump administration at one point urged the networking giant Cisco Systems Inc. to take a stake in Finland’s Nokia Corp. or Sweden’s Ericsson AB. Cisco demurred because the business wasn’t profitable enough, the Journal has reported. Meanwhile, as Congress moves closer to offering subsidies for U.S. semiconductor chip manufacturing, the leading U.S. player, Intel Corp., is planning to outsource some chip making while investing in Chinese chip startups.
Just as the self-interest of American companies has frustrated a unified American approach to China, so has the self-interest of other countries undermined a unified Western approach. Last year Australia asked the World Health Organization to investigate the origins of the Covid-19 pandemic. This angered China, which has cast doubt on the virus’s origins in China, and it retaliated by curbing imports of beef, wine and coal from Australia.
How did other countries respond? Producers of beef in Argentina, wine in Chile and coal in Canada all hope to boost sales to China. “If you are a producer of non-Australian coal and you are able to free up tons from other customers and contractual commitments, you can do quite well by selling to China,” Don Lindsay, chief executive of Canada’s Teck Resources Ltd. , told an investor conference in December.
The ancient Chinese military strategist Sun Tzu once advised subduing the enemy without fighting, notes Clyde Prestowitz, a longtime critic of Japan’s and now China’s industrial policies. In his new book, “The World Turned Upside Down: America, China, and the Struggle for Global Leadership,” he writes that “virtually any economic tie with China can be turned by Beijing into a tool for gaining policy influence—without an open declaration or directive.”
China has actually strengthened its formal trade ties, joining the 15-member Regional Comprehensive Economic Partnership. Though a relatively loose group, it’s in keeping with China’s use of global institutions and linkages to both expand markets and deter economic encirclement. “In the age of globalization, the interests of all countries are so intertwined that the overwhelming majority of them do not want to take sides, let alone being forced into confrontation with China,” foreign minister Wang Yi said last month. In an article last October, Mr. Xi said that China needed to “increase global supply chains’ dependence on China, which can counter and deter any forced cutoff in supply by outsiders.”
Then-Vice President Joe Biden meets with Chinese President Xi Jinping in Beijing, Dec. 4, 2013.
PHOTO: XINHUA/ZUMA PRESS
Mr. Biden hopes to draw American allies into a united front for dealing with China by abandoning Mr. Trump’s belligerent behavior toward them, such as imposing steel tariffs. Yet it’s not clear that allies are interested. Late last month the European Union struck an investment treaty securing better access for its companies to China, rebuffing a suggestion from Jake Sullivan, Mr. Biden’s incoming national security adviser, that it hold off.
Mr. Sullivan “underestimates the lure of the China market,” especially to Germany, says Thorsten Benner, director of the Berlin-based Global Public Policy Institute. “If a united front means no more trading or not pushing for more favorable trade with China, I think the U.S. will find very few allies.” For his part, Mr. Biden on his first day in office signaled that domestic interests would take precedence over those of allies. He revoked a permit for the Keystone XL pipeline, which would carry Canadian crude oil to U.S. refineries. That may push Canada to look to China to buy more of its oil.
The diffusion of power between different levels and branches of government and between the public and private sectors is why American democracy looks messy, and why it has endured. No single actor, not even the president, can impose its will on the rest. Competing interests must work through institutions that confer legitimacy on the outcome.
Or at least that’s how it’s been historically. Events of the last few months have led many Americans to wonder if it’s still true, and Chinese propagandists have gleefully piled on. The mob that attempted to halt the transfer of power on Jan. 6 “ripped away the last fig leaf of the American democracy about which U.S. politicians have boasted,” state-run China Central Television editorialized.
Election results have joined face masks and climate change as issues on which views align with political party. The same could happen with China policy.
Mr. Trump inherited a polarized country and left it even more so. More than half of Republicans believe Mr. Trump’s false claim that Mr. Biden didn’t actually win. Election results have thus joined face masks and climate change as issues on which views align with political party. The same could happen with China policy; Republicans are eager to portray Mr. Biden and Democrats as soft on communism.
Or it could be the one issue on which the two sides agree. Many of Mr. Biden’s advisers share Republicans’ alarm about China. “If the international order is a reflection of its most powerful states, then China’s rise to superpower status will exert a pull toward autocracy,” Mr. Sullivan wrote in Foreign Affairs in 2019 with Kurt Campbell, who will coordinate Asia policy for Mr. Biden.
Mr. Biden has his work cut out for him in trying to unify the private sector and allies behind a single approach to China. Yet the last year has also demonstrated how the diversity and private sector dynamism that hobble economic strategy sustain America’s innovative edge. Two U.S. companies, Pfizer Inc. (in partnership with Germany’s BioNTech SE ) and Moderna Inc., brought to market in record time highly effective vaccines using breakthrough technology. The pandemic sped up adoption of e-commerce, cloud computing and collaborative software, all areas where American companies lead.
The appeal of the U.S. to immigrants and foreign talent is another advantage that China can’t match. The chief executives of both Pfizer and Moderna are foreign born. Three of the biggest winners of the pandemic—videoconference provider Zoom Video Communications Inc., computer graphics chip maker Nvidia Corp. and food delivery service DoorDash Inc. —were founded by Chinese-Americans.
Chinese history illustrates the pitfalls of concentrating power.
The CCP celebrates its 100th anniversary this year, and under Mr. Xi it has entrenched itself as the sole arbiter of economic, political and social orthodoxy. But Chinese history illustrates the pitfalls of concentrating power. Both Imperial and Republican China were authoritarian, state-dominated economies. For 30 years, the CCP followed the Soviet model of massive state investment in heavy industry, with so-so results. Chinese incomes grew only half as fast as Taiwan’s, and poverty and hunger remained pervasive, punctuated by the disasters of the Great Leap Forward and Cultural Revolution. Not until the late 1970s did growth take off as the role of markets and private ownership grew, peaking in the 2000s after China’s entry into the World Trade Organization.
Growth has been slowing ever since, despite repeated rounds of debt-financed stimulus. Some slowing was inevitable: The big shift from farms to factories is largely over, and China’s working-age population is shrinking. But the slowdown has come sooner than in the economic transitions of Taiwan, South Korea or Japan. The CCP’s tightening grip over both state and now private enterprise may not be the main culprit, but the risks to innovation and entrepreneurship are obvious.
Jack Ma, the main founder of e-commerce giant Alibaba Group Holding Ltd. and the financial-technology giant Ant Group Co., said as much last October: “Innovation mainly comes from the marketplace, innovation comes from the grassroots, innovation comes from young people. Good innovation is not afraid of regulation but is afraid of being subjected to yesterday’s way to regulate.”
As if to prove his point, the government responded to the speech by halting Ant’s IPO, expected to be the largest in history, and launching an antitrust investigation. Officials say that they were investigating whether Ant threatens the financial system or is abusing its market dominance. But their actions also suggest zero tolerance for any entrepreneur who presumes to challenge the CCP.
The CCP faces the same problem as Imperial and Republican China, say economic historians Loren Brandt and Thomas Rawski. “How can China embed a creative, freewheeling culture of economic and technical innovation within an authoritarian system whose leaders feel threatened by unorthodox thinking?” they write in a chapter for the forthcoming “Cambridge Economic History of China.”
The formula of subsidies and protection China has used to nurture national champions faces diminishing returns as innovation becomes more complex; results in commercial aircraft and semiconductors have to date been disappointing. Mr. Brandt and Mr. Rawski warn of a “Soviet-style outcome in which the occasional Sputnik illuminates galaxies of mediocrity.”
China may have bested the U.S. in the first round of their emerging competition. It is far from clear that it will do so in the next.
While American democracy struggled to cope with the pandemic, economic crisis and political unrest, Chinese authoritarianism could point to notable successes—and rising international clout.
By
Greg Ip
Jan. 22, 2021 11:02 am ET
By
Greg Ip
Jan. 22, 2021 11:02 am ET
In late 2019, a group of international public health experts set out to assess pandemic preparedness around the world. Using criteria such as early virus detection, speed of response and adherence to international health norms, they ranked the U.S. first, China a distant fifty-first.
The experience with Covid-19, which swept the world shortly after that ranking was published, suggests that the experts got it backward. Among major countries, the U.S. has one of the highest per capita death tolls, China the lowest. The pandemic continues to spread in the U.S. while it remains mostly under control in China except for localized outbreaks.
Covid-19 wasn’t the only area in which China outshone the U.S. in 2020. Its economy managed to grow while the American economy shrank. Its political system grew stronger as the Chinese Communist Party (CCP) reasserted control over Hong Kong and China’s unruly private sector. Meanwhile, American democracy took a hit as outgoing President Donald Trump sought to overturn last fall’s election, culminating with a group of his followers violently storming the Capitol. Joe Biden took the oath of office this week behind military-style fortifications guarded by troops.
People emerging from quarantine line up for buses in Beijing, July 11, 2020.
PHOTO: ZHANG CHENLIN/XINHUA/GETTY IMAGES
If the U.S. and China are strategic competitors, as both Mr. Trump and Mr. Biden maintain, then judging by the last 12 months, China is winning. Its centralized, authoritarian model has been ruthlessly efficient at mobilizing individuals, companies and government to combat Covid-19, face down foreign adversaries and deepen its technological know-how in areas such as semiconductors. U.S. efforts over the past year, by contrast, have been repeatedly undermined by the collision of interests within its pluralistic, decentralized system and among its fellow democracies.
The U.S. has successfully adapted to internal and external challenges for over two centuries, and it would be unwise to count it out now. Yet the past year poses uncomfortable questions about whether the American system can meet the challenge of China.
The rankings in the Global Health Security Index made intuitive sense. The U.S. had world-respected institutions like the Centers for Disease Control and Prevention and the Food and Drug Administration, top-ranked hospitals, doctors and public health systems, and wealth. China had a worrisome record on outbreaks like Severe Acute Respiratory Syndrome in 2003, and though it had since invested heavily in its health care system, many of its people still lacked access to affordable, high-quality care.
Fighting Covid-19 required a nationwide mobilization that came much more easily to China’s authoritarian system.
Yet Covid-19 was unlike any previous pandemic. It required the nationwide mobilization of medical, scientific and economic resources and the elevation of collective welfare over individual rights—moves that came much more easily to China’s authoritarian system. After initially trying to cover up the outbreak, Beijing imposed an unprecedented lockdown on nearly 60 million people. Residents of apartment blocks had to pass through guarded check points while neighborhood committees, who once watched for ideological transgressions under Mao Zedong, monitored compliance with health guidelines. The country used its formidable digital surveillance apparatus to find and quarantine infected people, using rail ticket purchases and cellphone location data to track down anyone who had passed through a hot spot. Entire cities have been tested to find unreported cases.
Andrew Batson, head of China research at Gavekal Dragonomics, a research service, says that the country has traditionally been good at “campaign-style” governance: “Local officials in China are really accustomed to being told, ‘OK, drop whatever you were doing yesterday and switch everything to this today.’” Government has become more repressive and less tolerant of dissent under Mr. Xi. Yet public administration has generally become more competent and less corrupt, Mr. Batson says. Invasive as China’s measures were, ordinary Chinese appear to have accepted their necessity.
SHARE YOUR THOUGHTS
How do you think the Biden administration will approach China? Join the conversation below.
In the U.S., by contrast, individual rights are not so easily overridden. Governors who favored lockdowns and mask mandates often clashed with advocates of economic freedom, including Mr. Trump and the courts. “No individual in the history of this state has ever been vested with as much concentrated and standardless power to regulate the lives of our people,” Michigan Supreme Court Judge Stephen Markman wrote in October, ruling that Gov. Gretchen Whitmer’s Covid-19 restrictions had exceeded her authority. “There must now be some rudimentary return to normalcy.”
Of course, the absence of democratic constraints can only explain part of China’s success. Taiwan, which is culturally similar but boisterously democratic, performed even better. And Britain’s record against Covid-19 is as bad as that of the U.S., despite a centralized response including lockdowns and mask requirements.
Still, the U.S. stood out for its lack of national leadership, says Petros Karakousis, a professor of medicine at Johns Hopkins University who studied how the global health security index got it so wrong. Mr. Trump left testing, supply procurement and other duties up to the states, an approach that Mr. Biden seeks to reverse. The advice of experts like Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, was often sidelined by state and local governments and by Mr. Trump. “It is intrinsic to the U.S. system that it’s decentralized, making it difficult to impose these national mandates,” Dr. Karakousis says. “It didn’t help [that] there wasn’t support at the top for Fauci’s message.”
The headquarters of Huawei in Shenzhen, China. The company’s share of global telecom shipments grew in 2020 despite American efforts to curb it.
PHOTO: ALEX PLAVEVSKI/SHUTTERSTOCK
Economic competition between the U.S. and China concerns not just the size and growth of gross domestic product but also who sets the standards for trade and technology. By those criteria, China proved remarkably resilient in 2020. It emerged from its trade war with the U.S. with a larger overall trade surplus, while the U.S. saw its trade deficit grow. And despite American efforts to curb Huawei Technologies Co., its share of global telecom shipments actually grew.
For years China has used subsidies and protection to pursue self-sufficiency in technology. The U.S. assault on Huawei boosted that strategy. Chinese companies, long reluctant to use inferior domestic semiconductor suppliers, became less reluctant when they saw what happened to Huawei. Capital and talent poured into Chinese semiconductor startups.
As for American companies, despite growing dissatisfaction with coerced technology transfer and discriminatory treatment, abandoning China’s market remains unthinkable. Surveys last year show 87% of U.S. and 89% of European businesses had no plans to shift any operations out of China.
A researcher in a semiconductor lab in Beijing, May 26, 2020. Intel, the leading U.S. semiconductor chip maker, has invested in Chinese chip startups.
PHOTO: VCG/GETTY IMAGES
U.S. efforts to counter Chinese industrial policy with its own have repeatedly stumbled over the refusal of American companies, customers and courts to go along. Without an American competitor to Huawei, the Trump administration at one point urged the networking giant Cisco Systems Inc. to take a stake in Finland’s Nokia Corp. or Sweden’s Ericsson AB. Cisco demurred because the business wasn’t profitable enough, the Journal has reported. Meanwhile, as Congress moves closer to offering subsidies for U.S. semiconductor chip manufacturing, the leading U.S. player, Intel Corp., is planning to outsource some chip making while investing in Chinese chip startups.
Just as the self-interest of American companies has frustrated a unified American approach to China, so has the self-interest of other countries undermined a unified Western approach. Last year Australia asked the World Health Organization to investigate the origins of the Covid-19 pandemic. This angered China, which has cast doubt on the virus’s origins in China, and it retaliated by curbing imports of beef, wine and coal from Australia.
How did other countries respond? Producers of beef in Argentina, wine in Chile and coal in Canada all hope to boost sales to China. “If you are a producer of non-Australian coal and you are able to free up tons from other customers and contractual commitments, you can do quite well by selling to China,” Don Lindsay, chief executive of Canada’s Teck Resources Ltd. , told an investor conference in December.
The ancient Chinese military strategist Sun Tzu once advised subduing the enemy without fighting, notes Clyde Prestowitz, a longtime critic of Japan’s and now China’s industrial policies. In his new book, “The World Turned Upside Down: America, China, and the Struggle for Global Leadership,” he writes that “virtually any economic tie with China can be turned by Beijing into a tool for gaining policy influence—without an open declaration or directive.”
China has actually strengthened its formal trade ties, joining the 15-member Regional Comprehensive Economic Partnership. Though a relatively loose group, it’s in keeping with China’s use of global institutions and linkages to both expand markets and deter economic encirclement. “In the age of globalization, the interests of all countries are so intertwined that the overwhelming majority of them do not want to take sides, let alone being forced into confrontation with China,” foreign minister Wang Yi said last month. In an article last October, Mr. Xi said that China needed to “increase global supply chains’ dependence on China, which can counter and deter any forced cutoff in supply by outsiders.”
Then-Vice President Joe Biden meets with Chinese President Xi Jinping in Beijing, Dec. 4, 2013.
PHOTO: XINHUA/ZUMA PRESS
Mr. Biden hopes to draw American allies into a united front for dealing with China by abandoning Mr. Trump’s belligerent behavior toward them, such as imposing steel tariffs. Yet it’s not clear that allies are interested. Late last month the European Union struck an investment treaty securing better access for its companies to China, rebuffing a suggestion from Jake Sullivan, Mr. Biden’s incoming national security adviser, that it hold off.
Mr. Sullivan “underestimates the lure of the China market,” especially to Germany, says Thorsten Benner, director of the Berlin-based Global Public Policy Institute. “If a united front means no more trading or not pushing for more favorable trade with China, I think the U.S. will find very few allies.” For his part, Mr. Biden on his first day in office signaled that domestic interests would take precedence over those of allies. He revoked a permit for the Keystone XL pipeline, which would carry Canadian crude oil to U.S. refineries. That may push Canada to look to China to buy more of its oil.
The diffusion of power between different levels and branches of government and between the public and private sectors is why American democracy looks messy, and why it has endured. No single actor, not even the president, can impose its will on the rest. Competing interests must work through institutions that confer legitimacy on the outcome.
Or at least that’s how it’s been historically. Events of the last few months have led many Americans to wonder if it’s still true, and Chinese propagandists have gleefully piled on. The mob that attempted to halt the transfer of power on Jan. 6 “ripped away the last fig leaf of the American democracy about which U.S. politicians have boasted,” state-run China Central Television editorialized.
Election results have joined face masks and climate change as issues on which views align with political party. The same could happen with China policy.
Mr. Trump inherited a polarized country and left it even more so. More than half of Republicans believe Mr. Trump’s false claim that Mr. Biden didn’t actually win. Election results have thus joined face masks and climate change as issues on which views align with political party. The same could happen with China policy; Republicans are eager to portray Mr. Biden and Democrats as soft on communism.
Or it could be the one issue on which the two sides agree. Many of Mr. Biden’s advisers share Republicans’ alarm about China. “If the international order is a reflection of its most powerful states, then China’s rise to superpower status will exert a pull toward autocracy,” Mr. Sullivan wrote in Foreign Affairs in 2019 with Kurt Campbell, who will coordinate Asia policy for Mr. Biden.
Mr. Biden has his work cut out for him in trying to unify the private sector and allies behind a single approach to China. Yet the last year has also demonstrated how the diversity and private sector dynamism that hobble economic strategy sustain America’s innovative edge. Two U.S. companies, Pfizer Inc. (in partnership with Germany’s BioNTech SE ) and Moderna Inc., brought to market in record time highly effective vaccines using breakthrough technology. The pandemic sped up adoption of e-commerce, cloud computing and collaborative software, all areas where American companies lead.
The appeal of the U.S. to immigrants and foreign talent is another advantage that China can’t match. The chief executives of both Pfizer and Moderna are foreign born. Three of the biggest winners of the pandemic—videoconference provider Zoom Video Communications Inc., computer graphics chip maker Nvidia Corp. and food delivery service DoorDash Inc. —were founded by Chinese-Americans.
Chinese history illustrates the pitfalls of concentrating power.
The CCP celebrates its 100th anniversary this year, and under Mr. Xi it has entrenched itself as the sole arbiter of economic, political and social orthodoxy. But Chinese history illustrates the pitfalls of concentrating power. Both Imperial and Republican China were authoritarian, state-dominated economies. For 30 years, the CCP followed the Soviet model of massive state investment in heavy industry, with so-so results. Chinese incomes grew only half as fast as Taiwan’s, and poverty and hunger remained pervasive, punctuated by the disasters of the Great Leap Forward and Cultural Revolution. Not until the late 1970s did growth take off as the role of markets and private ownership grew, peaking in the 2000s after China’s entry into the World Trade Organization.
Growth has been slowing ever since, despite repeated rounds of debt-financed stimulus. Some slowing was inevitable: The big shift from farms to factories is largely over, and China’s working-age population is shrinking. But the slowdown has come sooner than in the economic transitions of Taiwan, South Korea or Japan. The CCP’s tightening grip over both state and now private enterprise may not be the main culprit, but the risks to innovation and entrepreneurship are obvious.
Jack Ma, the main founder of e-commerce giant Alibaba Group Holding Ltd. and the financial-technology giant Ant Group Co., said as much last October: “Innovation mainly comes from the marketplace, innovation comes from the grassroots, innovation comes from young people. Good innovation is not afraid of regulation but is afraid of being subjected to yesterday’s way to regulate.”
As if to prove his point, the government responded to the speech by halting Ant’s IPO, expected to be the largest in history, and launching an antitrust investigation. Officials say that they were investigating whether Ant threatens the financial system or is abusing its market dominance. But their actions also suggest zero tolerance for any entrepreneur who presumes to challenge the CCP.
The CCP faces the same problem as Imperial and Republican China, say economic historians Loren Brandt and Thomas Rawski. “How can China embed a creative, freewheeling culture of economic and technical innovation within an authoritarian system whose leaders feel threatened by unorthodox thinking?” they write in a chapter for the forthcoming “Cambridge Economic History of China.”
The formula of subsidies and protection China has used to nurture national champions faces diminishing returns as innovation becomes more complex; results in commercial aircraft and semiconductors have to date been disappointing. Mr. Brandt and Mr. Rawski warn of a “Soviet-style outcome in which the occasional Sputnik illuminates galaxies of mediocrity.”
China may have bested the U.S. in the first round of their emerging competition. It is far from clear that it will do so in the next.
