China’s Jekyll and Hyde Moment

After 500 years during which the West led the world and China essentially stagnated, the tide has turned in the past 30 years as China launched its economic reforms which have brought rapid growth, and a growing sense of rising strength inside the country. But there are some fundamental structural problems in China, starting with the lack of any fundamental legitimacy of single-party rule, Jamie Metzl told a breakfast meeting of LAWAC members on Thursday. “Nobody knows more about the weaknesses of the Chinese system than the Chinese themselves,” said Metzl, pointing to the large numbers of wealthy Chinese who are emigrating or setting up second residences in the US and elsewhere.

Metzl, a former executive vice president of the Asia Society and deputy staff director for the US Senate Foreign Relations Committee, said that China deserves enormous credit for its achievements since 1979, raising 400 million people out of poverty, reducing illiteracy, growing the economy and bringing the country into the World Trade Organization. But “their government has no inherent legitimacy.” Mao Zedong was responsible for more human deaths than anyone else in history, but the party’s legitimacy comes from Mao’s revolution – “so they cannot disown Mao.” The Communist Party has created a very self-serving government, which brings huge inefficiencies and disparity in allocation of resources domestically, and is seen to be very narrow-minded by its neighbors. “China gets no buy-in from other countries.” China, he said, “has no friends other than North Korea – the US has a lot of friends… ultimately the Chinese will have to articular a positive view of the world that works out for more than just them.”

Metzl said Asia was experiencing a Jekyll and Hyde moment – on the Jekyll side Asia in the 21st century is moving towards a fast-growing, integrated economy, but on the Hyde side the region is becoming increasingly nationalistic and is arming to the teeth – “the question is which side will prevail?”

Large numbers of affluent Chinese are leaving – some 60% of Chinese with assets over $1.6 m have either emigrated or have plans to set up a second residence overseas, according to a survey by the Shanghai-based Hurun Report. In the big cities “kids are getting asthma – it is totally unlivable,” and people are also trying to get their money out because they fear the system isn’t sustainable – “there is not a lot of faith in where the party is coming from.”

The Chinese leadership is not unaware of these problems, and President Xi JInping has set out to reduce corruption and push economic reform – but, as Metzl said, “he is betting the country on top-down economic reform,” coordinated by the party, because “they are terrified of bottom-up reform” that would come from the people working independently.

China’s growing strength was particularly obvious in their recent negotiations with Russia over the supply of natural gas for a 10 year-period. The Russians wanted the “European price”, but because they needed the deal after turning away from Europe in the wake of their annexation of Crimea, they had to accept the (lower) “Asian price” that the Chinese offered – “Putin got raked over the coals by the Chinese,” said Metzl.

Finally Metzl said that Xi seemed determined to push economic reforms, but there was little sign that he would follow them up with political reforms. There has been some internal carping at Xi becoming the “Imperial President” by centralizing so much decision-making around himself, but at the same time there is little evidence of any serious challenge to his rule – “from here, it looks like he is in a pretty strong position.” The bigger question of whether China itself is in a stronger or weaker position--whether Dr. Jekyll or Mr. Hyde will prevail-- remains open.