The Daily - What the West Got Wrong About China, Part 1

Episode Date: December 4, 2018

From the very beginning, the West was certain that China would not pull off its economic experiment. That certainty came from a set of assumptions about how societies function and political freedoms emerge. But those assumptions were wrong — and China became stronger than ever. Guest: Philip P. Pan, the Asia editor for The New York Times, spoke with us from Beijing. For more information on today’s episode, visit nytimes.com/thedaily.

In the fall of 1984, a group of economic students and economists from across China gathered for a conference in a mountain retreat called Mo Gan Shan outside of Shanghai. They met for seven days, seven nights, and they were there to really answer one question. How could China catch up to the West? The overwhelming impression of China today remains that of backwardness. Horse and human power still do the chores machines would do better. China was basically in shambles. Mao Zedong had died only a few years earlier, and he had devastated the country with his political campaigns. More than a million people had been killed or persecuted and still about three

quarters of the population was living in extreme poverty. The government decided what every factory made, how much everything cost. The economy wasn't really functioning. For the average worker, the most sought after consumer items are a major investment. A good locally made television at $300 is nearly half a year's salary. So as they were emerging from this isolation and this devastation, they looked out on the rest of the world and they saw that they were far, far behind. It's morning again in America. Today, more men and women will go to work than ever before in our country's history. The United States was the world's largest economy.

Nearly 2,000 families today will buy new homes. Ronald Reagan was declaring morning in America again. Under the leadership of President Reagan, our country is prouder and stronger and better. Our country is prouder and stronger and better. Democracy, capitalism seemed to be working, while communism, authoritarianism had failed in China. So what these students are up to is a major undertaking. No, it was a huge challenge. They faced political opposition, bureaucratic opposition. What they were talking about would have gotten them thrown in jail just a few years earlier, probably. No communist country had successfully done what they

were proposing to do. And what were they proposing to do? So these economists, these students, they batted around a lot of ideas. There was very intense debate, often late into the night. And one of the issues they'd been debating was what to do about the factories, which were following orders from the state. Some of them said that the factories had to meet these quotas, otherwise the planned economy would fall apart. And others said the only way to get the economy to grow again was to let the factories make what they wanted. And late one night, they came up with a quietly radical idea. The factories would meet the state quotas, but they would begin producing other material and selling it at any price they wanted. So literally the idea was factories would meet all their obligations under a very restrictive communist economy.

And once they had done that, they could tiptoe into the world of capitalism kind of on the side. of the world of capitalism kind of on the side. That's right. They were basically sneaking in capitalism while continuing to call themselves communist without giving up any of their authoritarian control over politics. Western observers think the dismantling of price controls after more than 30 years of communist rule could be politically explosive. So the West thought that this would never work. The prevailing assumption was that capitalism would not function properly without political freedom. The idea was that these bureaucrats in the authoritarian system, they would defend their control of the economy, they would block change, they would crush market forces. On the other hand, experts are urging caution about all this.

The Chinese may be planning too much too soon. As people got wealthier, as capitalism began to take hold, people were expected to demand more from their government. They would demand political rights, and the government would eventually have to open up. Basically, the West saw this as a fundamental mismatch. You can't have capitalism and authoritarianism working together, that the Chinese experiment was basically going to fail. Either the economy would fail or the authoritarian system would fail. But of course, they were dead wrong. From The New York Times, I'm Michael Barbaro.

This is The Daily. Times, I'm Michael Barbaro. This is The Daily. From the very beginning, the West was certain that China would not pull this experiment off. That certainty came from a set of assumptions about how societies function and why democracy wins out. We were wrong about those assumptions. And as my colleague Phil Pan reports from Beijing, China is stronger than ever. It's Tuesday, December 4th. Assumption number one, government-controlled economies stifle growth. So take us back to this group of economics students.

They come up with this idea. And then what happens? Well, somebody wrote up a report. It was delivered to the leadership. And to everyone's surprise, the leadership adopted it almost immediately. The sweeping changes were approved by a meeting of China's top communists. And the supreme leader, Deng Xiaoping, wants them working in three to five years. They were just desperate enough that they jumped on it.

And this really kicked off the whole period of economic reform that allows China to take off. Market forces will be allowed to operate in many areas. They began sending officials overseas to learn how markets work. The emphasis is on creating a new educated elite dedicated to modernizing China. Getting rid of the system that gives men the same wages regardless of how much they produce. They opened up the economy to allow foreign investment, foreign ideas in, including from some of their old enemies such as the United States Japan, and Taiwan. It is China's policy to open up to the whole world with no discrimination against any country.

China's Vice Premier Deng Xiaoping, who spent most of today in Houston, arrived in Seattle tonight, where he'll spend the final two days of his American tour before returning to Peking Monday. During this entire period, the United States and much of the West was heavily invested in China's success. Tomorrow he tours the Boeing plant, which makes the planes China is buying to expand its national airline. They became China's largest trading partner. buying to expand its national airline. They became China's largest trading partner. They were one of, if not the biggest source of foreign investment inside China. The Chinese now hope the Americans will help further develop China's oil, especially by selling technology for offshore deep water drilling. If it weren't for American investment in American trade, it's quite possible China would

not have ended up this way. Deng, who had earlier visited the NASA Space Center, later remarked, it wasn't often that a Chinese could become an astronaut and a cowboy in one day. The idea was that trade with China would change China. What actually happened was that trade with China strengthened the party, but it brought political change to the United States and to communities around the world. China grew so fast and its manufacturing sector was so successful that factories around the world shut down. And in the United States, the economists say,

at least 2 million jobs were lost due just to the rise of the Chinese manufacturing sector. Basically, China's timing was perfect. They were opening up just as globalization was sweeping the world, and they were perfectly positioned to basically become the factory to the rest of the world. So if the Chinese government is supporting this, what's its role in it?

Well, all around the economic growth was state control. They continue to control key sectors of the economy. This was a one-party state, no elections, no freedom of speech, no freedom of assembly, no freedom of religion. There were no labor movements. People began to push back against this early on in 1989 with the Tiananmen Square movement. Hundreds of thousands of students and workers and other hopeful Chinese citizens had been seeking a peaceful dialogue with the leaders of this vast nation,

received instead the harshest of responses to their demands for reform and freedom. Last night, an estimated 30,000 Chinese army troops were sent into the capital to crush what the government called a small band of hooligans and gangsters. And the government completely shut that down with a massacre. Some lost their lives when armored personnel carriers and troop trucks simply ran over them. Others were gunned down as they tried to resist the savage show of force. Get out! Get out!

the savage show of force. It is difficult not to use the word massacre to describe what happened. So that sent a signal that there was this line that the party would never cross. They would allow enough freedom to grow the economy, but they would never allow people to challenge their control of the government. So bring us up to speed on China's economic status today.

Well, China now is the world's second largest economy. Here comes China, the country overtaking Japan now as the number two economy in the world. It's on track to surpass the United States very soon. Experts say that China could even pass the U.S. and grab the top spot by 2030. As a result, it's a leader in social mobility. It has lifted 800 million people out of poverty. That's twice as many as even live in the United States. If you're an 18-year-old in China, your prospects for sort of rising, both in terms of social class and in income level, are much higher than you're if you're an 18-year-old in the United States.

Polls show that 75% of Chinese millennials, they are optimistic about their future. They think their country's going to run the world. In the United States, millennials, it's about 25% think that they're optimistic. So at a time when the American dream in the United States feels like it's slipping away, something like the American dream has really captivated the Chinese population. And the Chinese president now, Xi Jinping, even calls this the Chinese dream. So in that sense, the U.S. and the West were quite wrong.

You could have all this economic growth without any major political reform. That's right. There was basically a bargain. The party delivered a better life for people, and they stayed out of politics. Assumption number two, the internet cannot be tamed and will lead to political freedom. So about 15 years after that meeting of economists in the mountains, China had become an economic force. Thank you very much, President Voti. And then came the Internet, and people thought this would be it.

We know how much the Internet has changed America, and we are already an open society. Imagine how much it could change China. That it would just put so much pressure on the Communist Party that the party would have to open up. Now, there's no question China has been trying to crack down on the Internet. Good luck. That's sort of like trying to nail Jell-O to the wall. And of course, it didn't work out that way. The West was completely wrong.

How so? Well, in the beginning, it was quite free. There were only a few websites that were blocked. Information was spreading much faster than the Communist Party was used to. And then as social media developed, there was a platform called Weibo. And in 2011, there was a platform called Weibo, and in 2011 there was a crisis. On Saturday, July the 23rd, 40 people were killed and nearly 200 injured after a high-speed train crashed into a stalled train in China's eastern Zhejiang province. It seemed like the government's worst nightmares were coming true.

Chinese railway authorities are being hit by an outpour of public anger. Millions of messages critical of the government's call for a media blackout and their response to the crash itself have appeared online. People finally had a way to organize and express their discontent with the Communist Party. Now, 94% in a Sina Weibo poll say that they're dissatisfied with the government's role and that they're not showing respect for human life. They thought about shutting down the platform completely. Instead, they decided to just invest more in control.

They hired hundreds more sensors. They required companies to do the same. They upgraded the technology they use to sort of filter information on the Internet. And they've managed to ride out the threat that the Internet posed. So what does censorship on the Chinese Internet look like? Well, when you go online, you wouldn't even be able to tell right away that censorship is going on. that censorship is going on. Yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah. It's a very vibrant world there,

just like it is in the United States. The crazy memes, cat videos, people playing pranks. A lot of live video blogging nowadays. But if you type in Tiananmen Square on their search engine, Baidu, you see no results about the massacre. If you type in a message about democracy or human rights

on the main chat platform, WeChat, you may eventually be arrested. If you are a live blogger, a video blogger, and you're doing a show, recently one of these women sang the national anthem in a funny way, you could be visited by the state security and warned, if not detained.

All of this censorship seems like it would require vast resources and time, cost. I wonder if it would be easier for China to have kept the internet at bay and to have essentially rejected it rather than to go to all this trouble. Yeah, there's no doubt it's really expensive what they're doing. But overall, this was a big gamble by the party, and it's really paid off. The Internet is one of the most vibrant sectors of the economy now. It's created billions and billions of dollars of economic value. So the cost of censorship, while significant, really pales in comparison to the overall value of the Internet to the Chinese economy.

And it has some of the most valuable internet companies in the world right now. In fact, only American companies can sort of rival the Chinese ones. They've got Alibaba, which is their answer to Amazon. Alibaba has just filed for what may be one of the largest IPOs in history. It is now, I think, worth over $400 billion. There's a company called Tencent. More than two-thirds of the population use Tencent's two messaging apps,

WeChat and QQ. They have a search engine similar to Google called Baidu. One analyst described Baidu's latest earnings scenario as destroying expectations. It solves the government's problems because it doesn't produce any of the sort of problematic material.

But has the internet served to empower the people and weaken the government's problems because it doesn't produce any of the sort of problematic material. But has the internet served to empower the people and weaken the government the way that we assumed it would? Well, I think it really has opened up more space for speech, more space for criticism of the government. It is still the most free media platform out there in China, something that didn't exist before. But I think what we didn't anticipate was how useful a tool it would become for the government as well. The government uses it to monitor public opinion. The government uses it to surveil its own citizens. And the government uses it very effectively to sort of get its own message out. It floods the internet with the positive message that the party is good for China. In some ways, like China sees what's happened in the United States and it just shakes its head.

It's like they went down the wrong road with the internet. We did it the right way. We don't have any of those problems. Having so much freedom of speech on the Internet, some people say it's contributed to political division, it's allowed the flourishing of fake news and political interference by other countries. China doesn't have to worry about any of that. Basically, Bill Clinton was wrong. China found a way to live with the Internet and to harness it for its own purposes.

Tomorrow, in part two, the United States didn't just misunderstand how China would respond to economic growth. The U.S. misunderstood how it would respond to China. We'll be right back. We'll be right back. Here's what else you need to know today. China has reneged on deals in the past. What gives you more encouragement this time around, and specifically what gives you more courage?

Well, this is the furthest and most specific we've ever come. That's a good question. The history here with China promises is not very good. On Monday, the Trump administration defended a truce it has reached with China's president, Xi Jinping, to temporarily end a months-long trade war between the two countries that has affected hundreds of billions of dollars in products. However, I will say this, President Xi has never been this involved. I mean, the presentation he gave to President Trump and the rest of us at dinner Saturday night

was unbelievable, remarkable. And the chemistry between him and President Trump was also remarkable. President Trump's chief economic advisor, Larry Kudlow, said that President Xi promised immediate action on a range of issues, including China's trade deficit with the U.S. and its practice of requiring U.S. companies to share secret technology as a condition of doing business there. I think President Xi, therefore, is being candid and truthful.

The level of detail is important. We heard things we'd never heard before. But The Times reports that the 90-day truce involves no concrete commitments, raising fears that nothing will meaningfully change and that a trade war could resume. Color me hopeful, please. Again, you know, we'll see.

But I will say this. They cannot slow walk this, stall this, meander this. Their word, immediate. So I expect to see, let's say, confirming results. That's it for The Daily. I'm Michael Barbaro. See you tomorrow.