Argument

Is China Afraid of Its Own People?

The diplomatic tussle over the East China Sea has calmed down, but a bigger foreign-policy problem awaits: China's newly empowered masses won't take 'no' for an answer, and Beijing is right to be scared.

China and Japan's recent showdown over the Diaoyu (or Senkaku, to the Japanese) archipelago seems to have cooled down with the release of the captain of a Chinese fishing vessel who was detained by the Japanese coast guard earlier this month. Quite a few official Chinese media outlets ran big headlines proclaiming that the Japanese had capitulated. Yet it's by no means clear that China was the victor.

Indeed, the extraordinary lengths to which Beijing has gone to rein in public protests over the alleged Japanese occupation of the Diaoyu, as the islands are called in China, has exposed a critical shortcoming of the so-called China model: the Chinese Communist Party leadership's inability to make effective use of public opinion to advance domestic as well as diplomatic goals. Instead of leading public opinion, these days Chinese leaders are sometimes pushed into uncomfortable stances that reduce their options.

The row with Japan is a case in point. At the height of the dispute, Chinese authorities pulled out all the stops to prevent patriotic Chinese from airing their views. Protest organizers of protests, such as the editors of www.cfdd.org.cn, a website well-known for its advocacy of Diaoyu-related issues, were given warnings by the police "not to break the law" by holding demonstrations and other radical actions.

The few hundred activists who joined rallies on Sept. 18 -- which marked the 79th anniversary of the Japanese invasion of China's northeastern provinces -- in cities including Beijing, Guangzhou, Shanghai, and Shenzhen, were subjected to tight surveillance by police, who outnumbered the demonstrators by at least four to one. The protesters were dispersed by law-enforcement agents within an hour or so.

On Sept. 12, Chinese police prevented a group of nationalist activists from renting a boat to sail from Fujian province to the Diaoyu islets to proclaim Chinese sovereignty. A similar action 10 days later by a patriotic NGO in Hong Kong was foiled by the local administration, which stopped the fishing vessel on the grounds that it was not licensed to carry passengers.

One reason Beijing is so nervous about demonstrations is that based on past experience, "troublemakers" often take advantage of such rare occasions to air grievances regarding nondiplomatic issues, especially corruption within party and government departments. That explains why at least nine activists, according to the watchdog Chinese Human Rights Defenders, were detained or warned not to participate in the rallies in Beijing and Guangzhou. Among them were Xu Zhiyong, a lecturer at Beijing University of Posts and Telecommunications, and Teng Biao, a lawyer. Xu and Teng are well-known NGO activists who have stood up for victims of official corruption.

Yet the most important reason why party authorities are paranoid about public protests is that aside from casting aspersions Tokyo's way, demonstrators might also zero in on Beijing's failure to do anything substantial to recover the lost territory. Sino-Japanese wrangling over the Diaoyu/Senkaku islands dates back to the early 1970s, when Washington returned the archipelago to Japan, but Beijing's actions have never gone beyond rhetorical assertions of its "sovereignty since time immemorial."

Nor are they likely to. Despite the leaps-and-bounds development of the Chinese Navy, a military solution seems out of the question. The islets fall within the Japanese-American mutual defense treaty, a fact that was reiterated by U.S. Secretary of State Hillary Clinton when she met visiting Japanese Foreign Minister Seiji Maehara in New York last week.

A more realistic solution is the one advocated by late patriarch Deng Xiaoping when he visited Japan in 1978: seeking joint development of the islands, which are rich in natural resources, while shelving sovereignty concerns. Deng said on the occasion that it might be better to let "future generations, which may be wiser" to tackle the sovereignty imbroglio. Deng's statement, which could be interpreted as legitimizing the status quo of the Diaoyu being run by Japan on a de facto basis, has never been given much publicity in China. It is also not mentioned in high-school history textbooks.

Why? Why does China fear its own people so much?

Apart from the party leadership's well-known tradition of undemocratic governance, the main reason behind "black-box diplomacy" is to avoid taking responsibility for failing to stand up to foreign powers such as the United States or Japan. Despite the relative efficacy of the Great Firewall of China, fast-growing numbers of nationalists have frequently been able to use the Internet to express their views, including negative ones about Beijing's foreign and security policies. These increasingly vocal nationalists generally believe that rising China has become a mature power and deserves a place in world affairs to match its burgeoning economic clout.

It is out of fear of a nationalist backlash that China's negotiations with the United States and other countries regarding its accession to the World Trade Organization for instance, were wrapped in secrecy. Beijing apparently worried that should ordinary Chinese learn about the considerable concessions that it had made in areas including tariff reductions, senior cadres including former Premier Zhu Rongji would be labeled "traitors" by WTO opponents.

The same fears shrouded negotiations with Russia regarding a treaty that ended decades of disputes over the two countries' shared 2,700-mile border. The pact, which was officially signed in 2008, was mainly negotiated between former Presidents Jiang Zemin and Boris Yeltsin. It legitimized Russian ownership of huge chunks of Chinese territories -- estimated to be 40 times the size of Taiwan -- that had been taken away from China in the days of the czars.

Yet in other cases, party leaders' refusal to engage the public -- including China's increasingly well-educated and sophisticated middle class -- in the formulation of foreign policy has considerably reduced the room to maneuver of officials and diplomats.

For example, President Hu Jintao and then Japanese Prime Minister Yasuo Fukuda reached a theoretical accord in mid-2008 to settle sovereignty disputes over the East China Sea. The agreement was largely based on the principle of "seeking joint development while shelving sovereignty."

Again, Beijing made no efforts to explain to its citizens the rationale behind the potentially win-win solution. When the East China Sea accord was announced a couple of weeks after Hu left Tokyo, Chinese netizens expressed massive disapproval, even on official websites. Since then, Chinese diplomats have dragged their feet in negotiations on transforming the Hu-Fukuda theoretical agreement into a formal treaty.

But never has Beijing tried to persuade the Chinese public of the wisdom of compromise. And in the past year, hard-liners including military hawks have openly expressed disapproval of the formula of "seeking joint development while shelving sovereignty disputes."

Yet another drawback of Beijing's nontransparent foreign policy making is that China tends to resort to dubious if not irrational measures to appease nationalists. During this recent dispute, Beijing brandished economic cards that included discouraging Chinese from visiting Japan as tourists and, reportedly, threatening to cut off the export of rare-earth metals to Japanese companies.

These tactics were in essence no different from the familiar rallying cry to "boycott Japanese products," which has been frequently raised by Chinese nationalists. Yet as Ambassador Wu Jianmin, former president of China Foreign Affairs University, pointed out last week, "In this day of globalization, 95 percent of Sony's products are made in China. Isn't it stupid to call for 'boycotting Japanese products'?"

More broadly, the Communist Party leadership's recent assertiveness has stoked the flames of the "China threat" theory -- and prompted countries including Japan, South Korea, India -- and several Southeast Asian countries to join the "anti-China containment policy" supposedly spearheaded by Washington. Beijing's apparent effort to pre-empt criticism from nationalist Internet users has resulted in a radicalization of Chinese diplomacy that might undercut China's global clout.

What now? Before Beijing can effectively navigate a host of sensitive sovereignty issues with its neighbors, President Hu and his Politburo colleagues must first seek an understanding with the Chinese public on the parameters of China's national interests -- and how to achieve them through well-recognized international norms. In the long run, continuing to treat the Chinese people like yet another threat to be neutralized will only create a self-fulfilling prophecy.

PHILIPPE LOPEZ/AFP/Getty Images

Argument

The Wrong Way to Deal with Beijing

U.S. lawmakers are moving swiftly to enact punitive tariffs on China. But American companies doing business in China believe there's a better way to rebalance the world economy.

BEIJING--As U.S. President Barack Obama told Chinese Premier Wen Jiabao on Sept. 23, there's no question that China is holding its currency, the renminbi, artificially low, and that its recent rate of appreciation -- about 2 percent over the last several months -- is insufficient. The renminbi's value relative to the U.S. dollar needs to increase and maintain a sustained upward direction to rebalance the economic relationship over time.

Understandably, many in the U.S. Congress are outraged at the renminbi's slow rate of appreciation and have proposed legislation that would penalize China for what Sen. Charles Schumer (D-NY) recently described as "a boot to the throat of our recovery."

But the currency bill under consideration, if enacted, would do the opposite of what its proponents intend. Not only would it fail to create significant U.S. job growth, but it would also violate U.S. commitments under the World Trade Organization (WTO) and put at risk thousands of existing export-related manufacturing jobs in the United States.

While U.S. companies on the ground in China support a move to a market-oriented Chinese currency in general, our organization, the American Chamber of Commerce in China, which represents 1,200 companies, opposes the current legislation. We believe there's a better way for U.S. lawmakers to create well-paying American jobs and economic growth: by coming up with a response to China's web of industrial policies, weak intellectual property protection, and tightening market access for firms trying to do business here.

The lynchpin of the proposed legislation is new tariffs. These taxes -- for that is what they are -- will inevitably lead to Chinese retaliation and damage the United State's trade and investment relationship with China. Such provisions would endanger President Obama's ability to achieve his goal of doubling U.S. exports within five years. China is the United States' third-largest and fastest-growing export market, and indeed the only export market that in the last five years has grown fast enough to keep pace with Obama's target. Any gains to the U.S. economy from a stronger renminbi would be more than offset by the loss of existing manufacturing jobs caused by tit-for-tat counteractions by the Chinese.

The American business people on the ground in China know that it is not an undervalued currency that is hindering the ability of U.S. companies to export to and compete in China. In our most recent Business Climate Survey, respondents did not list currency valuation as among their top 10 concerns. In other words, there are at least 10 issues more important to improving the competitiveness of U.S. companies in China than currency appreciation. China's growing web of industrial policies, for instance, is a far greater obstacle to American economic success.

Take China's "indigenous innovation" policies, which are aimed at fostering national champions and promoting Chinese innovation. In practice, these involve limiting foreign products and access to technology. To cite just one example, China's "Guiding Catalogues of Major Indigenous Innovation Technologies and Equipment of 2009" specifically cites replacing imports with Chinese products as a goal. A variety of regulations attempting to tilt the playing field toward Chinese companies exists in the telecom and renewable-energy sectors.

Or consider China's poor protection of intellectual property, another hurdle for American companies trying to do business here. Not only are software and DVDs routinely and openly pirated, but the problem now extends into areas as diverse as pharmaceutical products, automotive parts, and consumer electronics. The cumulative loss to U.S. companies runs into the tens of billions of U.S. dollars, with an impact on jobs to match.

Beijing is also moving too slowly in reaching its commitment to join the WTO's Government Procurement Agreement, which would open up China's domestic market to fairer competition. China promised to do so as "soon as possible" when it joined the WTO. That was a decade ago. China's rapid accession, on terms comparable to those of other countries that have joined, would open new opportunities for U.S. exports and products made by U.S.-invested subsidiaries in China.

Beyond these obvious priorities in the bilateral relationship, the currency bill would not have the effect on the U.S.-China trade deficit that lawmakers hope. Other issues, including the euro and yen exchange rates, affect the U.S.-China trade deficit far more than the renminbi rate does. From 2005 to 2008, when the Chinese currency appreciated 18 percent against the dollar, the bilateral trade deficit increased dramatically. Conversely, when the renminbi was fixed against the dollar during the recession, the trade deficit shrank. Moreover, the renminbi's appreciation is more likely to shift jobs in the lowest-margin industries to other low-cost countries than it is to create new high-paying manufacturing jobs in Middle America.

Furthermore, the punitive tariffs in the proposed legislation would also violate the United State's WTO commitments. In the meantime, the global trading system, which was painstakingly constructed under U.S. leadership over decades, would be dramatically weakened.

During his recent testimony on Capitol Hill, Treasury Secretary Timothy Geithner said that pursuing policies that make manufacturing stronger in the United States is the right course of action. We support this direction, but the bill before Congress is not the way to accomplish this goal.

TIM SLOAN/AFP/Getty Images