No, China Did Not Already Win the Global Battle for Supremacy

Debunking Eric X. Li's dangerously wrong ideas.

As the U.S.-China relationship grows more complex and important, one Chinese commentator stands out for provocative ideas undiluted by caveats or diplomatic hedging: the U.S.-educated, Shanghai-born venture capitalist Eric X. Li. Over the past several years, he's built a significant audience. Affiliated with the Aspen Institute and the Berggruen Institute on Governance, he delivered a TED Talk in June 2013 entitled "A Tale of Two Political Systems," and wrote widely discussed articles for Foreign Affairs and the New York Times. Li's most recent offering, a Feb. 4 Huffington Post article entitled "The Middle Kingdom and the Coming World Disorder," recycles some of his favorite themes: He enumerates the defects of a U.S.-centric international system that he perceives to be crumbling, praises the deftness and strength he sees in China's statecraft, and predicts a coming period of international volatility as China displaces the United States. By circulating his ideas so widely, his articles provide an excellent opportunity for debate and discussion.

And this is good, because most of Li's ideas are dangerously wrong. In his latest article, Li argues that in its maritime neighborhood China has already accomplished its goal of changing the status quo without military conflict. He believes China has accomplished this by making its naval presence a de facto reality across the disputed area in the South and East China Seas -- where several Southeast Asian nations and Japan also have claims -- ending an era of intentional ambiguity about Beijing's position.

But to claim that China has achieved this after just a few years of pushing the boundaries is like saying that the United States' Vietnam policy was a success -- in the early days of the Vietnam War. Many of China's neighbors are stepping up their militarization as a result of anxieties over China's posture. In 2013, Japan flew hundreds of sorties over the Diaoyu, the disputed islands in the East China Sea which Japan administers and calls the Senkakus, in an effort to demonstrate its ongoing capacity to keep them under its umbrella. Many security analysts believe an unfortunate mishap between rival forces is increasingly likely, if not inevitable. Li is calling a victory for Beijing, well before the game is over. At minimum, Li must recognize that whereas China's neighbors were mostly quiescent toward China's rise a decade ago, many are now contemplating a response to reduce what they see as Chinese overreaching.

Li's view of economics resembles his view of international relations. Simply put, Li believes China has won because it has bent the rules to its advantage, pumping up its own economy to the detriment of others. In his Huffington Post essay, Li writes that China "negotiated its way into the WTO (World Trade Organization) on preferential terms." On one level, this is a simple error. The nation applying to the WTO makes all the concessions in such negotiations, not the incumbents, who decide which exceptions to normal treatment they insist on imposing.

But Li's error is important because it speaks to a serious misconception: that China's successful WTO negotiation allowed it to keep its capital account closed, thereby insulating the country's financial infrastructure from the recent financial crisis. Indeed, finance was one of several sectors that China, like other WTO countries, protected from international competition. But Li neglects that the 2008 financial crisis in fact had a profound impact on China, despite the country's capital controls, with vast amounts of hot money flowing across its borders. Beijing cannot, as Li suggests, quarantine itself from monetary pressures while fully trading with the world. Moreover, by keeping foreign financial competition limited, China created even more serious problems by isolating its domestic financial entities. No developed economy would trade its financial sector problems for China's today, especially because to sustain its partly-insulated model Beijing has had to live with weak domestic capital markets. China's stock markets and other exchanges have essentially destroyed wealth ever since their reestablishment in the early 1990s, because cordoning them off from international competition and populating them with politically-connected issuers has made it impossible for them to mature. Li's industry -- private equity -- is a hot ticket in China precisely because those public equity markets are moribund. 

Li commends Beijing for free-riding on U.S. security rather than sharing the burden. "Who can blame them?" he asks. But China is rapidly ramping up its power projection expenditures: It will spend $148 billion on its military in 2014, one third higher than 2009 and more than any country in the world except the United States, according to IHS Jane's, a consultancy which tracks defense spending.

Contrary to what Li writes, Beijing has little choice but to make up for the time it lost free-riding on the security contributions of others, because for the first time in its history China is extremely dependent on foreign raw materials. Over 50 percent of China's iron ore, oil, edible oils and potash fertilizers must be floated across the oceans to satisfy the country's needs. China's leaders now see a world full of Chinese travelers, money, and interests that the country has little ability to protect in times of trouble. (Beijing learned this the hard way in trying to extract roughly 36,000 of its citizens as Muammar al-Gaddafi's Libya collapsed in 2011.) Li says China sits naturally in this new world order, while maintaining an ancient policy of keeping out foreign troubles, not stepping into them. But that luxury ended in 1993 when China became a net importer of oil.

Yes, Li plays a valuable role by giving voice to Chinese pride in the Middle Kingdom's economic, diplomatic and geostrategic achievements. But his fellow private equity professionals know that an investor always "talks his book" -- that is, reads the facts in a way that flatters the investments he has chosen to make. As Chinese pundits reach out to a wider western audience, it's important to listen to them -- but also to think carefully about their blind spots.

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Rings of Fire

Why the Olympics actually don't bring the world together.

As Russia stumbles from one embarrassing snafu to the next in the lead-up to the Sochi games, at least one thing is certain: The 22nd Winter Olympics will be both the most controversial since 1980, when much of the free world boycotted the Moscow Games, and potentially the least peaceful since 1972, when Palestinian terrorists killed 11 members of the Israeli team. Amid the controversy over the Russian government's crackdown on gays and against the backdrop of threats by al Qaeda-affiliated groups, the Olympic Charter's promise to "place sport at the service of the harmonious development of humankind, with a view to promoting a peaceful society concerned with the preservation of human dignity," seems increasingly tenuous.

This should hardly come as a surprise. While International Olympic Committee (IOC) officials and diplomats the world over sing the praises of sporting diplomacy, the idea that athletics can break down barriers and advance peace is more myth than fact.

The theory behind sports diplomacy is simple: Athletics transcend politics, supposedly breaking down walls built by politicians. Jeremy Goldberg, a noted businessman and conflict resolution specialist, put it this way in a 2000 article in the Washington Quarterly: "Maybe the best way to encourage [rogue] states to come out of their isolation is to increase the size of the diplomatic corps -- literally. Sports exchanges between the United States and Cuba, North Korea, or Iran can break down stereotypes, increase understanding, and confine battles to the playing field rather than the battlefield."

But if it sounds convincing in theory, the record of sports diplomacy is spotty in practice -- and the Olympics are a case in point. Proponents of sport diplomacy like Goldberg say that the four-gold-medal triumph of African-American runner Jesse Owens in the 1936 Berlin Olympics discredited Nazi ideology on its home turf. But Owens's triumph did nothing to discredit Hitler in German eyes. On the contrary, the IOC arguably legitimated his rule by allowing him to host a major international sporting event.

Over the next four decades, the Olympics seldom fostered the type of harmony its most ardent supporters sought. The 1956 Summer Games in Melbourne, for example, saw boycotts by Egypt, Iraq, and Lebanon because of the Suez Crisis, and the Netherlands, Spain, and even neutral Switzerland in response to the Soviet Union's intervention in Hungary. In 1968, the International Olympic Committee disinvited South Africa in response to threats by other African countries to stay home. Often defections -- and minders' efforts to prevent them -- trumped outreach across the Cold War ideological divide. If there was any diplomatic benefit to interactions between athletes, it was fleeting at best.

The debate over the power of sports diplomacy re-emerged in 1980, shortly after the Soviet Union invaded Afghanistan. James Riordan, an avowed communist and a prominent Russian studies scholar in Britain, took to the pages of the New York Times to denounce a proposed boycott of the games, arguing, "Any occasion that brings people from all over the globe together in peace and concord, to compete and cooperate in honest friendship, has to merit vigorous support." George Ball, a former U.N. ambassador and undersecretary of state, offered a rebuttal in the same paper, arguing that a boycott would deny Soviet Premier Leonid Brezhnev the legitimacy that President Franklin Roosevelt had granted Hitler by having the U.S. team participate in his Olympics.

Edmund Muskie, who would become President Jimmy Carter's secretary of state in May 1980, likewise supported the boycott. "Losing the Olympics would be a severe blow to the Soviet Union. It might give them a greater measure of respect for our own firmness and determination," he argued less than two weeks after Soviet tanks rolled into Afghanistan. Carter concurred, and on March 21, 1980, he announced his decision to boycott the Moscow Olympics, explaining that he did not want to hand the Soviet Union a propaganda victory. "The Olympics are important to the Soviet Union," he said. "They have passed out hundreds of thousands of copies of an official Soviet document saying that the decision of the world community to hold the Olympics in Moscow is an acknowledgement of approval of the foreign policy of the Soviet Union, and proof to the world that the Soviets' policy results in international peace."

Perhaps the most famous example of sports diplomacy was the 1972 ping-pong exhibition that many historians credit with breaking the ice between the United States and communist China. "Blending statecraft and sport, table tennis matches between American and Chinese athletes set the stage for Nixon's breakthrough with the People's Republic," Smithsonian Magazine opined on the 30th anniversary of the iconic 1972 match. But conventional wisdom about the ping-pong contest glosses over critical context. As Henry Kissinger, who as national security advisor orchestrated the fateful match, noted in his 1979 memoir, the U.S.-China table tennis tournament did not initiate relations, but followed months of secret diplomacy. To credit "ping-pong diplomacy" with the China breakthrough puts the cart before the horse.

Sports diplomacy has also featured in America's repeated attempts to break down the diplomatic barrier between Washington and Tehran -- something every president since Carter has tried his hand at. In 1998, for example, Iranians warmly welcomed five American wrestlers to Tehran, where they were greeted by 200 reporters at the airport. The State Department was predictably self-congratulatory: "When the Americans arrived in the arena ... they were greeted to a standing ovation," U.S. diplomats crowed after one tournament in Bandar Abbas.

But the admiration of ordinary Iranians for America was never in question: Visitors have long remarked on the pro-American sentiment of Iranians. The problem has always been the Iranian leadership, which views the United States as the "Great Satan." Sporting events like the wrestling match have done little to change their view. Quite the contrary: When Iran's soccer team defeated America in the 1998 World Cup, Supreme Leader Ali Khamenei congratulated Iran's team, saying, "Tonight, again, the strong and arrogant opponent felt the bitter taste of defeat at your hands."

By themselves, athletic contests can't bring rogue states in from the cold -- and they're just as likely to catalyze conflict as to resolve it. (In 1969, for example, a soccer match sparked a brief war between El Salvador and Honduras that cost more than 1,000 lives.) Certainly, athletes often reach across diplomatic divides at international games, trading swag, pins, and jerseys. But when the final whistle blows, the lights dim, and competitors break their final handshakes, it is the same politicians who remain in charge. To suggest that sporting events tame dictators is akin to crediting study abroad programs with resolving international trade negotiations.

Making matters worse, diplomats are often inconsistent about when they embrace athletic outreach and when they condemn it. If sports can transcend politics, then there should be little difference between American wrestlers visiting Bandar Abbas and former NBA stars like Dennis Rodman traveling to Pyongyang. Whether diplomats and the press describe such games as an opportunity for understanding or a shameless propaganda coup for dictators seems arbitrary at best. The logic of each trip was the same, even if diplomats and the press chose to celebrate the former and condemn the latter.

But if international sporting events have never transformed enemies into friends, they are not entirely useless as diplomatic tools. Defeat embarrasses dictators. It was for this reason that Uday, son of the late Iraqi dictator Saddam Hussein, tortured Iraqi athletes when they lost matches. It also explains why Kim Jong Il sent North Korea's soccer coach to a slave labor camp after the team lost 7-0 in the 2010 World Cup. Victory, of course, can have the opposite effect: The 1980 "Miracle on Ice," in which the U.S. hockey team defeated the heavily favored Soviets, humbled the Kremlin and arguably did more to reverse American malaise than any White House initiative.

So as the Sochi Olympics get underway this week, don't expect American athletes to bring peace and understanding to the Caucasus -- or to convince Russian President Vladimir Putin to reconsider his hatred of gays. Israelis and Iranians will not sing "Kumbayah", nor will Japanese and Chinese athletes resolve the Senkaku/Diaoyu island dispute. No matter how much the IOC embraces the rhetoric of peace and brotherhood, sometimes a game is just a game.

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