By William Hawkins l February 4, 2011
Deng Xiaoping billboard in China Hu Jintao and Barack Obama
Photos: Getty; White House photographer Pete Souza
President Barack Obama opened his remarks welcoming President Hu Jintao of the People’s Republic of China to a state visit on January 19 with a reference to a visit by Deng Xiaoping to the White House in 1979. “On that day, Deng Xiaoping spoke of the great possibilities of cooperation between our two nations,” said Obama. Deng is famous as the great post-Mao “reformer” who shifted the nation’s economy towards market socialism (or state capitalism) in pursuit of the “four modernizations” of industry, agriculture, national defense, and science and technology.
Citing Deng set the tone for the entire summit, as Obama sought to use commerce in classical liberal fashion to ease tensions that had arisen during the last year from growing confrontations on security issues from the Korean peninsula through the South China Sea to Iran. The cooperation with America of which Deng spoke had a context Obama did not reference. It was laid out in a lengthy interview with the state runPeople’s Daily on Nov. 26, 1979. Deng’s objective was to gain foreign help to make China “prosperous and powerful.” He laid out the strategy concisely:
Although we rely primarily on our own efforts, on our own resources and on our own foundations to realize the four modernizations, it would be impossible for us to achieve this objective without international cooperation. We should make full use of advanced scientific and technological achievements from around the world and also of potential funding from abroad so that we can accelerate the four modernizations.
He noted, however, “Some people are afraid that China will take the capitalist road if it tries to achieve the four modernizations with the help of foreign investment. No, we will not take the capitalist road…..Market economy involves only the foreign-funded enterprises.” The Communist Party would stay firmly in control, with state-owned enterprises dominating strategic industries. Joint ventures would keep the foreign firms subservient. Deng was no classical liberal. Although he never assumed the title of Communist Party chairman, he did take the title of chairman of the party’s Central Military Commission, which gave him control of the People’s Liberation Army. He used the PLA to crush the student democracy movement in the Tiananmen Square massacre of 1989.
Deng’s emphasis on economic development led many in America to naively believe Beijing’s propaganda that the country is engaged in a “peaceful rise” that threatens no other country. Such a claim would not be true even if China confined its aggressive behavior to the realm of commerce, which it has not. A Feb. 23, 2010 cable from Johnnie Carson, Asst. Secretary of State for African Affairs reported, “China is a very aggressive and pernicious economic competitor with no morals.” Beijing’s massive foreign currency reserves have been accumulated via the running of large trade surpluses that have transferred industrial capacity and jobs from other lands to China. The gains from trade and investment have then enabled Beijing to expand its military capabilities and diplomatic influence in ways that clash with U.S. interests across the globe.
The commercial relationships offered by the Obama administration will continue this transfer of wealth across the Pacific. The U.S. administration has made much of $45 billion worth of export deals supposedly agreed to at the summit, but as the Wall Street Journal reported, “Many of the agreements, including China’s deal to buy $19 billion of airplanes from Boeing Co., have been previously announced; the report of Chinese approval was something of a flourish to bolster Mr. Obama’s message that expanded trade with China can create U.S. jobs.” Indeed, some of the Boeing orders go back to 2007. The deals are also spread over a number of years to create a more impressive sounding aggregate number. Yet, even if all the deals were consummated in one year, it would barely dent the trade deficit America runs with China, which totaled about $260 billion last year.
Most of the opportunities offered American firms are to continue building up China, not the United States.The Wall Street Journal gave one example coming out of the summit; “The White House said Navistar has received Chinese central government approval for joint ventures with Anhui Jianhuai Automobile Co. to make diesel engines and assemble medium- and heavy-duty trucks in China.” This is what Hu had in mind when he told a roundtable meeting with corporate CEOs hosted by Obama, ‘I also have a message to American entrepreneurs. That is, we welcome you as companies to China.” The regime is encouraging higher Chinese consumer spending to bolster living standards, but is still focused on meeting domestic demand with domestic production rather than imports.
In December, GE announced a joint venture with Aviation Industry Corp. of China (AVIC), a state-owned enterprise producing both civilian and military aircraft. GE is putting up its technology and AVIC is putting up the money, which means the Chinese government is essentially buying GE’s avionics sector. If the deal is finalized, all of GE’s existing and future “civilian” avionics contracts will go to the joint venture located in Shanghai. Such deals undoubtedly make Deng’s ghost smile.
American companies are comfortable with Hu continuing Deng’s strategy. As long as they can make money, they do not care where their factories and research centers are located. The problem is that the Obama administration seems comfortable with Beijing’s policy as well. A week before Hu came to Washington, Commerce Secretary Gary Locke went to Shanghai where he gave a speech to the U.S.-China Business Council. “The Chinese government is putting an intensive focus on strategic emerging industries, with more high-value work in areas like healthcare, energy and high technology,” said Locke, “And the Chinese have signaled that they want foreign businesses to help develop these sectors by entering joint ventures and by conducting more research and development in China.” This may be profitable for certain corporations, but it is a pattern that is harmful to both the prosperity and security of the United States.
There is only one category of products that China wants to import from America; high-tech “dual use” technology of value to Beijing’s military. The Chinese understand this is the one gap they must close if they are going to become the equal of the United States in what Deng and his successors have termed a “multi-polar” world.
A lengthy commentary on Sino-American disputes published by the Chinese Communist Party newspaperGlobal Times on the day of the summit argued:
The complaint about the lack of access American companies are supposed to have to Chinese markets. Some of this is self-inflicted. After all, the US has very strict policies preventing high-tech, military and other companies from selling a lot of highly valued goods to China. The concern is that China will get access to sensitive technology that could be used by its military.
An earlier story in the same ruling party publication had quoted Tao Wenzhao, a researcher at the Institute of American Studies at the Chinese Academy of Social Sciences, “Instead of quibbling over a point or two in the exchange rate, it makes more sense for the US to loosen export restrictions, especially high-tech export restrictions on China, to balance the bilateral trade, which would bring more benefits to both countries.” Yet, it would be difficult to see what benefits would come to American national security from letting China gain access to more advanced technology. Building up the defense industrial base was one of Deng’s four modernizations. The dangerous impact on the balance of power would be far greater than any improvement in the balance of trade.
The question of “dual use” exports only serves to highlight why U.S.-China commerce is so fundamentally different from other economic relationships. Beijing and Washington are strategic rivals in world politics.
The maiden test flight of the J-20 stealth fighter while Secretary of Defense Robert Gates was in Beijing meeting with Hu was an unmistakable sign of where the rivalry is headed. It is not known whether the J-20 is really a fifth generation warplane as Beijing claims, or how far Chinese industry has come in developing an anti-ship “carrier killer” ballistic missile or supersonic unmanned combat aircraft. But that Beijing is working hard on weapons designed to defeat American forces should be enough to put Washington policy makers, if not blinkered business leaders, on guard against sending any more capital, technology and industrial capacity to China. Instead, what is needed is a U.S. “modernizations” strategy to rebuild the American national economy.
William R. Hawkins, a former economics professor and Congressional staffer, is a consultant specializing in international economics and national security issues. He is a contributor to SFPPR News & Analysis.