China or Bust(ed)?

Part 2

What are the ramifications of the Google/China kerfuffle? How do fears of a looming economic
bubble in China exacerbate the spat? Could it be the beginnings of a shift in U.S./China relations?
Perhaps the next Cold War?
These questions will be addressed by Sean in part two of his essay, "China or Bust(ed)?"
This article is reprinted with the permission of the author.

You can read part one of EURoeChina or Bust(ed)? at SeanEUR(TM)s blog, All Things IR
China or Bust(ed)? Part 2

By Sean
Perhaps the most interesting development in China/U.S. relations in a decade is happening right
now over a spat between an iconic mega-corporation and China. For years, U.S. policy has been to
court China economically while keeping the political reform rhetoric to a minimum, and in return
China has been loath to pick any political fights with the U.S. Both countries governments, and the
U.S. business sector, have benefited from the relationship. But amidst the current economic turmoil
and a new U.S. administration, the time might be ripe for a policy shift, one that is perhaps long
overdue. That shift, however, could be born out of a third partyEUR"Google.
In a January announcement the internet giant stated that it will no longer adhere to
ChinaEUR(TM)s internet censorship laws after it discovered that its operating systems in China
had been the product of some highly sophisticated attacks aimed at spying on human rights activists
and stealing trade secrets. Since that announcement on January 12th the issue has turned into an
international incident that has put ChinaEUR(TM)s human rights abuses back on display and
turned into a war of words between the U.S. and China. HereEUR(TM)s how it has all played out
so far:
No one knows exactly when, but within the last several months Google-China became aware of a
series of very sophisticated attacks on its system that allowed hackers to bypass GoogleEUR(TM)s
firewalls, steal data, then get out of the system while covering their tracks. The attacks reportedly
targeted at least 20 major corporations (Dow Chemical and Northrop Grumman believed to be
among them), as well as the e-mail accounts of political dissidents and human rights activists,
leading many to believe that the hackers worked for the Chinese government, and that their
intentions were not only to spy on individuals but to conduct corporate espionage.
January 12th: In light of the recent attacks on its system, Google announces it will no longer adhere
to internet censorship laws in China, indicating that it is willing to leave the Chinese market if
Beijing does not accept these terms (Blackstone).
January 13th: The State Department calls on Beijing to investigate the matter (BBC).
January 15th: The U.S. states that it will issue a formal demarche, or diplomatic note, to China
formally requesting an explanation for the attacks.
January 17th: Google loosens control over some previously filtered searches, but also indicates that
it would like to come to a deal with China on the matter rather than leave the country (Lee).
China downplays the issue, but insists that all companies must continue to abide by Chinese law
(BBC).
January 18th: It is revealed that Google is investigating staff members for involvement in the
attacks, leading many to believe that the attacks required access to certain key parts of its network
that only employees could have had access to (Branigan).
Chinese newspapers report that some Google employees are put on leave, transferred, and/or denied
access to GoogleEUR(TM)s internal network (Branigan).
January 20th: Google announces that it has postponed the China launch of its highly anticipated
Android phone, built to compete with AppleEUR(TM)s iPhone, leaving investors worried (Carew,
Lee).
January 21st: Secretary of State Hillary Clinton criticizes China in a speech on internet freedom
stating that EURoecountries that restrict free access to information or violate the basic rights of
internet users risk walling themselves off from the progress of the next centuryEUR (U.S. Dept.
of State).
China responds by blocking the transcript of the speech on the internet (Schwankert).
January 22nd: the Chinese Foreign Ministry says that ClintonEUR(TM)s remarks threaten ties
between the two countries, issuing a statement calling on the U.S. EURoeto respect the truth and
stop using the so called internet freedom question to level baseless acusationsEUR (Landler,
Wong).
From January 22nd until now:The state run press has issued numerous articles lambasting American
attacks on Chinese internet censorship, accusing the U.S. of hypocrisy and of, among other things,
EURoeinformation imperialismEUR (Schwankert).
Hundreds of protesters lay flowers at various Google branches across China and Hong Kong
(Burma).
As of now, China and Google are reportedly in ongoing talks to resolve the matter, and in the
meantime it seems like business as usual for google.cn. Yet itEUR(TM)s not business as usual for
the U.S. and China, as tensions between the two countries are growing. Since the financial crisis an
emboldened China has taken a more antagonistic tone with the U.S., a tone that began around the
time fears of a financial bubble in China were surfacing.
In December, in an unprecedented move, China sent a low ranking official to meet with President
Obama at the global warming conference to inform him that China will veto any mandated carbon-
reduction goals. Shortly thereafter China refused to back further sanctions against Iran over its
nuclear program, and in February, China, furious about a mandated U.S. arms sale to Taiwan, stated
that it will punish the U.S. for its sale by sanctioning the U.S. companies that built the weapons, like
Boeing and Lockheed Martin, from doing business in China. Could this be the beginning of a trade
war?
And finally, China is suddenly furious about a pre-planned visit to the White House by the Dali Lama,
which was originally postponed until after ObamaEUR(TM)s trip to China in order to appease
Beijing. As a result, Beijing has sent word that the visit could jeopardize any future visits by
President Hu Jintao to Washington.
But itEUR(TM)s not only China on the defensive, the U.S. is getting fed up with Beijing as well.
Minxin Pei, a professor of government at Claremont McKenna College states, EURoeThe days
when China can have it both waysEUR"freeload on global public goods while enjoying
international respectEUR"are about to end. Disillusionment of its self-serving policies is setting
in.EUR As a result the days of turning a blind eye to BeijingEUR(TM)s abuses may be over.
Many Western states have already levied anti-dumping charges against China, and the U.S. is
contemplating further retaliatory action if China continues to peg the RMB to the dollar.
So why the sudden change in tone now, and what does this have to do with Google? Simply put, the
Google spat represents much more than GoogleEUR(TM)s bottom line, it represents two states
with conflicting ideologies on the verge of the next great global power struggle. In short, Google is a
pawn in the game of power politics.
Why does it matter?
Google matters for several reasons:
1) China is a rising power and the U.S. is a world hegemon
2) Google represents one side in a battle between two conflicting ideologies
3) China may be on the verge of economic trouble at home
These reasons combined are a recipe for the next Cold War.
Now, thatEUR(TM)s a bold statement, so, to be clear, I am not inferring that bombs will start
dropping soon, that the apocalypse is upon us, or that China and the Soviet Union are prototypes.
But what I do see amidst the pomp, one-upmanship, and threats that have come about because of
the Google issue is classic geopolitical brinksmanship of the sort used throughout the last great
power struggle, the Cold War.

The Real Battle
Great political philosophers like Machiavelli, Hobbes, and Kenneth Waltz (all of the realist fold)
believe that geopolitics is a zero-sum game, resulting in a world of anarchy in which states are self-
interested actors in a continuous struggle for powerEUR"all vying for the top slot. Waltz
advocates that this struggle takes place at various levels, regional and global, and between varying
powers: great powers, rising powers, and weak powers that tend bandwagon with other powers. As
a result of this power structure, we either live in a world that is multipolar (more than two great
powers), bipolar (two great powers), or unipolar (only one great world power).
During the Cold War two great global powers, the U.S. and the Soviet Union, were engaged in a
struggle for world influence/dominance. However, because the stakes were so high, rather than
engage in action against one another these two great powers were in a perpetual state of feeling one
another out, probing each other for weaknesses, and testing one another to see how the other would
react through words, provocative military actions, and state influence.
Right now, two great powers are essentially sizing each other up before the long cold battle that lies
ahead. They are feeling each other out, testing the waters if you will, amidst the worst economic
catastrophe in a century. Like the Cold War, wrong decisions could have dire consequences, but
unlike the Cold War, the fear is not nuclear war, but economic war between the worldEUR(TM)s
two largest economies.
To be sure, China is no Soviet Union in regards to power, nor is it even a great power yet. Rather,
China is a rising power that is trying to change the status quo. And that makes China a threat to the
U.S. who, as a global hegemon, has a stake in keeping things the way they are.
At the Heart of the Matter
Great power struggles usually begin or end as a result of some global crisis. World War I resulted in
the emergence of the U.S., who, as a rising power, posed a threat to the current world order, which
England had a monopoly on. Similarly, World War II resulted in the end of a unipolar world with the
fall of global hegemon England, and the establishment of a bipolar world consisting of the U.S. and
Russia. Finally, this bipolar world eventually gave way to another unipolar world with the U.S.
winning the Cold War.
Now we are in the midst of another global crisis, a worldwide recession. And guess what, the current
power structure is again being challenged, much like it was challenged by the U.S. at the end of
World War I. The U.S. then, like China now, was a rising power in a unipolar world that challenged,
and eventually changed, the status quo. However, what stands out most about the last major
transition of power from one unipolar world to another, is that EnglandEUR(TM)s concession of
influence to the U.S. was a rather smooth process after WWII, while RussiaEUR(TM)s concession
was not. The major reason for such a discrepancy was ideology. The U.S. and England shared similar
values and, hence, political systems, but Russia and the U.S. did not, nor do the U.S. and China.
Thus, when Google announced to the world that its issue with China "goes to the heart of a much
bigger global debate about freedom of speech," it also identified the impetus for the next great
power struggleEUR"democracy. This whole Google spat would not be taking place if China were
not a rising power as well as a communist/authoritarian society. In other words, if China were India,
Google would be a non-issue.
But conflicting ideologies do not get along with each other. Nor do economic forces get along with
ideologies that ignore human nature and the cogs of advancement, which brings us full circle to
article 1: At some point China will have to stop building and start creating, something not conducive
to China's form of government.
Economics are an Extension of Politics (and vice versa)
Even if China is in the midst of a real estate bubble, as James Chanos and others claim, and even if
China is able to deflate that bubble and continue positive GDP growth for years to come, it is still a
developing country with a backward ideology. This is where the Google spat and James
ChanosEUR(TM) theory become entwined. Google, an icon of advancement and
innovationEUR"and the product of democracyEUR"combined with fears of coming economic
trouble, have put Beijing on the defensive amidst a suddenly changed world where they seem to be
holding all the cards.
Yet, an abruptly emboldened China may be overplaying its hand, and picking a fight it
doesnEUR(TM)t want. To be sure, China has a developing market with nearly 1/4 of the
worldEUR(TM)s consumers, but that alone doesnEUR(TM)t make for a super
powerEUR"military might and sustained post-industrial growth does, two things still elusive in
China. True, China has the largest military in terms of manpower, but it ranks second to the U.S.
with a 5.8% share of all military spending in the world, a pittance compared to the U.S. who has a
far more advanced military apparatus and accounts for 41% of all military spending.
Yet more importantly, an advanced military capable of worldwide deployment is not only the product
of money, but an advanced society. However, a recent report by Bank of America and Merrill Lynch
on the performance of emerging markets shows that China is underperforming its developing peers
like Brazil, Russia, and India (Foroohar). WhatEUR(TM)s more, if we look at China in terms of
GDP per capita (a much better indication of a countries wealth) we see that China is far behind many
of its Asian neighbors: China $6,500, Malaysia $14,700, South Korea $27,700, Taiwan $30,200,
Japan $32,600, Singapore $50,300 (CIA World Factbook).
More interesting, however, than the fact that the above countries have a greater GDP per capita and
are more technologically advanced than China, is that they also have radically different forms of
government. Japan is a developed democracy, South Korea and Taiwan are developing democracies,
and although Malaysia and Singapore are not democracies, they do guarantee certain rights and
have educational systems that allow for the free flow of information. That, more than anything else,
has propelled these countries to, or on their way to, post-industrial economies.
China on the other hand, is really good at copying things, while it steals or outsources what it
canEUR(TM)t reproduce. Cases in point, WidowEUR(TM)s PCs are widely used in China, but it
is estimated that 90% of them run pirated copies of Windows (Acohido, McLeod, Chu).
WhatEUR(TM)s more, Business Week reports that EURoeChinaEUR(TM)s technology is at
least two generations behind world leaders,EUR noting that many of the new tech industries
China touts, from autos and airliners to batteries and computer chips, either do not stand up to first
world standards or they are older models built with foreign parts (Roberts, Engardio). And
letEUR(TM)s be blunt, that which China does produce, from infrastructure to consumer goods, is
mostly EURoecrap.EUR One only need look at the devastation caused by the 2008
earthquake, and the slew of tainted consumer products recalled over the last decade in China to get
an idea of the quality of Chinese goods.
In short: companies like Google exist notonly because of wealth, but because of political systems that
allow for the free flow of information and guarantee certain rights. If China is ever to make the leap
from a developing to a developed economy it is going to have to undergo substantial political reform.
This wonEUR(TM)t happen overnight, and some have argued, rather convincingly, that it
shouldnEUR(TM)t, pointing out that ChinaEUR(TM)s lack of domestic stability and social safety
nets does not lend itself to a favorable environment for democracy.
This view has also been, rather conveniently, the excuse of the communist regime in China, who,
since the death of Mao, has consistently emphasized domestic stability over progress; an attitude
firmly secured after the dramatic events of Tiananmen Square in 1989. Since then the party has
used this EURoestability firstEUR policy as justification to crack down quickly and harshly
on any political descent.
Unfortunately, the lesson the regime took away from Tiananmen was that democratic reform
movements are a danger to domestic stability and the economy, when it should have learned that if
youEUR(TM)re going to push forward with economic reform without political reform then you
better be ready for trouble when the economy goes bad. What China failed to understand was that
Tiananmen came about as a result of bad economic policy, not a deep seeded desire for democracy
EURoeright now.EUR Or as China Expert, Nicolas Lardy, states, EURoeTiananmen was an
economic uprising that legitimized itself with democratic gloss.EUR
And herein lies the rub for ChinaEUR(TM)s stability before progress policy: things will only
remain stable if the country continues to progress. Since China has chosen only to progress with
economic reform, if the economy suddenly goes sour or slows too much, then any stability Beijing
may have gained, or time it may have bought, through improving peopleEUR(TM)s lives
economically is at serious riskEUR"and that may be why Beijing pumped so much, maybe too
much, money into the system in 2009.
Thus, if there is a bubble, as Chanos and others believe, and it bursts, then China could be in more
than just economic troubleEUR"and that is why GoogleEUR(TM)s political stand right now is
exacerbating all other scuffles with the West. Google represents all that has backed China into a
corner and put them on the defensive. However, China retrenching sets the stage for a global power
struggle of the likes not seen since the Cold War.

Final Analysis
China/U.S. relations, more than any other state relationship, will shape the next century. If the two
get along then the rest of the world will surely prosper, if they do not, there will be great conflict
throughout the world. Unfortunately, history suggests these two powers will not play nicely with
each other.
China, as a rising power, will challenge the current world order, something the U.S. will fight.
However, this power struggle will be exacerbated by conflicting values and fundamentally different
political ideologies.
Unlike Russia during the Cold War, ChinaEUR(TM)s greatest weapon is not its military apparatus,
but its market, which they will use to punish adversaries in an attempt to reshape the current power
structure. Obviously, this EURoeeconomic weaponEUR will be most effective during times of
Western financial instability, like we have right now. Thus, it should come as no surprise that China
has suddenly taken a more aggressive stance towards the West in the recent months.
Such posturing was bound to happen at some point, but a suddenly emboldened Beijing may also be
the product of looming economic woes at home. When faced with domestic strife, states often look
for outside threats in an attempt to compensate for their own failures at home.
That is why I find James ChanosEUR(TM) theory that China is in a financial bubble so compelling.
If Beijing was hell bent on playing the economic card then why didnEUR(TM)t they do it 6-7
months ago, or at the onset of the financial crisis? Perhaps because Beijing did not yet feel
threatened by the crisis? Maybe now they do.
These fears may have stemmed from BeijingEUR(TM)s over-zealous stimulus package. In an
attempt to keep its people happy and maintain stability, Beijing may have created a bubble. If China
did pump too much money into the system then they are at greater risk than most democracies are
at addressing the problem. China does not have the safety nets and proper social institutions that
most democracies do to soften the blow of a financial crisis. And as China has learned from the
Tiananmen Square incident, economic woes can quickly lead to political protestEUR"and that is
what this whole thing boils down to, not economics, but the defense of a political ideology that is
corrupt and static.
ThatEUR(TM)sEUR(TM) what Google represents, and thatEUR(TM)s why Beijing went out of
its way to ensure the whole Google issue was not discussed in Davos last month at the World
Economic Forum. Google is the byproduct of democracy and capitalism, and China knows that if it is
ever going to be able to foster and sustain such innovative companies of its own it is going to have to
make the leap from a developing to an advanced society. But in order to do that they will have to
allow for the free flow of information and debateEUR"and that canEUR(TM)t happen without
some type of democratic reform. Or, as Daniel Gross of Newsweek puts it, EURoeWithout free
minds itEUR(TM)s difficult to have free markets, and vice versa.EUR Thus, paradoxally, if
Chanos is right, and China is in for economic trouble, Beijing is politically vulnerable in the short
run, but if Chanos is wrong and China continues to grow then the regime is politically vulnerable in
the long run.

So, is China busted? Yes, but politically, not economically. Just as economics is an extension of
politics, as we see right now in China, so too is politics an extension of economics. And, as China
expert Gordon Chang points out, EURoeSustained modernization is the enemy of one party
stateEUR(TM)s.EUR In short: BeijingEUR(TM)s damned if it is and itEUR(TM)s damned
if it isnEUR(TM)t in economic trouble. Thus, the adage that capitalism does not work without
democracy may prove to be true after all. Yet, democratic reform wonEUR(TM)t happen overnight
though in China. It will probably happen gradually over the course of decades, but economic forces
dictate that it will happen at some point. After all, what non-oil rich, non-democratic country has
been able to sustain growth in the long run? And what country with a strong middle class has not
developed into a democracy?
So, even though it appears that China is holding all the cards right now, in reality the cards are
stacked against Beijing. That doesnEUR(TM)t mean, however, that we arenEUR(TM)t in for the
next global power struggle. If history has taught us anything, it is that human nature has not
changed over the last 3000 years, and states, despite all of the paradigms, are still run by people.
Translation: Beijing will not reform quietly into the night, and as ChinaEUR(TM)s economy grows
and fluctuates you can bet that Chinese hubris and anti-Americanism will only get worse. So, hold on
to your butts, things are about to get interesting.
Note: The complete, unabridged version and Works Cited/Bibliography for this article can be found
on Sean's blog, All Things IR .



Sean

Sean is a graduate of Columbia University with a degree in Political Science and a focus on
International Relations. His writing has been published in the Columbia Spectator and he maintains
a blog about international relations and foreign policy. All Things IR
Prior to studying at Columbia, Sean studied at the University of Vietnam in Hanoi. He has
documented his photographs on his website, Visions of Vietnam: A Photographic Journey. His
photographs have been published in several magazines

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