In their Animal Spirits, George A Akerlof and Robert J. Shiller, two Nobel Prize winners, show how human psychology drives the economy and why it matters for global capitalism. In particular, they show how stories move markets and are themselves a real part of how the economy functions.
The same goes for other economies, including China. What “we” in America know about China is filtered through aggregate stories by Washington's political pundits, policy wonks, economic analysts, and news articles. Some stories reflect realities; others don't. Still others are misguided and flawed, while the rest have self-serving agendas.
As President Xi Jinping is in his first official state visit in the U.S., he remains an enigma to most Americans – not in spite of these stories, but because of them.
Stories about Xi's secret agenda
After his first year in power, leading media, such as Bloomberg, reported that “Xi amassing most power since Deng raises reform risk.” After two years, the Chinese president was portrayed in the West as “Xi who must be obeyed” as The Economist put it in its cover story, calling him the most powerful Chinese ruler certainly since Deng, and possibly since Mao.
What united these stories, which quickly spread across the world via lesser-tier media channels, was their common denominator: Xi had acquired too much power.
More recently, Washington's stories would like us to believe that the problem with President Xi is not that he has too much power, but that he is increasingly powerless.
The new conventional wisdom came about after Chinese equity market volatility, which the Financial Times thought showed that “Xi's imperial presidency has its weaknesses.” That wisdom was quickly seconded by the Wall Street Journal, which reported that crises put dents in Xi's armor as “Chinese president is looking more vulnerable than at any time since taking office in 2012, insiders say.”
Despite the demise of the Cold War, the West's old imperial inclination to see the world through the glasses of good (“we”) and evil (“they”) permeates the Xi biographies. From Foreign Affairs and Foreign Policy to the Atlantic and the New Yorker, the story starts with an “insider” anecdote, a political recollection or recent event that presumably serves as an intro to the Xi narrative. In reality, it is a Potemkin bridge because of its basic point: If you serve in a Communist Party, you are “Born Red,” as Evan Osnos entitled his Xi story in the New Yorker – not one of “us” but “them,” and thus neither credible nor trustworthy.
Xi's policy stance does not require deeper economic, political, or defense analysis; a quasi-Freudian insight will do. As Osnos puts it: “When Xi was fourteen, Red Guards warned, 'We can execute you a hundred times.' He joined the Communist Party at twenty.” With that simple but shrewd overture, President Xi's entire life story is presented as a case of psychoanalytic identification with the aggressor.
In these “in-depth analyses” key biographical data are almost always explained on the basis of condescending Cold-War like interpretations of Chinese history and leaders. Accordingly, none – and at best, few – real insiders or opinion-leaders in China are consulted. Instead, the “real story” is obtained from former US ambassadors, US think-tanks, and a list of shady US “well-informed sources” – which usually represent one of the many three-letter abbreviated organizations that have ample reason to remain unidentified.
Xi's massive reform agenda
Following in Deng's footprints, President Xi's leadership is pushing new reform and opening-up policies that seek to transform China into a post-industrial, middle-income society by the late 2020s. The huge agenda focuses on tripartite reforms, eight core sectors and three packages.
The triple reforms comprise the market, government and corporations. Market reforms accelerated after the arrival of the new leadership. Governance reforms permeate the public sector. Neither foreign-owned multinationals nor mighty state-owned enterprises (SOEs) can escape antitrust laws, which are now enforced.
The eight core sectors include finance, taxation, state assets, social welfare, land, foreign investment, innovation, and good governance. Financial and foreign-exchange reforms have been sped up, along with accelerated attempts at capital convertibility to modernize China's financial markets and to make the renminbi an international currency reserve. The new SOE reform plan has been launched and gradual privatizations will ensue.
The evolving basic social security package is reflected by modest pension, medical insurance and education support. New rules have been introduced for the sales of collectively-owned rural land, while the phasing-out of the old household registration system (hukou) will support Beijing's new urbanization agenda in mid-size cities of 1-5 million people.
Foreign investment in manufacturing is encouraged in the less-developed provinces, while foreign capital in R&D and business services is favored in the more-developed coastal provinces. The central government is also pushing efforts to increase higher productivity and R&D, which will soon exceed that in Europe.
When President Xi launched his far-reaching campaign against corruption, it was portrayed in Washington as 'Xi's effort to consolidate his own power' because, as the Atlantic put it, Chinese politics represents “a pervasive culture of patronage, factionalism, and cronyism.” However, to Xi and his anti-graft tsar, Wang Qishan, former key negotiator in the US-China Strategic & Economic Dialogue, any real anti-corruption struggle must crack down on “both tigers and flies,” both petty civil servants and high-level officials alike.
Curiously, after decades of criticism against Chinese corruption, Washington has begun to argue that, actually, anti-corruption struggle can be bad for the Chinese economy. Such double standards cast a dark shadow over U.S. credibility in Beijing and Chinese popular opinion.
New terrain of bilateral relations
For three decades, bilateral economic ties were overshadowed by China's role as exporter and US capital in China. While the mainstream Washington continues to blame China for “taking our jobs,” the new normal is reflected by rapidly-increasing US exports to China and Chinese capital in the US. Meanwhile, Beijing and Washington are completing the highly-anticipated US-China bilateral investment treaty (BIT).
In the Asia Pacific, the White House has done whatever it could to deter China's free-trade plans, while seeking to complete the Trans-Pacific Partnership (TPP) agreement, which leaves out China, India, and Indonesia – the three largest and most consequential economies of Asia.
In Washington's stories, President Xi's foreign policy is typically portrayed as more “assertive.” An alternative view is that it is largely a defensive posture, which was deemed vital in Beijing, due to NSA's controversial cyber activities and Washington's “pivot to Asia”; that is, Cold-War like containment policies that seeks to encircle and suppress China's economic, political, and security ties with its regional neighborhood. In contrast, President Xi's historical “One Road, One Belt” initiatives are likely to defuse military distractions and to optimize economic development regionally.
Along with other large emerging economies, China has also pushed for the BRICS New Development Bank (NDB) and the Asian Infrastructure Investment Bank (AIIB) that are eachvital to desperately needed infrastructure projects in Asia, Africa, Latin America, and elsewhere – but the White House fought until it found itself alone, even amid its closest security allies.
Thanks to these ongoing reforms, the very environment of Chinese-US bilateral relations is under drastic transformation. And yet, Washington has too often than not embraced old Cold War policy stances rather than embraced the new opportunities inherent in Xi's reform agenda. The Cold War ended a quarter of a century ago. It is time to be on the right side of history.
What Washington needs are, well, new stories.
