China’s Rise to Power and What It Means for the Global Economy

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• In a global economy, investors with diverse portfolios need to understand the forces with the biggest impact on trade. China has been one of the United States’ chief trading partners (and rivals) for decades.
• Susan Shirk, a longtime expert on Chinese-American relations, argues that the U.S. is in a new cold war with China. Her new book, “Overreach: How China Derailed Its Peaceful Rise,” chronicles its increasing military and economic aggression, as well as its domestic authoritarianism, since the mid-2000s.
• Susan joins Top Traders co-host Kevin Coldiron for a conversation about China’s geopolitical power, U.S.-Chinese relations, President Xi Jinping’s leadership and the country’s stringent COVID-19 policies.

The most complex bilateral relationship the United States has with another nation is undoubtedly China. Arguably, it’s been that way since the founding of the People’s Republic of China (PRC) in 1949. But now, as the world enters year three of the pandemic, tensions run higher than ever. And the PRC itself is struggling with increased COVID-19 cases — as well as nationwide protests against its draconian policies.

“There’s no longer this aura of this highly competent leadership in China,” says Susan Shirk, an expert in Chinese geopolitics who served as the Deputy Assistant Secretary of State in the East Asia Bureau for the Clinton administration. She first visited the country more than 50 years ago. 

Today, she is chair of the 21st Century China Center at University of California (UC) San Diego, where she co-chairs a task force of China experts and an international forum on U.S.-China Relations. In her new book, “Overreach: How China Derailed Its Peaceful Rise,” Susan argues that America and the world’s most populous nation are in the midst of a new cold war.

At the center of the conflict: Chinese president Xi Jinping, who rules “with a cult of personality, relying just on a small circle of advisors whom he has known for years, not paying much attention to the professionals in the government — or even in the party,” she says. 

“Power is very centralized, very concentrated. That leads to overreach, which is … [what] the book is all about.” 

Susan joins my co-host Kevin Coldiron for an Ideas Lab installment of Top Traders Unplugged to discuss “Overreach” and the evolution of China’s geopolitical power. They also address why its “zero-COVID” policies led to nationwide protests — and ongoing tumult within the global marketplace.

The Sleeping Giant wakes in the South China Sea

Susan’s first trip to China was in 1971, when she was a Ph.D. student. She was “fortunate enough to be in the first group of Americans to go into China, [right] after the [U.S.] ping-pong team.” (This was “the same time Henry Kissinger came to set up the Nixon visit,” she notes.) 

Back then, China was still largely a mystery to the Western world. 

Susan began the research for “Overreach” around 2006, when Chinese civilian maritime agencies began encroaching on fishing boats and drilling rigs of other claimants in the South China Sea. To Susan, that was a puzzling development: The South China Sea hadn’t (yet) been a focal point of popular nationalism. These maritime disputes changed the narrative about the nature of China’s rising power. Other countries started seeing China as much more threatening. 

At the same time, the government tightened its social control of its citizens with “grid management” surveillance, as well as censorship of the internet and commercial media.

To better understand these shifts in both domestic and foreign policy, Susan conducted extensive interviews with “all sorts of political people, party people, business people and  journalists.” 

Yuen Yuen Ang’s review of “Overreach” in Foreign Policy notes that Susan “draws on her rare combination of scholarly expertise and deep experience in U.S. foreign policy to offer a magisterial account of the excess of ambition in Beijing.”  

Although it can be dangerous for its citizens to critique the Chinese government, Susan points out that she has been interviewing Chinese nationals since the late 1960s. 

“I’m happy to say that nobody has ever gotten into trouble because of talking to me. I’m extremely protective of my sources,” she says. “As social scientists, we have that obligation.” 

Post-Mao pragmatism

Up until the South China Sea Disputes began, “U.S.-China relations — and China’s relations with the rest of the world — were going pretty well due to Chinese foreign policy of restraint,” Susan says. 

In the years after Mao Zedong’s death in 1976, Chinese leaders Deng Xiaoping, Jiang Zemin and Hu Jintao (during his first term) “had a very good understanding that China’s rapid rise as an economic and military power would inevitably create perceptions that China was a threat,” she explains. “Their challenge was how to show other countries … that China wasn’t a threat, because its intentions were friendly and benign.”

Those leaders opened up trade agreements with China’s neighbors, and the country became the largest trading partner in Asia. 

“They took a pretty flexible, pragmatic attitude toward foreign policy, with the exception of relations with Japan and Taiwan, which were always fraught because of hot-button issues of popular nationalism.”

From oligarchy to authoritarianism

The shifts Susan documents in “Overreach” emerged under Hu Jintao, who was, in hindsight, relatively “weak” compared with the authoritarian style of Xi Jinping. 

In Jintao’s era, China was ruled by a nine-man political oligarchy of senior leaders in the Communist party. Each of these oligarchs were responsible for “a particular portfolio of bureaucracies,” as Kevin puts it. 

The oligarchs were very protective of their own interests. They hyped up international and domestic threats in order to get bigger budgets and more bureaucratic influence. Essentially, this decentralized leadership “basically hijacked Chinese policy,” both politically and economically, Susan says.

“It’s a complicated story that I try to make clear and vivid, but at the end of Hu Jintao’s 10 years in office, China was very corrupt,” she explains. “Each one of these barons were able to collect a lot of rents and bribes because they were so powerful and had all this patronage to promote other officials subordinate to them.” 

There were also “open splits in the leadership that enabled Xi Jinping [then a rising leader in the Chinese Communist Party] to make the case for a more concentrated leadership system,” she adds. 

But there were no “mutual checks,” because “maintaining the facade of unity” was paramount. One public disagreement “could bring down the whole house of cards, because most authoritarian regimes fall top down, not bottom up. They fall because of power struggles, splits, open splits in the leadership, which then emboldened the public to come out on the street. That’s what happened in Tiananmen in 1989.” 

The Party’s protest playbook

Protests in China are not rare. Susan says there are thousands each year — and the Chinese Communist Party (CCP) has a playbook for dealing with them: “express sympathy for the protestors, satisfy some of their demands, blame the local authorities and then throw the ringleaders of the protests in jail,” as Kevin summarizes. 

Susan says the CCP followed that playbook “to a certain extent” when handling the recent zero-COVID policy protests — “in the sense that people will be imprisoned for their activities for sure — the ringleaders, or the people who appear to have emerged as informal leaders,” she explains. However, it hasn’t expressed sympathy — “other than one thing that Xi Jinping said at a meeting with some European leaders about the protests,” Susan notes. “He did mention the protests as being caused by the frustrations of young people about the epidemic, so he acknowledged they occurred. So far, that’s the only time Xi Jinping or any senior leader has really acknowledged the protests.”

This recent resistance by Chinese citizens marks the first time since the Tiananmen Square Massacre that we’ve seen nationwide protests against a policy of the central government, she adds. Protests in the preceding decades were focused on local issues, but 2022’s zero-COVID dissent took place in about 30 cities.

One of the ironies that run through Susan’s book, says Kevin, is that the Chinese domestic control regime “wants to stamp down on protests, yet by not having rule of law it creates a situation where protests are the only way [for citizens] to get their voices heard.”

Susan says “we see that in spades with these protests … because there had been a lot of rumblings, a lot of criticism by public health professionals and a lot of sub-rosa discussion in China about the problems with Xi Jinping’s zero-COVID.” 

The quarantine/vaccine puzzle 

So how exactly has China gone wrong? 

“For one thing, all the human resources and the money were going into constant testing and quarantining — and not into vaccinations,” says Susan.

Some reports suggest a cultural resistance to vaccinations among the Chinese population, but Susan isn’t sure that’s the primary issue.

“It’s a puzzle,” she says. “I don’t think we know the answer to this. There’s resistance to vaccinations everywhere.”

But China’s response to COVID meant its citizens were “coerced to stand in long lines in all types of weather to get tested almost every day, and were forced into collective quarantine,” Susan explains. “I’ve seen, recently, a graph of the collective quarantine numbers going into the millions. The vast majority of those people … were simply contacts of people who had tested positive … [often] with no symptoms. They were rounded up just because there were contacts or even secondary contacts. It was crazy.”

She wonders: Why not push to get everybody vaccinated, especially the older population? Presumably, the CCP has the power to mandate vaccines if it also has the power to quarantine millions of people.

“It’s obvious, from the disarray that China is in now, that they [the government] didn’t take the time to actually make a plan,” says Susan, “which is shocking. When you combine this with a lot of other mismanagement of the economy over the past decade, it really makes us all question the much-vaunted competence of decision-making in China.”

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This is based on an episode of Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Sign up to our Newsletter or Subscribe on your preferred podcast platform so that you don’t miss out on future episodes.