A Muted Call for Freedom

China watchers like to point to China’s breathtaking economic modernization and say that the country is complicated. Usually, they say this to chastise congressional members and their staffers who recoil at China’s continued political repression and characterize the country in unequivocal, non-complicated terms, such as “Communist dictatorship” or “Red China.” The former group accuses the latter of knowing nothing about China, whereas the latter despises the former as hopeless panda huggers.

Along comes One Billion Customers (Wall Street Journal Books/Free Press), a book by James McGregor that showcases China for all of its dynamic, exciting complexities and the continued ugliness of its one-party rule. Former China bureau chief for The Wall Street Journal and former chief executive of Dow Jones’s China business operations, McGregor has written a guide to doing business in China, offering colorful case studies and business advice. He captures a business world that stands squarely in the middle of China’s attempt to become a world class economy and reluctance to fully accept the free market’s rules and values. McGregor has eloquently—though perhaps unwittingly—challenged Washington’s key assumptions about the Chinese economic miracle.

For one, though the United States has endlessly applauded China’s economic liberalization, such liberalization is hardly as liberalizing as it seems. Most notably, the economy that has amassed between 8 to 9 percent annual GDP growth in recent years runs largely on graft. Because the Chinese government interferes in every aspect of doing business in China—from granting licenses to promulgating regulations, the Chinese bureaucratic system is constantly exacting bribes from foreign and domestic businesses that depend on government approvals, favors, and access. Crucial pillars of the free market in the West—“the sanctity of contracts, the separation of regulators and competitors, and the protection of intellectual property, for example—simply don’t exist in any dependable way in China,” and businessmen have no choice but to comply with a culture of corruption. As Taiwanese businessmen deliver suitcases of cash to their Chinese intermediaries, top U.S. multinationals hire Chinese consulting firms or agents to engage in bribery on their behalf without explicitly saying so.

Washington also believes that economic engagement with China has encouraged the expansion of economic freedom and will likely lead to political freedom. While political freedom has yet to emerge, China’s economic freedom has turned out to be highly distorted by the state’s participation in the economy. McGregor chronicles an effort by Xinhua, the Chinese government news agency, to censor Dow Jones news content, set subscription rates, and take away existing Dow Jones customers through regulation. Ultimately, Dow Jones fought and prevailed, but smaller, less prominent companies who fight similar battles often do not.

In addition, Washington has endlessly credited Chinese leaders with undertaking painstaking reforms to open up the economy to market forces, but the Chinese government views trade primarily as “a vehicle to gain access to foreign technology, capital, and know-how,” not necessarily as an avenue to free and fair competition. Hence it has barred foreign investment in key industries such as banking and telecommunications unless it is done through a Chinese partner. Commercial transactions often follow a pattern: “Foreign manufacturers would transfer technology and produce at least some of the product in China,” but China would retain control of the venture and the industry. Growth in China, therefore, takes place not just because entrepreneurship has been unleashed, but because the government has spent massive financial and political capital to plan and direct it.

Amidst the corruption and the feverish gobbling up of foreign resources, Beijing conducts its business transactions much like it conducts foreign policy. It adroitly harkens back to its glorious history as the world’s mightiest empire and most enlightened civilization and browbeats Westerners for not showing the proper respect. Much as they do when denouncing Western criticisms of China’s human rights abuses, Chinese bureaucrats often reject foreign business proposals or requests by reminding the West’s representatives that they do not understand the complexities of China and have hurt the feelings of the Chinese people. As Westerners rush to repent for their disrespect, Beijing ruthlessly drives a harder bargain.

In an era when Washington regularly drools over China’s rapid economic growth, China has turned the relentless pursuit of international trade and commerce into “an end unto itself.” U.S. policymakers are eagerly awaiting political liberalization to somehow leap out of China’s economic development, but Beijing is far more interested in doing everything possible to enrich itself. It has extracted U.S. know-how and technology, fattened the Chinese state with Western capital, co-opted U.S. businesses into its system of corruption, and put the massive weight of its state apparatus behind planned economic development. All along, it continues to claim the moral high ground of hurt feelings and cultural superiority.

To be sure, China is not the same Communist dictatorship it once was. As McGregor tells it, dedicated, can-do Chinese entrepreneurs and officials and resilient Western businessmen at all times are trying valiantly to change the Chinese system.

Yet for all the China watchers who have breathlessly marveled at China’s evolving complexities, McGregor’s book offers a sobering view. The complexities include corruption, state interference, amorphous laws, and even more amorphous moral values. Though U.S. foreign policy has played no small part in advancing China’s business revolution, U.S. policymakers should note that this revolution’s call for freedom has yet to be clearly heard.

Ying Ma is a National Research Initiative Fellow at the American Enterprise Institute.

"Interesting article."

Yes it is.

I don't want to carry over the debate from the other thread although to a large degree it is aptly mentioned here. I just want to make sure you are not filling me under the wrong camp. I have no love for China as a political entity (Chinese food is another matter yum).

My issue with the Google/China thread and U.S. corporate interests in China in general is where corporate responsibilities lie; with the share holders or with promoting some common good.

Corporations are not in the business of promoting a specific set of moral, ethical or political philosophies (unless that is specifically their business) beyond what is in the best interest of their shareholder or required by the laws of their parent countries or the countries that they are doing business in.

By choosing to do business in China, a corporation is voluntarily agreeing to abide by the laws of that country and in the case of China that often includes a degree of government oversight and control that here in the U.S. most would strongly frown on. That said, there is still a great deal of money to be made in a market of over a billion people, even with a larger degree of control exercised by the host country.

"I thought the counter-argument in this article, versus what you had explained me earlier, would interest you."

Like I said, I did find it an interesting article, but I have like 20 posts on the one thread and this article is 10 paragraphs long, could you bee more specific as to what this is supposed to ba a counter argument to?

Nothing big actually, just this:

I am not sure what side of the fence I am on in terms of corporate responsibility.

In a perfect world, where everyone was squeaky clean, perhaps we would not need to worry.

But we live in a world that is at least somewhat occupied by the Enrons and Lays. The world of insider trading, and companies giving out hundreds of millions of dollars in bonuses just before they know they are going defunct.

I agree those are the exceptions and not the rule, but it certainly is a strong argument for corporate responsibility.

But the issue here IMHO is not like that. The issue is will what Google does in any sense further empower the Chinese government?

And I don't think there is any way to enrich China from a capitalistic point of view that DOES NOT make their government more powerful. I still believe China should never have gotten MFN.

I also think it is dangerous to live in a world where we automatically assume that just because 99 percent of the new Chinese middle class can afford a TV, that that doesn't mean the other 1 percent are not being tortured. Neither does it mean that China has abandoned all plans to seize Taiwan.

Capitalism is an economic model. Republicanism is a political model. They are not the same.

"Nothing big actually, just this:"

First, my arguments were about Googles responsibilities both legal and ethical, not Chinas.

Second, the only "argument" that I made that this is in anyway applicable to this was not an argument at all, but an opinion and was stated as such. The short version of that opinion was that I believe that economic liberalization will lead to political liberalization, that or both will fail, and I stand by that. Ying Ma has a different opinion, and thats fine, but it is too early to answer that question.

"I agree those are the exceptions and not the rule, but it certainly is a strong argument for corporate responsibility."

You will notice that I mentioned that corporations must obey the laws of both their parent country and those of the host country. We as a country have laws in place that require and limit corporate behavior of certain types. In the case of Enron, there are specific laws that were in place that were violated. In Googles case there are specific laws in place in China and they must work within those bounds. I am not saying those laws are right, there are many laws in this country I don't like, but they must still be followed.

"But the issue here IMHO is not like that. The issue is will what Google does in any sense further empower the Chinese government?"

The Chinese government has the entire country under a firewall and can block whatever content they so choose. Either Google agrees to block some content, or the government blocks it all. Not much of a choice.

"Capitalism is an economic model. Republicanism is a political model. They are not the same."

As you may have guessed, I'm not a Republican, technically I'm independent philosophically most would call be libertarian.

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