How America Can Have Its Chinese Cake and Eat It, Too

Beijing’s gerontocracy has recently taken much pleasure in insulting America’s secretary of state, publicly dismissing the importance of the United States as a trading partner and ignoring the world’s concerns about its sorry human rights record. These acts of contempt have transformed the debate about renewing China’s most-favored-nation trading status into the ugly centerpiece of America’s confused China policy.

Should America hold its nose and renew MFN despite China’s lack of progress in human rights? Or should we stand on principle, deny China MFN--and risk being shut out of the fastest-growing big economy in the world? Both options appear bad, and Beijing seems to enjoy America’s China policy dilemma.

But perhaps there is a third way, an alternative that preserves pride and influence while sending an unmistakable signal to the gerontocracy that its days are numbered. It’s an alternative that better reflects the true economic realities of China--and their links to human rights--while subtly exploiting Beijing’s own fears about China’s future.

China’s own economic dynamism and industrial innovation may offer the West unique opportunities to help loosen Beijing’s grip on the provinces.

The simple truth about China’s economy is that there is no such thing as the Chinese economy. There is, however, a collection of disparate, regional economies--some growing far faster than others--that we have chosen to aggregate into a country called China. In fact, there is no Chinese central bank comparable to the Federal Reserve or the Bundesbank; formal central economic planning has collapsed; and Beijing’s power comes more from the Chinese Army than its ability to improve the country’s economy or living standard. China’s spectacular economic growth is a bottom-up phenomenon of the provinces, not a top-down policy imperative from Beijing.

As the differing rates of regional economic growth widen the gaps in Chinese standards of living, America has an opportunity to productively influence human rights performance on a bottom-up regional basis rather than a Beijing-centric one. In other words, treat China less as a monolith and more as a collection of regions whose capital just happens to be Beijing. The goal is not to promote the disintegration of China but rather encourage a shift in the balance of power away from the authoritarian center and toward the more liberal provinces.

For example, U.S. diplomatic missions could spend a perfunctory day in Beijing before spending the quality time in provinces such as Quangdong. The Export-Import Bank could offer special credits to companies investing in “approved” parts of China.

The National Institutes of Health could offer public health advice to cities and provinces whose leaders take the initiative in procuring human rights. Companies that play along with the regional policy should enjoy special advantages denied to companies that kowtow to Beijing.

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There is ample precedent for this sort of subtle outside economic diplomacy and influence. Throughout the 1980s, for example, clever Japanese and European companies (not to mention more than a few American companies) got states to compete against one another to get new factories built within their borders.

Of course, when trade disputes flared, you had delegations from states such as California and Tennessee going to Washington to make sure that any form of retaliation wouldn’t hurt factories. In essence, outside investment helped influence the periphery against the center. No hypocrisy here: America would promote a policy of foreign influence it already accepts. So does the accelerating economic regionalization of China offer comparable opportunities for the West?

“It’s an attractive concept but an almost unworkable reality,” asserts Douglas H. Paal, president of the Asia Pacific Policy Center and former National Security Council adviser on Asian affairs for the Reagan and Bush administrations. “There’s a temptation to exploit the strong centrifugal forces present in China, but there are also strong centripetal forces, such as improved telecommunications.”

“We have long suffered from a Beijing-centered policy,” acknowledges Jonathan Pollack, who tracks China for the Rand Corp., “although we do now have three regional consulates. . . . The question is, how explicit do you make a policy like this? A little subtlety can go a long way. . . . I’m not certain Beijing would tolerate an open policy of favoring the provinces.”

However, both Paal and Pollack note that private investors, including American companies, are already playing a role in regional politics and have Guangxi --connections. Business investors and scholarly exchanges are promoting better regional ties between China’s provinces and the United States. The question is, what role can governments play in helping influence such issues as employment standards and human rights on this more localized basis?

Nicholas R. Lardry, who directs the Jackson School of International Studies at the University of Washington, points out that the United States lacks the sort of institutional mechanisms to influence overseas investments that other countries have.

For example, Japan’s Overseas Development Agency and other Japanese institutions are responsible for more than $2 billion a year worth of investment credits to China. By contrast, the United States guarantees roughly $80 million in annual support. Currently, says Lardry, the United States doesn’t have a way of reinforcing a regionalized China policy if that was what it wanted to do.

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“I personally believe that regionalization is a long-shot policy at the present,” he observes. “But we ought to have similar kinds of programs as the Japanese and Europeans have if we want to improve our leverage with China.”

But a cleverly crafted policy promoting a new Chinese federalism offers America an opportunity to renew MFN without rewarding Beijing. Extend MFN as a medium to help attain the related U.S. goals of promoting bottom-up human rights on a regional basis while subtly--but firmly--behaving as if China’s future rests in its provinces, not at its center.

* CHINA DEAL: Ford entered a tentative agreement to make auto components in China. D2