{Editor’s Note: In October 2018, the Epoch Times newspaper obtained an internal document from the Municipal Party Committee in China’s Shenzhen City.Wu Sikang, director of the Policy Research Office of the municipal government wrote the document. Wang Weizhong, head of the Shenzhen Municipal Party Committee, and Ai Xuefeng, deputy mayor, reviewed the document and gave some instructions.The document disclosed the Chinese Communist Party’s attitude toward the ongoing trade war with the United States and toward intellectual property rights; it proposed ways to obtain high-tech intellectual property rights from developed countries such as the United States. This internal document was circulated among the leadership in Shenzhen city. According to analysts familiar with the internal affairs of the CCP, when major leaders in a city approve a report, it means that the report will be implemented. A full text translation of the document follows. The original document also circulated widely on the Internet.} {1}
While studying in the U.S. back in August, I had extensive contact with U.S. Think Tank scholars, college professors, Chinese students studying abroad, and the general public. I had field experience of the American social culture. I feel strongly that the Sino-U.S. relationship has made a dramatic shift. The trade war is only the beginning of a competition between two giant powers. A “New Cold War” has quietly started. The world landscape will undergo a major change. Shenzhen, an international city that relies heavily on exports, needs to pay special attention to this change.
In order to understand Sino-U.S. relations, we need to focus on directional change in the following five areas:
First, U.S. policy makers believe that their China policy in the past decades has failed. It has changed from treating China as a responsible stakeholder to considering China to be a main competitor that threatens U.S. interests. U.S. China policy has shifted from “engagement” to “containment.”
The U.S. has made a major shift in how it defines China’s strategic position. In its National Security Strategy Report, the U.S. placed China as a key opponent ahead of Russia. This is merely a diplomatic expression on paper. As a matter of fact, Trump’s cabinet members view China as an enemy. In a recent large public rally in Florida, Trump openly stated that, “China is the most formidable enemy that the U.S. has encountered since World War II.”{2} This means that the U.S. containment strategy towards China will surpass the one that was used against the former Soviet Union.
The U.S. strategy towards China has grown more and more hostile. In August, Trump signed the 2019 National Defense Authorization Act requesting the Defense Department to build a “whole-of-government China strategy.” In addition to the usual issues such as the trade deficit, intellectual property, Taiwan, the South China Sea, and Tibet and Uyghur Independence, the U.S. has recently deliberately organized a ministerial meeting on the Lower Mekong Initiative. Secretary of State Pompeo attended the meeting in person with a clear intention to strengthen the “U-Shaped” alliance (surrounding China). Since India’s position is still ambiguous, a formal U.S., Japan, Australia, India alliance may not happen, but the truth is that the U.S., Japan, Australia, and India have formed an ever strengthening encirclement surrounding China. Since the end of 2017, the U.S. has published a number of reports including the National Security Strategy, the National Defense Strategy, the State of the Union, the Nuclear Posture Review, and the Worldwide Threat Assessment. The U.S. scrapped its “engagement” strategy which had been the foundation of its diplomatic policy for the past decades and has clearly adopted a strategic shift with a focus on the containment policy against China.
Almost every member in Trump’s core team is a hawk. They regard China as a total threat. Ten years ago, Peter Navarro, who is the White House Counsel, produced a documentary movie called “Death by China.” Both Robert Lighthizer, Trade Representative, and Larry Kudlow, Director of the National Economic Council are considered hawks on the economy. Secretary Mike Pompeo and National Security Advisor John Bolton are hawks on security. They claim that the biggest long term security threat that the U.S. faces comes from China.
In order to make China its strategic opponent, the U.S. might intentionally intensify issues on the South China Sea, Taiwan, and Tibet Independence. In the National Defense Strategy issued in January, it listed China, Russia and International Terrorism as “threats” to U.S. national security. In August, following the major tax cut, the U.S. passed the 2019 National Defense Authorization Act (NDAA) and the US$716 billion military budget, the largest budget in history. The NDAA called for the Secretary of Defense to “expand senior military-to-military engagement and joint training between the United States Armed Forces with the military of Taiwan.” {3} The U.S. stopped funding the support of Tibetan Independence for many years but this year it has allocated US$17 million in funding to it.
Second, U.S. policy makers believe that the core of Sino-U.S. competition is the competition in science and technology. U.S. technology isolation towards China has changed from “defense technology focused” to isolation on “new technology at all levels.”
The U.S. has tightened its technology exchange visa management. Washington has quickly expanded the restrictions on Sino-U.S. technology exchanges including talent exchanges. Stopping China from learning science and technology from the U.S. through a number of different channels appears to be a new movement in the U.S. It has made it even harder for Chinese students to obtain student visas in the U.S. Since June of this year, the State Department has put limits on granting visas to students from China. Those who have majored in sensitive fields such as aviation, robotics, and advanced manufacturing, are only given a one-year visa at a time and the students must reapply each year. The Department of Education has advised the colleges and universities in the U.S. to limit Chinese students from studying sensitive majors. The reviews of visa applications from Chinese scholars in science and research fields are even stricter. Individuals who are in China’s “Thousand Talents Program” are on the FBI’s watch list. Their visa applications to the U.S. will receive special “attention.” Recently an entire group of Chinese scientists were denied visas to attend a U.S. planetary science conference COSPAR Assembly 2018. The focus of the visa application has changed from whether the applicant has the intention to stay in the U.S. to whether the applicant is studying in a sensitive major. In the summer training program I attended, the trainee who had a metallic material science major received special attention from the U.S. visa officer.
The U.S. has imposed stricter limitations on sensitive technology, high-tech products, and the related manufacturing equipment and material exports to China. In August of this year, the Bureau of Industry and Security under the Department of Commerce added 44 Chinese science and research institutions and companies to its inspection list. The list now contains over 130 names; it covers areas in integrated circuitry, precision instruments, machinery, and the aerospace industry. Any U.S. companies that wish to export technology and products to these companies on the list must apply for permission in advance.
The U.S. has kept a closer watch on science and technology collaboration between China and the U.S. We visited a tech center in Silicon Valley which Zhongguancun {4} had set up. They told us that they were already on the FBI’s short list. The U.S. Defense Department has recently begun to investigate projects between Chinese companies and universities in the U.S. In June of this year, a number of Congressional members from both parties wrote to the Secretary of Education asking it to investigate projects involving Huawei and colleges in the U.S., especially the projects that receive federal grants or are involved in research in sensitive fields. The colleges are required to turn in the signed contracts and the collaboration details; otherwise they might face cuts in their research grants.
The U.S. has tightened its inspections of Chinese companies that invest in or buy out U.S. tech companies. A joint report that the U.S. Defense Innovation Advisory Committee and the Pentagon wrote stated that China has used venture capital to gain shares of U.S. high tech companies that have achieved results in this area. To a certain extent, China has avoided the technology transfer scrutiny that the U.S. government conducts. The recent revision of the Foreign Investment Risk Review Modernization Act (FIRRMA) requires the Committee on Foreign Investment in the United States (CFIUS) to strengthen its review of China’s investments in the U.S., especially in hi-tech startup companies. Any investment over 10 percent should be subject to full review.
Third, the recent move in the U.S. trade war is not merely to meet the need to increase leverage and ultimate pressure. In fact, it is likely to push for the complete separation of the two major economies in the world and for the complete restructuring of the global industry supply chain. Thus China economic strategy is transforming from “restraint by rules” to “rebuilding the global economic map.”
The United States recently imposed tariffs on another $200 billion worth of products made in China, with tariff rates rising from 10 percent to 25 percent. Media reports generally take this as an effort to add a bargaining chip in order to pressure China. We believe that the United States intends to use its tax leverage to re-structure the global industrial supply chain, which would force the foreign funded high end manufacturing in China to return to the United States, Europe and Japan, and the general manufacturing to relocate to Vietnam and other Southeast Asian countries. Some international scholars have even talked about “the fifth industrial migration,” with China as the major country of origin. On a public occasion, Zhou Xiaochuan (governor of the People’s Bank of China from 2002 to 2018) implied that “China might exit the U.S. market.”
In fact, the survey that the American Chamber of Commerce in the People’s Republic of China (AmCham China) conducted on the U.S. companies in China showed that, as a result of the trade war, half of the companies have incurred a loss of profits. Production costs have risen and the demand for products has declined. One-third of the companies have re-assessed their investment plans and are considering postponing or canceling their investment decisions. The U.S. government’s tax reduction and its subsidies have incentivized them. Out of consideration for avoiding trade sanctions and technology restrictions, some foreign companies in China have started a trend to invest in the United States. For example, after the U.S. government’s promise of enormous subsidies of $4 billion as well as Foxconn’s concerns for the possible negative impact on its U.S. business, Foxconn has started to construct manufacturing facilities in Wisconsin.
As for overall costs, we do not have any outstanding advantage over the U.S., but are in a more disadvantageous position than Vietnam and other Southeast Asian countries. According to the report “The Shifting Economics of Global Manufacturing” that the Boston Consulting Group (BCG) issued, China’s manufacturing cost index was 96, against 100 for the U.S, showing a narrow gap. Further, in recent years, as a result of the rapid increase in the cost of land, housing rentals, and labor, the manufacturing cost in China is much higher than in Vietnam, Indonesia, India, and other countries. Mid and low-end manufacturing is moving to Southeast Asian countries on an increasingly larger scale.
Fourth, in the past, the anti-China and pro-China forces in the United States co-existed and balanced out against each other. Now, being anti-China has become “politically correct,” and the social sentiments have moved from the co-existence of “disgusted with China and pro-China” to “cross-the-board disgust and fear of China.”
This is a terrifying and alarming sign! During World War II, the genocide policy that Germany implemented against the Jewish ethnicity was also the result of the social sentiments against Jews.
The inappropriate conduct of some Chinese has offended Americans. Some wealthy Chinese and some overseas Chinese students ignore the law, brag about riches, are arrogant, and lead an extravagant life, causing strong resentment among local residents. According to the most recent annual poll result of the Pew Research Center, 47 percent of those Americans who were polled view China very unfavorably. Only 38 percent view China very favorably. I spoke to the local middle school principal. In the past, he had been very enthusiastic about recruiting Chinese students; he enrolled over 100 Chinese students every year. In recent years, however, he found many Chinese students addicted to pleasure-seeking, with no interest in studying. Now he has reduced the rate of Chinese recruits to about 20 a year.
The mainstream in U.S. academia believes that, to a great extent, the past “engagement strategy” towards China has failed and that the United States should adjust its policy. Kurt M. Campbell, the former Assistant Secretary of State for East Asian and Pacific Affairs, and Ely Ratner, Executive Vice President at the Center for a New American Security, co-authored an article, The China Reckoning: How Beijing Defied American Expectations,” stating that the United States’ past practice was futile because it placed its hopes on changing China through diplomacy and trade which would enable China to open its political and economic fields, and that the U.S. “put too much faith in its power to shape China’s trajectory.” {5} Lawrence Summers, former U.S. Secretary of the Treasury, believes that the current Washington practice fundamentally reflects a change in the entire attitude of the U.S. towards China. Steve Bannon, former White House Chief Strategist, does not believe that anyone among the U.S. leaders would promote China to become a free democratic country with a free market economy.
In the past, the U.S. administration, the legislature, and defense checked and balanced each other, but now they are all on the same page when it comes to containing China. The U.S. executive branch used to be a major force that put the brakes on the U.S. Congress and the Defense Department, but now containing China has become their common understanding. The National Defense Authorization Act for Fiscal Year 2019, the Foreign Investment Risk Review Modernization Act, the National Security Strategy Report, and the Taiwan Travel Act overwhelmingly passed in the U.S. Senate and the House. Particularly, the Taiwan Travel Act passed unanimously in both the U.S. Senate and the House, which is rare, as the Republicans and Democrats in the U.S. Congress are increasingly divisive.
U.S. businesses think that they have been treated in an unfriendly manner and unfairly in China. The AmCham China 2018 Business Climate Survey shows that in 2016, 81 percent of the U.S. companies thought that foreign companies were more unwelcome than before; 66 percent of companies had no confidence in or held doubts about China further opening up its market to foreign investment; and 55 percent of the foreign companies in China felt that, in their policies and in the implementation of their policies, the government treated them unfairly, particularly in technology. While the statistics in the 2017 survey improved, there were complaints from a significant number of U.S. companies about the business environment in China. The huge amount of business and trade was the cornerstone of China-U.S. relations. At critical times, there were always U.S. companies stepping forward to save the day. This time, U.S. businessmen actually supported the trade war against China.
Fifth, the fundamentals of China-U.S. relations are going through significant changes. This trade war marks the beginning of an era of an incumbent hegemony’s long term and comprehensive containment of an emerging power. China and the United States will shift from a “short-term trade dispute” to a “long-term soft confrontation”.
This “trade war” will lift the curtain on a protracted cold war between China and the United States. The remarks of Professor Clayton Dube, Executive Director of the USC U.S.-China Institute, speak volumes. “You have a new era in China. The United States has our new era.” It implies that the China-U.S. relations have entered an era of full, soft confrontation. Since it is an era, it will not possibly end in a short period of time.
The policies that Trump promoted will not materially change, at least, in the next six years. People may be expecting that Trump will not win the election for another term. While in Los Angeles, I spoke with quite a few Americans. They said that they personally find Trump disgusting, but that there is no suspense about Trump serving another term. Since Trump came into office, the U.S. economy has demonstrated a strong momentum of growth. In particular, the GDP for the second quarter in 2018 grew more than 4 percent, and claims for unemployment benefits have hit the lowest in 45 years, further boosting support for the Trump Administration. The most recent results from both the Wall Street Journal and NBC show that Trump’s approval rating in the July poll was 45 percent among all registered voters, a record high for Trump. His approval rating hit 88 percent among Republicans. In short, there is no question about Trump winning the mid-term election and that his policies will continue, at least, for another six years. Even if he leaves office, there will not be a significant adjustment to the existing strategy of full containment of China.
The world will return to the times when major powers competed for dominance. We said in the past that China-U.S. relations would not be too good or too bad. That remark is now questionable. The U.S. National Security Strategy Report clearly states that strategic competition between the major powers, not terrorism, has become the primary concern for U.S. national security. The Report presents China and Russia as its major strategic competitors and declares that the world has now returned to global competition between major powers. To win in the competition, both U.S. government officials and scholars in the U.S. academia have proposed that the United States should implement a full containment policy against China, following the “cold war” policies of the Reagan Administration against the Soviet Union.
The change in the world’s landscape came sooner and is more drastic than what we expected. In six months or a year, there will be major changes. At present, the negotiations of the U.S.-Canada-Mexico agreement and the U.S.-Korea agreement are close to being concluded. The United States and Europe have reached a political understanding and will conclude a trade agreement as soon as possible. The United States will also reach a bilateral trade agreement with Japan and Australia, respectively, in the next year or so. The high standards of the trade agreements among developed countries will apply uniform testing and inspection standards as well as zero tariffs, which will exclude China and likely form a formidable barrier. Some Chinese scholars have recommended China ally with Europe and Japan in opposition to the United States. We believe that such a strategy will likely have a limited effect. The United States, Europe, and Japan are traditional allies. Any conflicts among them are the conflicts between brothers. The German Federal Minister for Foreign Affairs made it clear when he stated that, “China does not belong to this circle.”
Several Suggestions
Be clear-headed about the significant changes in Sino-U.S. relations and pay high attention to its long-term nature and severity. According to the rationale of reacting to the “New Cold War,” we should make and implement a “wartime strategy” in terms of talent and materials so as to take the initiative in the all-around competition between China and the U.S.
First, do a good job of bringing in talent bearing a mental picture of the “New Cold War.” Adopt more precise, concealed, and special measures to introduce, in an expedited fashion, a substantial number who have strategic talent in science and technology, especially non-Chinese top-notch experts. Utilize the short period before the U.S.-led West starts its all-around “talent war” against China and step up the implementation of the new talent strategy. Do a better job of predicting the new frontiers in science and technology. Regarding the shortage or possible shortage of special talent, especially those coming from third-world countries and receiving education in developed countries, offer compensation and treatment that is better than the international standard. At the same time, provide quality support services and offer happy living and working conditions. Select, introduce, and purchase some half-done science and technology projects and talent, and create suitable conditions in Shenzhen for them to continue their scientific research. Be the first to implement a talent policy similar to something that acknowledges multiple citizenship and encourage ethnic Chinese scholars to become citizens of other countries and participate in all kinds of international science and technology activities. Learn a lesson from the “Thousand Talents Plan,” which drew the attention of the FBI, and considered the safety of talent. Be bold in bringing in talent and offer good terms, but do not publicize these actions in high profile.
Second, grasp the time window before the comprehensive U.S. blockade. Use unconventional means to speed up the introduction of all sorts of cutting edge scientific equipment and instruments, and materially prepare for the “New Cold War.” The gap between us and the U.S. is more in the area of scientific equipment and instruments. Without equipment and instruments, researchers cannot convert ideas into real products, no matter how many fancy ideas they have. While the United States might mobilize its allies to enlarge the scale of high-tech product import restrictions against China, there might be up to a full-year’s “time window” before actual actions can be taken. Make every possible effort and do whatever it takes, through all sorts of channels, to bring in all sorts of cutting-edge scientific research equipment and instruments. Convert investments in and stock of real estate into that of the high-end science research equipment and instruments.
Third, establish, as fast as we can, high-level science and technology think tanks to track, analyze, study, and make judgments about the trend of advanced international science and technology. Collect, organize, and accumulate all sorts of scientific data and make preparations in scientific research from the perspective of the “New Cold War.” Advancement in science and technology requires an accurate judgment about the directions of breakthroughs. The fact that the U.S. is able to maintain its long term global leadership in science and technology is inseparable from its highly developed science and technology think tanks. Speed up and establish a number of science and technology think tanks that meet the international standard, collect top notch strategic talent in science and technology from around the globe, and strengthen the analysis and assessment of the trend of the frontiers of scientific research. Make the best use of the advantage that Hong Kong’s Internet can conveniently visit international scientific research databases, and build information databases of international scientific research.
Fourth, take the initiative to counter the U.S. blockade on science and technology, and actively launch international science and technology activities. Proactively initiate all sorts of global annual conferences, academic seminars, international science and technology forums, and science and technology expos, so as to create more platforms for the international exchange of science and technology talent. Proactively start large international scientific projects and large scientific plans. Promote and encourage the sharing of research results. Explore and make policies for overseas use of government funding for scientific research. Make the international cooperation in basic research an important vehicle to break through the technological blockade. Be flexible in strengthening cooperation with leading countries in science and technology. Support ethnic Chinese and Chinese firms in establishing universities and research organizations outside of China.
Fifth, seize the opportunities that the differences between the legal and institutional systems of China and the United States afford in order to expedite the development of new types of industry and businesses. In March of this year, Facebook’s market value dropped by $50 billion after the media exposure. The company is possibly facing a fine as high as $2 trillion, as a consequence of 50 million users having their personal data leaked. China has over 1 billion Internet users, and there hasn’t been any rigorous protection of private individual information. To look at it dialectically, this is also an opportunity to develop an Internet-based economy. We need to seize this time window to expedite the development of new economic and business models to gain an upper hand in competition in global Internet-related businesses. In the meantime, the development of new technology, in areas such as biomedical, is closely related to regulations and rules. We can designate special zones as experimental areas and adopt special policies in these areas to support, serve, and regulate these industries to expedite the development of new technology and new business models.
Sixth, create a center focused on industrializing global scientific and technological achievements, and providing comprehensive and equivalent support in financing, human resources, and policy for non-Chinese international talent to start businesses in Shenzhen. Give super-national treatment to the industrialization in Shenzhen of outstanding global scientific and technological achievements, in the same way that foreign investments were introduced in the past. Abide by the principle of “seeking not the ownership, but the residence” (in Shenzhen), establish special service facilities for foreigners to start businesses in Shenzhen and provide targeted services in financial assistance, industrial support, and practical applications. Strengthen cooperation with globally renowned technology transfer institutes, foster and introduce a number of international and professional technology transfer service organizations, and construct a global network of technological transfer. Make special policies to support the transformation of international technological achievements and secure the benefit of technological transformation for researchers. Build convenient, open, and accommodative communities that meet an international standard, and create a Hong Kong-like internationalized living environment in specific regions.
Endnotes:
{1} Epoch Times, “Leaked Document Advises Chinese Regime on Fighting New Cold War,” October 17, 2018.
http://www.epochtimes.com/gb/18/10/17/n10788564.htm
{2} Chinascope translated the original Chinese as it is, although Trump did not make such a statement in his speeches in Florida.
{3} The 2019 National Defense Authorization Act: Key Sections on Taiwan and China, July 27, 2018, https://sentinel.tw/the-2019-national-defense-authorization-act-key-sections-on-taiwan-and-china/
{4} Zhongguancun, is a technology hub in the Haidian District, Beijing, China. It is geographically situated in the northwestern part of Beijing city, in a band between the northwestern Third Ring Road and the northwestern Fourth Ring Road. Zhongguancun is very well known in China, and is often referred to as “China’s Silicon Valley”.
{5} Foreign Affairs, The China Reckoning, March/April 2018 Issue, https://www.foreignaffairs.com/articles/china/2018-02-13/china-reckoning