A Harmony of Opposites, But Business First

Some call it Chimerica – the seemingly symbiotic yet tense trading relationship between China and the United States. They are our biggest creditor, whether through a profound trade imbalance (half of our trade deficit comes from China) or their purchase of U.S. Treasuries by reason of our massive deficit. The last time China and the West had this level of trade imbalance, during the mid-1800’s, Britain’s addiction to Chinese tea and China’s unwillingness to find any British manufacture worthy of import led to the infamous Opium Wars, where overstocks of opium in India were literally forced down China’s throat (nose?) at gunpoint to force a reversal in the trade imbalance by way of drug addiction.

In modern China, Americans seem amazed that a “communist” country can be so completely capitalist. China has long been willing to live with a harmony of opposites, the Yin and the Yang, but it was Deng Xiaoping, the first real post-Mao leader of China, who set the stage for the current “economic structure” of China. Mao had sunk his nation into chaos and starvation, isolated and fearful of the rest of the world, as he tried to take feudal China (his famous “blank slate”) directly into the modern world. Deng ordered his people to revere Mao, but reminded them that true communism, based on Marx and Lenin, required a transition from capitalism into communism; since China was essentially still feudalistic, Deng stated that a foray into capitalism was thus a necessary precursor to true communism.

Over Deng’s tenure, and the rule of Jiang Zemin immediately following, an unholy alliance was made between the old guard in the Communist Party and the government functionaries who redirected China into a modern industrial nation, bent on manufacture and export: the Party would maintain control over politics, speech, media, culture and communications, while the top hierarchy was empowered otherwise to modernize the Chinese economic structure. Without the slightest doubt, China’s wild and virtually unabated economic success placed the economic pragmatists firmly in power, but enough of the old guard remained so that struggles often cracked through the seams.

The recent Uighur riots, the attempt by the Party to require “Green Dam” filtering (and tracking) software in every new computer sold (they backed off in the interest of commerciality, and the software is only required of public access computers), the arrest of dissidents, the accusations of Rio Tinto (mining company) executives as spies… the list goes on… are inconsistent with China’s growing role on the world stage, at every level. The Chinese leadership knows that, but there are old guard factions that still must be catered to… an old guard that is clearly losing its grip and influence. As such functionaries dies or retire, China is poised to move forward across the board, because today, the mantra is always, “Business First!”

But business in the West includes a huge segment of intellectual property values, from computer software to movies, and intellectual property of necessity fudges the line between pure commercial values and creative free expression. It is that murky mess between the sphere of influence granted to the old guard in the Communist Party and the new commercially directed leadership of China.

Enter the World Trade Organization. China signed on in 2001, agreeing to allow foreign companies to operate within China, and sell goods and services, on a non-discriminatory basis. But China has always clamped down on the legal import of foreign books, music and movies, requiring that films, for example, go through two very sharply controlled government-controlled distributors under both unfavorable terms and in exceptionally limited quantity. A local partner, usually government controlled, was an essential ingredient for foreigners in this space. That said, you can get a pirated copy of virtually any film or song available in the West almost anywhere in China.

On August 12^th, the WTO ruled that China’s restrictions on such artistic but commercial fare violated China’s obligations under the WTO. The initial reaction in the Peoples Republic of China was to consider an immediate appeal, and perhaps that is the course that China will eventually choose. But if current trends in the PRC are any indication, perhaps this ruling will allow China’s leadership to wrest away a piece of what had been ceded to the old guard Communists under the aegis of “business first.”

The August 14^th New York Times: “The Chinese legally may appeal the decision, but the foreign minister, Yang Jiechi, indicated in a Geneva speech that simply ignoring [the WTO ruling] was not an option. China worked for years to join the global trading system and is bound, as much as other nations are, by its rules… ‘China will never seek to advance its interests at the expense of others,’ Mr. Yang said, according to Reuters…

“‘Fifteen years ago, the mantra in China was, ‘We’re the victims of a system that’s stacked against us,’ ’ said James V. Feinerman, an expert on Chinese law and policy at Georgetown University in Washington… China’s entry into the world trading system, he said, is slowly helping to change the nation’s view of itself from that of an outsider to an insider with a stake in the global system’s success.”

We are likely to see some inconsistency in China’s reaction to this ruling, specifically, and to the control over commercial intellectual property in general, as the old guard battle to preserve their control over their “sphere of influence” against the central economists who want to continue China’s role as a global power with maximum trading power. It just helps to know the rules.

I’m Peter Dekom, and I approve this message.