sign up log in
Want to go ad-free? Find out how, here.

Time and again, the long view in China has stood in sharp contrast to America’s short-term approach. Sun Tzu put it best: “If you know the enemy and know yourself, you need not fear the results of a hundred battles”

Time and again, the long view in China has stood in sharp contrast to America’s short-term approach. Sun Tzu put it best: “If you know the enemy and know yourself, you need not fear the results of a hundred battles”

A couple of months ago, while touring Jiangxi Province, Chinese President Xi Jinping made reference to an old revolutionary milestone. “Now there is a new Long March, and we should make a new start,” he said in response to the mounting economic conflict with the United States.

In China, symbolism is often more important than literal interpretation of leaders’ elliptical statements. Spoken in the same province where the Long March commenced in 1934, ultimately leading to Mao’s defeat of the Nationalists 15 years later, Xi’s reminder underscored China’s greatest strength: the long view.

That strength was on display during my latest visit to China in early July. In a series of wide-ranging meetings and discussions, three conclusions stood out. Each challenges America’s bipartisan demonization of China.

First, slowing growth is not the source of fear for China’s leaders that many Western policymakers seem to think it is. Yes, in historical perspective, the latest GDP report was weak: quarterly growth was the slowest since the current statistical reporting system was adopted in 1992, and even worse than that recorded a decade ago, in the depths of the global financial crisis. But the 6.2% rate for the second quarter of 2019 was a relatively mild deceleration of 0.5 percentage point from the relatively subdued 6.7% average pace of the previous eight quarters. By contrast, the slowing to 6.6% in the first quarter of 2009 was a far more abrupt deceleration of 5.5 percentage points from the average gain of 12.1% over the preceding eight quarters. A modest slowing is not a growth collapse by any stretch of the imagination.

That should not be surprising. China has more policy levers than growth headwinds. With ample room for further monetary easing, infrastructure spending, and other forms of fiscal stimulus, Chinese authorities are far less concerned about a sudden growth accident than the US narrative would lead one to believe.

Moreover, Washington’s fixation on who is winning the trade war overlooks a critically important structural shift in the Chinese economy. In 2018, net exports were just 0.8% of China’s GDP, which represents a dramatic compression from a decade earlier, when net exports accounted for fully 7.5% of real GDP. While hardly an oasis in a weakening global economy, China is far less exposed to a trade shock today than it was back then. Even if it loses a trade war – a debatable proposition – damage to China’s overall economic growth would be minimal.

At the same time, the May 24 Baoshang Bank failure – a first for China in about 20 years – has triggered a worrisome outbreak of counterparty risk contagion. With bad debts ballooning in excess of 30%, this privately-owned Inner Mongolian midsize institution was apparently victimized by corrupt management. A well-coordinated takeover by China’s financial regulators and the central bank appears to have contained the direct damage while sending an important moral hazard signal to undisciplined lenders. But the interbank borrowing market is still shaky, with spillovers to smaller banks, including those in rural areas. Ironically, China may be better able to manage trade risks than instability in its financial system.

The second conclusion that stood out from my recent discussions is that China is patient and methodical in dealing with external wildcards – especially US politics. Chinese officials are not about to bet on the 2020 US presidential election in formulating their strategic response to the trade conflict. Obviously, there is great interest in the outcome; but in keeping with Xi’s Long March imagery, China’s leadership is preparing for an enduring Cold-War-like confrontation, irrespective of who wins the election.

Significantly, many senior Chinese officials don’t share the US consensus view that America’s post-2020 China policy trajectory will stay its current course – Donald Trump or not. In the event that Trump loses, the Chinese suspect that US foreign policy will shift back to a more multilateral, alliance-focused approach. Their biggest hope is for a restoration of integrity to the policymaking process itself.

Like many in the US, the Chinese find it difficult to deal with unpredictable, almost whimsical, shifts in tariffs and sanctions. Even if a new president were to remain tough on China, a coherent and well-articulated US strategy would be far more effective in framing the debate and offering hope for constructive resolution of grievances.

Third, Huawei is a big deal for China. The tech giant is perceived to be a national champion and emblematic of China’s push toward indigenous innovation, which is central to its longer-term growth and development aspirations. By taking advantage of its “choke point” position in the Huawei supply chain, the Trump administration’s China containment campaign is seen as seeking to stifle those aspirations.

There is no question that Huawei is feeling the heat as the US squeezes the supply-chain by putting pressure on America’s leading suppliers of semiconductor chips, other components, and software – companies such as AMD, IBM, Marvell, Intel, Google, and Microsoft. According to Huawei’s management, the company’s earnings this year and next will be about $30 billion below projections.

While senior US officials have sent mixed signals about relaxing restrictions on Huawei, the weaponization of US trade policy has sent a clear message to China: the need to address the supply-chain vulnerability of its leading-edge technology companies is now a top policy priority.

The conventional wisdom in the West is that China will need ten years to build a domestic chip and software industry that could fill the void created by US restrictions. The Chinese I spoke with in early July felt that the gap could be closed much sooner, possibly within two years. If anything, Trump’s threats against Huawei have served as a wake-up call to Xi’s “self-reliance” campaign. The US chokehold could be surprisingly short-lived.

Time and again, the long view in China has stood in sharp contrast to America’s short-term approach. Needless to say, this has become all the more evident during the past two and a half years of Trump’s Twitter-driven policy gambits. One senior Chinese policymaker actually admitted to checking Trump’s Twitter feed each morning. No surprise there. Sun Tzu put it best in his ancient treatise, The Art of War: “If you know the enemy and know yourself, you need not fear the results of a hundred battles.”

Stephen S. Roach, a faculty member at Yale University and former Chairman of Morgan Stanley Asia, is the author of Unbalanced: The Codependency of America and China. Copyright: Project Syndicate, 2019, published here with permission.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


Western or NZ politicians are puppets of capitals, thinking about 3 to 5 years election cycles, high rank jobs in UN or a board members for banks after retirement.

It is a joke to believe that any policians in NZ are acting for the benefit of all NZ people.


I often agree with you about NZ politicians and then vote accordingly. How many political parties are there in China?



Yes, and leaders in a China are obsessed with getting themselves and their families ever richer and more powerful.

We could also add that leaders in China are obsessed with control. They would kill their own people rather than let them have free speech.

Why is it that everyone in China wants to squirrel their money out of the country ?

Perhaps because they have rightful fear that their government at some point take it away from them for having the wrong opinion.

Do you live in NZ or in a troll farm in Beijing ?


Hi Glitzy

agree with your sentiments. Regrettably, opinions and decisions re China relations and valuation are, in public domain, almost exclusively economic gain slanted. Human rights are an after thought or no thought at all. NZ is very export dependent on China and government and economic commentators focus exclusively on what would be lost if that relationship sours or China economy and finance system falters or crashes. This is a linear view that assumes China is great and will overtake USA. CCP is not immortal, as USSR Party was not either. Either we really value democracy and decent treatment of all citizens of a State, or we don't. A bit like Christianity, it is the case that our steadfastness to our values is pretty "light" and too easily cast off nowadays. Be careful not to lie down with dogs, as the saying goes, for you shall rise with fleas. The other one is "by their friends shall ye know them."


Journalists love to frame the trade war as ‘Trump’s’. It is simply a result of ‘populism’ and ‘protectionism’.

This is flat out wrong. In the age of Trump, journalists everywhere have a bad case of TDS (Trump Derangement Syndrome), which makes it impossible for them to see the real issues.

And the real issue here is that the US/China trade war is not really about trade. It’s about ideology. It’s about communism versus capitalism.

Because universities are now leftist institutions, the majority of journo’s these days tend to write about China and communism with sympathy. Their contempt for capitalism is obvious.

This is dangerous, because it fails to portray China as it really is. That is, a communist dictatorship trying to cheat and steal its way to economic dominance.

As I’ve said before, China gained entry into the World Trade Organisation on the proviso it would open up its economy and liberalise trade. It didn’t. Instead, it engaged in protectionist policies to amass trillions of dollars in foreign exchange reserves via trade surpluses.

It did so, in part, by trashing its environment and exploiting its workers. The US and other developed nations simply couldn’t compete. Sure, consumers in the West got cheap running shoes, toasters, and computers.

And as Chinese savings were recycled back into the US bond market and interest rates went down, we didn’t notice that it resulted in house prices going up so much that we had to take on mountains of debt to afford one.

But don’t worry. Have you got the latest iPhone?

And thanks to the technological supply chain moving to China too, the communists got to see how advanced technology works. And they stole it.

Now, the Trump administration has said enough is enough. They don’t believe the US should assist the rise of a communist nation.

Hence the trade war. It might be leading to a weakening global economy and wobbly stock markets, but Trump realises it’s in the best interests of the US (and her allies) over the long term.

Another piece from the Fin Review today reports on this issue. I hope you can get past the mild case of TDS coming through in the select quotes below:

‘A defiant Donald Trump has issued a blistering defense of his trade war against a "grifting" China, suggesting any short-term negative fallout was "irrelevant" to the bigger picture.

‘In an impassioned press conference from the White House on Tuesday (Wednesday AEST), Mr Trump insisted yet again that the US economy is "very far from a recession".

‘But he also took aim at economists and other critics of his trade dispute with Beijing — which has been widely blamed for harming the US economy and crunching stock markets.

‘"Somebody had to take China on," a visibly angry Mr Trump seethed.

‘"And it's about time, whether it's good for our country or bad for our country short-term.

‘"Long term, it's imperative that somebody does this."’

The China question is getting more airplay in Australia now too. A few weeks ago, Labour backbencher Andrew Hastie wrote an op-ed in the Sydney Morning Heraldabout China.

Apparently it was controversial. For telling it like it is.

He wrote:

‘We must be intellectually honest and take the Chinese leadership at its word. We are dealing with a fundamentally different vision for the world. Xi Jinping has made his vision of the future abundantly clear since becoming President in 2013. His speeches show that the tough choices ahead will be shaped, at least on the PRC side, by ideology — communist ideology, or in his words, by "Marxist-Leninism and Mao Zedong Thought".

‘Xi’s view of the future is one where capitalism will be eclipsed and "the consolidation of and development of the socialist system will require its own long period of history…it will require the tireless struggle of generations, up to 10 generations".

‘The next decade will test our democratic values, our economy, our alliances and our security like no other time in Australian history.’

Indeed it will. Australia is caught in the middle of this ideological war. China is our largest trading partner, the US is our largest investor and most important ally.

If you’re an investor in commodities, you need to follow this story. If the US gets the upper hand over China (which I think it will), there will be fallout for the Aussie economy in the form of weaker commodity prices, especially for bulk and industrial commodities.

Given we have a coalition government, I think it’s fair to assume we’ll be backing the US in this fight. Perhaps not overtly, but the US is our ally, not China.

To reinforce this point, The Spectator recently wrote about former PM John Howard’s views on China:

‘At a meeting earlier this month with top US officials, he [Howard] described the upheaval in Hong Kong as ‘a glimpse of the future for Chinese society’ and questioned the long-term viability of China’s economic and political system. ‘Australia’s relationship with Beijing is becoming more difficult because the regime in China is a lot more authoritarian’ and that we should not be mesmerised by China’s ‘overwhelming economic importance to Australia’.

In other words, trade isn’t everything. Ideology is.


Greg Canavan,