Since the inclusion of China into the World Trade Organization (WTO) by the Clinton Administration, some politicians in the United States have continued to labour under a dubious illusion: that after the advancement of China’s economy, its politics will gradually democratize. This illusion has finally been shattered by recent events. Evidence that has gradually emerged in the past decade shows that China has not only failed to move toward democracy in its domestic politics but also actively disseminated hegemonic ideas to the world. It has even gone so far as to use its enormous economic power to cajole many Western democracies into accepting authoritarian thinking. The reason why the US has become increasingly opposed to China recently is that, on the one hand, it is the so-called “Thucydides Trap” between the two great powers; on the other, the US deeply feels that its democratic system is existentially threatened by China. As history has shown us, there may be no absolute right or wrong in the fight for power, but the distinction between democracy and totalitarianism is one of the most fundamental and core values in humanistic thinking. We must take this threat seriously.
Many social science researchers have pointed out that we should treat politics and the economy as two systems that are mutually influenced by each other. The aforementioned inference alluded to that ‘China will move toward democracy led by the economic growth’ seems to assume that the political system as soft and malleable, while the economy is a hard and absolute principle. Therefore, it is predicted that the political system will naturally change according to economic vitality. However, those who ascribe to this misguided principle do not seem to understand the Chinese Communist Party (CCP) at all, as well as underestimating the complexity of the actual political struggle. The collapse of the Soviet Union after the fall of the Berlin Wall in 1989 may have been influenced by economic factors, but there were also many historical coincidences to consider in any analysis. For example, if, at that time, the leader of the Soviet Union had not been Gorbachev, but Putin, Deng Xiaoping, Kim Jong Un or Xi Jinping, the situation may have been drastically different. History may be rewritten, and the Soviet Union may not have necessarily disintegrated as it did.
When we carefully observe the political operation of the CCP, most people would agree: China’s political totalitarian system is rigid, but the economic system is soft and flexible. Constrained by their rigid political doctrine, China has even created a market economy that they refer to as a ‘market economy with socialist characteristics.’ The next question that should be asked is: can the Chinese system, with its political rigidity but economical flexibility, be compatible with Western democratic societies? Under globalization, China has had economic interactions with many democratic countries. Will the economic interactions not conflict between these democratic and totalitarian countries? Is there any contradiction rooted in the political system between a democratic country and totalitarian China? I believe that these potential conflicts in economic operations have either been ignored or not been fully understood by traditional international relations researchers, which I will explain in the following five different aspects.
Example 1: China is a country with the most stringent internet control in the world. According to statistics from the United States Trade Representative, China has blocked more than 10,000 commercial websites, to which 1.4 billion Chinese people are unable to connect. China’s blockade of the internet is a necessary means to achieve totalitarian control. It is used to block people’s access to information, to prevent people from gathering, and to assist Beijing in brainwashing with a single source of information, etc. This kind of totalitarian political method inevitably creates conflicts in commercial competition between China and democratic countries.
For example, 350 million people in the US have free access to Alibaba or Taobao.com to shop while 1.4 billion Chinese people cannot access the Amazon shopping platform in the US due to China’s blockade of the internet This is an obvious example of unfair market access and discriminatory business competition, and the major reason behind this unfair economic competition is the information blockade that has been implemented by China’s totalitarian system.
The US is not the only country whose websites are inaccessible for the Chinese. Other democratic countries around the world, such as France, Germany, the UK, Ireland, Japan, South Korea, Taiwan, etc. are subject to the same regulations for Chinese citizens. Even if they can occasionally access those websites, the connection speed is too slow to proceed compared to a normal transaction. On the contrary, if someone from France, Germany, the UK, Ireland, Japan, South Korea, or Taiwan connects to China’s Alibaba site, there is neither blocking nor delay of the connection speed. Therefore, the internet blockade of totalitarian China fundamentally conflicts with all other democratic countries in e-commerce competition for market access. In the foreseeable future, this conflict will definitely rise due to the volume increase of e-commerce transactions.
This is the first conflict between the totalitarian state system and the democratic open market in economic competition. Though many democracies, including the US, have raised questions about China’s unfair e-commerce market access in the WTO, China refused to change. Not only because they want to continuously benefit from these unfair business operations, but also considering the open internet will endanger the ruling interests of the CCP.
Example 2: The US, the EU and Japan issued two ‘Tripartite Declarations’ respectively in 2018 and 2020, alleging charges against China’s subsidies to companies. The Japanese newspaper ‘Nikkei Shimbun’ have reported that 90% of Chinese companies have received enormous state subsidies, with a total amount of about 5% of the total national dividend every year.
In a democratic country, the only acceptable government subsidy is for agriculture. Certain government subsidies may be permitted for agriculture purposes, for food security, land maintenance, or other similar reasons. But agricultural subsidies is restricted to protecting the interests of national voters, and cannot be provided to encourage exports. For manufacturing, subsidies that violate the ‘Subsidy and Countervailing Measures (SCM) of the WTO will be sanctioned. For the technology industry, democratic countries can subsidize upstream scientific research and technological development when ‘benefit is not associated with specific companies’, or subsidize small amount to the R&D and innovation to small and medium-sized enterprises. In any event, the basic principle is that the government cannot directly transfer funds to large individual companies. If civil servants in a democratic country do so, they will be accused of lining moguls’ pockets. It is a criminal charge.
On the contrary, totalitarian China is a ‘party-led government’. As long as the CCP agrees, any government subsidy can be provided and no regulations mentioned above will be complied with. For example, China publicly launched the ‘Made in China 2025’ plan in 2015, and entitled ten high-tech industries to the support of specific leading manufacturers for each industry, such as Huawei for the 5G information and communication industry, as well as state subsidies issued by local governments and special development zones. Apparently, this kind of preferential government subsidies toward specific large enterprises is fundamentally different from their counterparts in democratic countries and has caused severely unfair international competition. In fact, this kind of conflict in economic competition originated from China’s party-state system of ‘the Communist Party can do everything’. As long as China maintains a one-party dictatorship without checks and balances, there will be no real ‘private enterprises’. Economic competition under the global system therefore cannot be fair, and conflicts will inevitably arise.
Example 3: On August 6, 2020, President Trump of the US requested security authorities to strengthen transparency audits of companies listed on the stock market in New York to protect American investors. News reports pointed out that, although President Trump did not identify them by name, he was clearly targeting Chinese companies. We must therefore ask ourselves; why do Chinese companies conflict with the securities laws and regulations of democratic countries?
In fact, all democratic countries have similar regulations regarding listed companies: since these companies are raising funds from the public, they are obliged to publicly and transparently disclose the company’s financial status. The accounting processes of these companies must comply with international accounting standards and financial reports must be verified by a certified public accountant. Only in this way can transparent disclosure be completed. In the US, the agency that performs this inspection is called ‘Public Company Accounting Oversight Board (PCAOB)’. The PCAOB stated that 251 companies listed on the Stock Market in the United States do not meet the requirements, of which 175 companies are registered in China and 76 in Hong Kong. In other words, all are Chinese companies.
Why do Chinese companies tend to cause systematic conflicts while raising funds in democratic countries? Because all institutions in China, including companies, schools, and media, are under the control of the CCP. According to Chinese regulations, all institutions with more than three CCP members must set up party organizations, and all Chinese listed companies must have a party committee secretary on the board of directors. While the company may not have to abide by the law, it must accept the leadership of the CCP. In addition, the Chinese Securities Law stipulates that no Chinese company is allowed to provide company information to foreigners without the consent of the securities authority and the State Council.
The question thus arises when considering the principle of an accountability system: who can hold Chinese listed companies overseas accountable? According to the securities laws and corporate governance of democratic countries, listed companies must be accountable to the ‘public’. But in totalitarian China, all companies are only accountable to the CCP. Again, this conflict demonstrates the fundamental conflict between the totalitarian and democratic systems.
Example 4: On August 10, 2020, Secretary of State Mike Pompeo announced that the US government would ban TikTok, WeChat, and Tencent from operating in the US within a period of 45 days. The reason for the ban was that these companies attract users in the US and thus obtain personal information and data of the American people, which will harm the national security of the US in the future.
We all know that to log in to many types of software, apps or social media sites, you need to enter personal information, including your name, mailing address, phone number, payment credit card, etc. As individuals continue to use them, these companies will gather large amounts of personal data that is stored in the cloud. Take the search software Google as an example: Google knows what topics you like to search for and what websites you have visited afterwards. If Google uses this accumulated information to profile the characteristics of a person over a long period of time, the accuracy of the information will be very high. In the 21st century, big data has become an invaluable asset. Under the operation of artificial intelligence, computers will sort out many unexpected rules, which are very useful. As for how to utilize these rules and data, it depends on the user.
Facebook and Google both have a huge data cloud. Why does the US government not regulate them? There are two important points to be cognizant of here:
First, the US is a democratic country, and private companies such as Facebook and Google must be supervised and regulated by the US government. The owner of these two companies often go to Congress for hearings and inquiries. In the US, ‘personal privacy’ is the ‘Penumbra’ constitutional protection right established in the case of Griswold (Griswold v. Connecticut 381 U.S. 479 (1965)). It is a right that cannot be violated. Therefore, all private companies in the US must comply with the procedure to use personal data before it can be used for a limited range of purposes.
Second, it is absolutely impossible for Google and Facebook in the US to merge the clouds of their two companies to create a larger cloud and form a more niche database. If they do, the companies will almost certainly be sued to the point of bankruptcy.
However, the above two privacy protections in democratic countries are not an established principle for companies in totalitarian China. In China, privacy and human rights are not a consideration. As long as the CCP requires, China’s data can be integrated in any form, and there are no restrictions on how it can be used. For example, the Chinese government can integrate e-commerce, electronic payments, social media, search engines, household registration, street surveillance, video game records and other data to form a super database. This is absolutely impossible and an infringement of law in a democratic country.
According to the Chinese government’s own admission, they have established a ‘Social Credit System’ powered by big data. It is not difficult to foresee a future that the Chinese government can leverage the social credit score records to arrange the social order at their preference, such as determining whether a person can buy high-speed rail tickets, whether a child is eligible to attend a certain school, whether the job application should be approved, etc. Even one person’s eyes flash a certain way during class in a Uyghur concentration camp, this can be applied to detain the person’s eligibility to leave the camp.
The examples presented above demonstrate the fundamental conflicts between totalitarian and democratic countries on the basic values of privacy and human rights. If totalitarian countries openly promote the Social Credit System without regulations akin to the EU’s “General Data Protection Regulation (GDPR )”, it will inevitably generate infringement of privacy, and even affect national security and privacy. If the data are collected by a Chinese company, the judiciary in a democratic country is almost impossible to interrogate or to stop and punish them. According to EU regulations, the information of EU residents can only be transmitted to countries with adequate information protection. But in practice, we can never be sure whether the data collected by a Chinese company has been transmitted or not. The US ban on TikTok can be seen as a core solution to the problem mentioned above, in that the transmission of data is impossible to fully prevent, the US simply disagrees with the data collection by totalitarian countries.
Example 5: The US and many other democracies have enacted fair trade laws. In Japan, these laws are known as the ‘Act on Prohibition of Monopolization; in Germany, ‘Gesetz Gegen’; in Ireland, it is the ‘Restrictive Trade Practices Act’; in the US, it is the ‘Sherman Act’, which was passed in 1890. Fair-trade laws regulate both horizontal and vertical mergers of companies. Before large companies can merge in the US, for example, they must be approved by the Fair Trade Commission. For large companies that have already formed, the Fair Trade Commission can also file a lawsuit and request the court to make a mandatory dissolution. The most famous example is AT&T in the US, which was originally a huge Bell company but was forcibly broken up by the Department of Justice.
Why do countries promote fair trade legislation? According to a study entitled ‘The Curse of Bigness: How Corporate Giants Came to Rule the World (2020)’ on the history of American institutions, the promotion of fair trade legislation is closely related to democracy. Democracies advocated checks and balances of power, particularly the political power in the early days, resulting in the separation of powers of administration, legislation, and justice. From the end of the nineteenth century to the beginning of the twentieth century, the over-expansion of the American great chaebols such as John D. Rockefeller and J.P. Morgan created a huge economic empire. However, economic power often affects government policies, an over-sized corporate body may impact the foundation of democracy. Therefore, the United States has extended the objective of checks and balances from political power to economic power more than a hundred years ago, and so the Fair Trade Act was enacted.
But, as we have discussed, China is a totalitarian country. China has never advocated for checks and balances on power, and it is unreasonable in the eyes of the CCP to divide an enterprise for democratic reasons. Enterprises in democratic countries are subject to restrictions under the Fair-Trading Act, which is in the public interest though it may not be the most efficient method. Chinese enterprises, on the contrary, devotionally maximize the efficiency when democracy is not a consideration under the control of totalitarian China. If an American communication company is disintegrated in accordance with the Fair Trade Act, it will have to unfairly compete with a large integrated company from China that is completely based on efficiency considerations. How can this be a fair competition?
Above, I have compiled five economic conflicts between totalitarian China and democratic countries. Some of these conflicts have already occurred, and some countries have expressed their concern. However, some of these conflicts have yet to fully materialize, such as the conflict surrounding the Fair Trade Law. Some still wait for more people with insights to shed light on the situation. In any case, since these are conflicts of core values between democracy and totalitarianism, they will definitely occur. We must be aware, understand, prepare, and, above all, we must take action.