What to expect during a cold war with China?

In 2005 I did my first economic projections of the major powers (published in a textbook) and Image result for chinese social harmonyconcluded from the trends then that China would have a larger economy in purchasing power terms than the US in 2017, which is exactly what happened. In 2012, I wrote about the inevitable struggle coming between China and the West, as well as some comforting observations on the limits of that conflict based on the judgment that the West as a whole will remain more numerous and powerful than China, even though the US on its own has no chance in retaining its dominance. Today in 2021 that cold war is starting to materialise with the gradual severance of Australian trade with China, and US technological blockages starting to bite. These are the opening salvos.

What kind of conflict are we likely to get in the next decades? My end conclusion is that we don’t have too much to worry about, but let us start with looking at what the challenge of China will look like.

2020 belonged to China. The West inflicted huge damage on itself by its covid-policies: we destroyed about 5-10% of our own productive capacity, made our population a lot less healthy and productive, adopted an extra layers of superfluous negative productivity (eg tests), and inflicted a baby bust. In contrast, China has managed to keep growing in this period, even taking the opportunity to reign in the super-rich within China and expand the education of the middle classes. So whilst the West lost the equivalent of the economy of France, China restructured itself and forged a new free-trade zone in Asia (the RCEP).

The next round will also go to China. In a recent interview I sketched how China is likely to wow the world with a string of technological accomplishments, much like the Soviet Union wowed the West with its space program in the 1950s. The potential of the Chinese is enormous as they have three times the university graduates of the Americans now leaving university, and a far higher ratio than that in the physical sciences. So expect them to come up with the best computers, the best Artificial Intelligence systems, the most advanced Internet services, the most advanced Financial systems, etc. They are formidable and the West will soon see that.

Yet, to gain deeper insight into the nature of the conflict, we should look beyond capabilities and consider what the Chinese ultimately want versus what the Americans will be prepared to inflict. In the below I will use the word “the Chinese” for the majority of those now living in China, so not the diaspora or every single Chinese person in China.

The highest value in Chinese political life is what the symbol at the top means: social harmony. They want to quieten all voices of critique and all sources of strife ‘within’. The nature of their collectivism is a near total political divide between the harmonious ‘inside’ and the turbulent ‘outside’. As a result of that wish for harmony, the Chinese are not interested in physical conquest beyond the territory they feel is historically theirs because conquest merely invites disharmony.

I cannot stress enough how focused the Chinese are on their internal harmony. For a few decades after the Cultural Revolution they were relaxed about critique, but in recent years they have reverted back to their historical antipathy towards it. Voices of critique within the Chinese political body are like intense pain to them. Critique is regarded as violence. As a result, huge effort is made to quieten critical voices internally (as you can see with the Uyghurs and Hong Kong) and to keep any external critique outside of the consciousness of their population. It is the dominant motivation in interactions with the outside world: take opportunities to become richer but keep critique outside of the internal consciousness.

The West does not yet believe the extent to which this is what the Chinese government wants. It seems silly and futile to us, given how normal constant critique of leaders and policies is in the West. Yet, this is the key to what the Chinese want: critique-free interaction. It is a huge weakness on their side that we will ruthlessly exploit.

What China will aim for is a ‘safe zone’ for its own population to interact without being exposed to criticism of the Chinese government. In that safe zone, the Chinese will be tourists, businesses, students, etc. Inside that safe zone they will demand the swift punishment of anyone offending the Chinese leadership. The historical example of such a system familiar to the West is the “lesse majeste” (“insult to majesty”) law under which anyone criticising the king got punished. That is what the Chinese government will want within their safe zone. The Chinese will simply stop trade and interaction as much as possible with countries openly critical of its government. Australia is discovering this right now.

Korean history tells you what the Chinese expect from their safe zone. The Korean court was a vassal of the Chinese for centuries and made sure not to offend in any way, whilst otherwise having a vigorous trade. The ‘no offense’ condition was extremely strict and included more than just punishment for criticism of the Chinese emperor or Chinese customs. It extended to such seemingly trivial things as the colours used by the Korean court itself. When I visited Seoul I was told the Koreans made sure not to use red in the walls of their palaces because red was the colour of the Chinese imperial court. Hence the Korean court used green for the colour of its walls. That is the level of obsequious behaviour the Chinese will aim for in their ‘safe zone allies’: a complete lack of open offense on all things the Chinese are sensitive about (which is rather a lot).

Once the Americans understand that this is what the Chinese aim for, how will they react? Its obvious: they will see this desire for internal social harmony as a weakness to be used against them. The great advantage the Americans have is that they themselves do not care about critique because they are used to it. The weapon of critique can be used against the Chinese, but not against the Americans. If it would still offend the Chinese, the Americans would build red palaces all over South Korea! In the countries they compete with the Chinese, the Americans will make sure to have constant high-level offense against the Chinese leadership. It’s a very cheap form of warfare that is very hard for the Chinese to counter.

What does that dynamic lead to? It means the Chinese will be forced into having ‘all or nothing allies’: they will be confined in terms of their extensive interactions to the set of countries that is wholly in a Chinese block. Outside of that block, targeted offense by the Americans will keep the Chinese away.

This does leave the possibility of neutral countries: countries the Chinese trade with but where they do not visit in large numbers. One should expect there to be a lot of countries that will try for that type of neutrality.

How will that type of neutrality go once the Americans have figured out the extreme sensitivity of the Chinese to critique and hence the cheap way they can be bottled up? It will mean forms of trade and interaction wherein the visiting Chinese are in an information cocoon. It is easy to see how this would go for physical trade or service trade via the internet: the ones interacting with the Chinese keep their mouth shut about Chinese politics. For tourists it will likely mean that Chinese tourists will be surrounded by Chinese intermediaries that shield the visiting tourists from local news and anti-Chinese critique. For things like mining, it means the Chinese will come in with their own contingent of workers and information structures such that they don’t get to hear what the locals think of them.

Neutrality will not be enough for intensive interactions though. So neutral countries cannot host large groups of Chinese students or business people, who can easily be targeted by the Americans and others. Neutral countries also cannot host Chinese military bases or joint in-person scientific endeavours. Those endeavours are simply too easy to disrupt.

Is a different dynamic possible? Is it conceivable that the West will let the Chinese have what they want and simply become obsequious too? I think not. Our democracies are too used to critiquing everybody. Our religions are also loud in their claims of superiority. Our idea of a single truth is also intolerant to someone else’s truth.

The nature of the Americans in their foreign wars is to be pragmatic and to declare their enemy an ideological opponent. They will fanatically employ a mantra of “You are either with us, the righteous, or against us, and thus with Satan”. The Americans will thus agitate, hack, plant, bribe, blackmail, invent, conjure, and allege whatever is needed to be as hurtful about the Chinese leadership as possible. They will deliberately target Chinese businessmen, students, and tourists. But they wont demand constant grovelling from their allies and are fine with having demonstrations against them. That makes them much easier to be friends with than China.

What is the worst the Americans can do that will force the Chinese government into desperate actions that involve a real risk of an actual war? The worst-case scenario is that the Americans manage to hack the internal Chinese information systems so that they are flooded with anti-government rhetoric, upsetting the social harmony not merely for a few hours but for months on end. That would be something the Chinese leadership cannot ignore and that would force them to react violently. However, that would be an act of war that I cant see the Americans technically capable of, nor politically willing to.

How would the cold war evolve in the longer run? No-one knows, but we can safely say that India will eventually become another major player. I also think Chinese politics is inherently unstable and will implode sooner or later as it has done many times in its history: the tragedy of Chinese politics is that in its search for internal social harmony it always finds the opposite because the furious pretense of harmony leaves it with no way to deal with the actual tensions bubbling beneath the surface. Historically though, when China imploded it mainly inflicted damage on itself, not on others.


Is this type of cold war good news or bad news? I think it is good news because the essential take-away is that Chinese foreign policy is very rational. It has the clear goals of finding opportunities whilst avoiding contact with critique. Since the Chinese are not really interested in conquest or in what others think, they will prove easy to contain and easy to interact with. I expect the Americans to employ their customary pretend-fanaticism and bottle up the Chinese in a relatively small sphere of influence, using the weakness of the Chinese that they cannot handle critique. Many countries will remain neutral.

I am hence optimistic. It will be a relatively placid cold war. It might even be good for the West if it is threatening enough to lead to internal revival. Maybe we should not fear the coming technological advances of the Chinese, but welcome them.

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15 Responses to What to expect during a cold war with China?

  1. Nicholas Gruen says:

    Thanks Paul

    Interesting analysis. What are the sources of your knowledge of the Chinese?

    • I was the research director for several years on the Rumici project into rural-to-urban migration in China and Indonesia. Subsequently I devised and taught the Economics of China for several years at UQ. I have kept somewhat up to date since then and, as you know, I have an ongoing interest in international politics. I did a tv-interview on this topic that came out yesterday (https://www.youtube.com/watch?v=ewP9_pKX_78).

  2. Conrad says:

    I think the cold war won’t last long — China will bump into demographic problems that will occupy them sooner rather than later due to the one-child policy lasting too long and life being too hard for many people to have the number of children they want (the population will decline before 2030, and the current birth rate is 1.69 per female and declining). Skewed male/female ratios will increase this problem. I imagine they will end up in a Japan-style road to nowhere which will curtail many of their political ambitions. It is also the case that many young and smart Chinese will still want to leave China because conditions for the individual will still be much better elsewhere, unlike Japan where conditions are better. This won’t be as big a problem as it is with smaller countries where this happens, but it will be a bigger problem with a declining population that is aging very rapidly.

    • paul frijters says:

      Agreed on the issue of the ambitious youth wanting to leave. I mused on that a lot in 2012 (part III of my “Rise of China” series then).
      On kids though, I am not so sure this matters so much in the case of China. When their leaders get worried about a social problem, they are willing to entertain steps thought unthinkable in the West at this moment. Birth farms, artificial wombs, forced insemination of those with low social points, etc. Their willingness to go to extreme engineering solutions for social problems should not be underestimated.

      But indeed, as I said in the post, not too much to worry about for us.

      • derrida derider says:

        I’ve no doubt at all that the CCP would do whatever it takes to lift the birth rate. But the problem is raising it WORSENS your immediate demographic problem because it’s more than 20 years before the little buggers are any use as either cannon fodder, taxpayers or missile designers. Meanwhile you’ve got a youth dependency (oh, and prime age female labour force) problem added to your age dependency one. Chinese demographers are, IME, pretty good and will point this out.

        Aged populations are not, contra much conventional wisdom, a huge problem for living standards. But they certainly are a problem for geopolitical influence. Not enough cannon fodder, or even high end educated supercomputer-guided robot drone fodder. By 2070 or so look to India, Brazil or Africa, not China, to rule.

        • as soon as we’re not talking covid, we agree on things again! In my 2005 projections I had India overtake the GDP of China around 2060 (I judge the potential of India to be higher than that of China because of the ‘meta-stability’ issue as a commenter so nicely put it. India has an institutional design that is inherently stable and entrepreneurial, China is not. Yet, at the moment, the incredible corruption in India is slowing its advance).
          And yes, more kids just means the drag of investments into their social and human capital till they are adults.

  3. Peter Papaemmanouil says:

    Interesting critique of China Leaves open the game played by other players and countries that cannot manage their finances and thus reaching out for loans by embracing China debt causing circular debt problems Brings into question the Belt and Road Initiative and the purchasing of foreign ports with Chinese interests as well as other freehold The West has made mistakes and the East will capitalise on those mistakes

  4. Christopher Hood says:

    So ‘the West inflicted huge damage on itself’ by adopting distancing, isolation and lockdown measures for COVID-19. China ‘won 2020’.
    Clever Chinese, to avoid distancing, isolation and lockdown.
    Strange, then, that a general critique of measures in the West is that such measures are Chinese in character.
    Strange, then, that the reference for the infliction of huge damage is nothing more robust than a blog post attributing all economic impacts in two countries to COVID-19 response measures and nothing to COVID-19 itself.
    I could understand an argument that the West lost 2020 by managing COVID-19 distancing, isolation and lockdown ineffectually compared to China. But that was not what you implied.

    • Nicholas Gruen says:

      Hi Christopher,

      Might the bone you are picking here be better handled on an earlier thread in which you’re taking up Paul on his points on COVID?

  5. TOM BIEGLER says:

    I agree that enforced intolerance of dissent makes for inherent instability. There’s a physical model. A sphere resting in a valley is stable and can withstand major perturbations. One resting in a shallow hollow on a slope or perched on a peak might be stable for a while, tolerating small perturbations. But larger ones will send it rolling. This is metastability. The great strength of stable secular Western societies is the depth of their ‘tolerance valleys’. They have acquired, probably by chance, an optimal mix of passion and apathy that keeps them in those valleys. This enables innovation while retaining their highest social values. It looks as if China’s passion for social harmony that Paul describes ultimately makes for a metastable society. The question is, what damage will the world incur when the sphere is disturbed?

    • paul frijters says:

      interesting use of words. I presume you had a typo in the penultimate sentences and meant to describe China as meta-unstable? and agreed that it is largely accident that got the West and China in these very different long-run constellations. We got lucky. Maybe they will find a way to truly reform.

      In previous periods of Chinese instability, like the Great Leap Forward or the Cultural Revolution, the world just watched in amazement and let the Chinese destroy themselves, keen not to interfere so as not to annoy the Chinese at that moment. The Russians, bless them, actually tried to stop the Chinese from inflicting the Great Leap Forward on themselves, but were simply kicked out of the country, at which point the Russians shrugged their shoulders. I expect that to be the model for the future.

  6. KT2 says:

    Thanks for the detailed and interesting OP Paul.

    Nic, Christopher Hood’s ‘bone’, is actually PF’s polemic carcas he will be infecting everything with, until he has a suitable face saving outlet,  or is proven correct. So this will happen for 5+yrs. Unless Paul’s thesis is peer reviewed.

    NG, as PF stated…
    “2020 belonged to China. The West inflicted huge damage on itself by its covid-policies: we destroyed about 5-10% of our own productive capacity, made our population a lot less healthy and productive, adopted an extra layers of superfluous negative productivity (eg tests), and inflicted a baby bust. In contrast, China has managed to keep growing in this period.

    … Christopher Hood seems well within the bounds.

    Paul seems not to realise his own example here goes against his polemic. And if – when – due to simple arithmetic – Paul admits a higher CFR, he might also realise it may support his polemic opinion.
    See; “The 14-day-delayed-from-diagnosis-to-deaths rolling 7-day CFR went up from 1.29% to 1.57%, but on the other hand the 21-day-delayed-from-diagnosis-to-deaths rolling 7-day CFR wentdown from 1.34% to a new low of 1.25% (technically the low was 1.23% yesterday). ” says WHO?

    “WHO Coronavirus Disease (COVID-19) Dashboard

    Data last updated: 2021/2/16, 4:30pm CET
    WHO Health Emergency Dashboard
    WHO (COVID-19) Homepage

    “Globally, as of 4:30pm CET, 16 February 2021, there have been
    108,822,960 confirmed cases of COVID-19,
    2,403,641 deaths, reported to WHO.”

    And NG, I wondered about your dixer, and yet no reaction or dixer by you to PF’s (insert PF negative adjective panic terror etc here) opinion “superfluous negative productivity (eg tests)”, which if we researched I’d find an endorsement by you. Correct?

    “as in China’s case the pandemic caused something more like stagnation than a recession” …
    … because they locked in as well as locked down and tested,
    and as Hood says …
    … “Strange, then, that the reference for the infliction of huge damage is nothing more robust than a blog post attributing all economic impacts in two countries to COVID-19 response measures and nothing to COVID-19 itself.”

    Further, China is able to boost or throttle gdp more so than others. This article by inference alludes that China has boosted  R&D continually and contributed to 2020 gdp and if increase in 2020 amounts to an additional  $36bn. NOTHING will srop this investment. Small in gdp terms but uneffected by covid it seems – “Total public and private science and technology expenditures in 2019 rose 12.5 percent over the previous year to 2.21 trillion Chinese renminbi ($322 billion), amounting to 2.23 percent of GDP”. This implies the additional R&D investment was slated to rise and uneffected by covid (lockdown ),  which backs up some of what Paul is saying.

    See article for links and comparisons.

    Why China’s Economy Keeps Booming Even After COVID-19

    And data of china gdp;
    “China’s Q1 gdp severely effected by covid. But it’s policies, like them or not, had the effect of;
    “China Economy Advances 2.6% QoQ in Q4

    “The Chinese economy expanded by a seasonally adjusted 2.6 percent  [ten percent of that from increased r&d 0.2%) on quarter in the three months to December 2020, following an upwardly revised 3 percent advance in the previous quarter and less than market expectations of a 3.2 percent expansion. This was the weakest quarterly growth since a contraction in the first quarter of 2020. For full 2020 however, the economy expanded 2.3 percent and China is likely to be the only major economy to avoid contraction due to the COVID-19 shocks.”

    Christopher Hood thanks for providing input. Please keep questioning. Most others have given up.

    You said “nothing more robust than a blog post” which is true. But that belies the power of Paul’s position at LSE, and his pissing into tents. Radio here, consultant advisor to government there, his “nothing more robust than a blog post” is quoted by Sinclair Davidson, cattle axy (I’d tell you abour cattle axy but why bother), and the flies from a law company unto themselves ‘ Lock Down Undermine and Maskoff ‘ – pretending to be libertarians but really just uber opinionated bovver boys. Ofnciurse many cites and Barrington seem legit. As Paul says, do your own research. Every group of unelected and non-peer review has been linked to in Paul’s previous polemics.

    As you can see Christopher, I favour your work and opinions here, but don’t be fooled, Paul provides plenty of wind. Some find it sweet, some just bluster. Can’t wait for the final – 2026 I’d say.

    A final question for Paul. As China is a large emitter of co2, and plenty of pollution, what are the economic consequences of long term of death and disability from gllobal warming & pollution compared to covid? I am not holding my breath. Do deaths show in gdp? No worries then,

    Club troppo – love it. Thanks 

    • Conrad says:

      GDP isn’t the whole story. You need to know how the money gets spent and what it brings too. The fact China is very good at being authoritarian is no doubt true, but essentially all evidence shows that this type of government uses resources far more unproductively than other types and loses in the long term. You end up with massive corruption and problems that never get solved, which is why Covid escaped in the first place. In many places of the world, the virus would have been stopped and not become a permanent pox on humanity because an opthamologist was the only person willing to say something. Now multiply this a million times for problems not so bad and you have China today. So in that respect, the trade-off doesn’t look so good. In addition, much of the money spent on R&D will blow into the ether, so whilst it may have boosted GDP, what will it bring?

      Also, one might see China vs. Euroland as a failure of Euroland to implement sensible policies. I imagine the least-worst losers from all of this will be the countries that did implement reasonable policies that worked without having to have a permanent and massively authoritarian state that can stop things long after the fact when they finally find out. Sure, they may not have been as effective as a military state (apart from NZ and Taiwan), but that’s not a good trade-off in the long term.

  7. I am and will always be Not Trampis says:

    Who would have thunk having the most stringent lockdown to battle covid would lead to the best economic recovery. Certainly not Frijers it seems. Indeed it totally goes against his previous rantings.

    I suspect countries that have fair dinkum lockdowns will do better than those that do not like those in Europe or the USA.

  8. paul frijters says:

    For those who wondered about how China has fared with restrictions, a few sobering issues should be looked at. One is that my understanding is that the place has had very limited effective restrictions in most places, but very harsh ones in some places at some times. The second is that its economy grew a lot less than projected (6-7%) and that the drop in birth rates in the strong lockdown places has been horrendous, as you’d by now expect. So there is no doubt that in China too, the costs of their responses outweigh the benefits (if there are any) by a huge multiple. On balance, the self-inflicted damage is about what you’d expect from their level of restrictions. But, unlike the West, it has gone through a very positive anti-inequality restructuring (whereas in the West the opposite has happened) and has taken the opportunity to form new alliances. Hence the aggregate judgment that 2020 was China’s year.
    It is saddening to see how triggered some commentators are by the reminder of the damage the West, and Australia, is still doing to itself by its covid-policies. A guilty conscience, I hope. The alternative (brutal indifference) is worse.

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