3 Chinas on a collision course: mainland China, Hong Kong and Taiwan
Disclosure: the following is based solely on dot connecting, not more, not less
The news cycle keeps accelerating the current power tussles between the 3 Chinas — mainland China, Hong Kong and Taiwan. The economic consequences of this collision have significant ripple effects across the globe and thus merit a bit of perspective.
2020 could very well be the year that negates the formidable power thrust initiated by Deng Xiaoping in 1979, which catapulted post-Mao China into the modern era. What lifted millions from poverty was the pairing of his famous maxim on mice with the return to power of a forward-thinking professional political class which in turn backed a sprawling and efficient bureaucracy. The pinnacle of Deng’s legacy was the built-in succession system whereby each President ushered in the next one. In Deng’s vision this ensured continuity for the Chinese Communist Party (CCP) hold on the country and prevented a Mao-style consolidation. Seemingly inspired by Putin, the Beijing clan’s designated strongman Xi Jinping decided in 2012 to break Deng’s political system as he took over all major power centers for himself.
Fast forward to 2019 and Hong Kong’s unrest demonstrated that the one country/two systems myth from the 1984 China-UK deal was unraveling. Xi’s uneven handling of the situation via his proxy Carrie Lam showed the world that his hold on power was more tenuous than expected. The annihilation of Hong Kong, the looming issues stemming from the imprisonment of 1.5 million Uighur (close to 10% of the entire population) in the Xinjiang region, China’s failed attempts at building an enviable global countermodel to the West, all of these show China as a colossus with clay legs. Xi’s rivals in the CCP’s Shanghai clan, political descendants of Hu Yaobang, Jiang Zemin and Zhu Rongji have been not so quietly expressing their displeasure.
2020 brought the covid-19 disaster and Xi’s atrocious mismanagement could be remembered as the beginning of the end for the CCP’s current incarnation. In a nutshell: Xi cynically decided to let China infect the world with covid-19 to ensure that the virus did not remain a China-only issue and proceeded to show the world that China was a bad actor. In the midst of all this, HK’s activists, in sync with Taiwan, have been demonstrating that, contrary to the CCP’s backwards-looking fiction, democracy can be spelled out in Mandarin and Cantonese.
The following succession of events are of great interest in the power play between Beijing, HK and Taiwan, with the US, Canada and the UE/UK as side players:
- Taiwan has publicly announced that TSMC (Taiwan Semiconductor Company) will invest $12G in Arizona, a must-win state for Trump in November
- The US has greenlit the shipping of arms to Taiwan, while also sending warships to the South China Sea
- Xi has been not so quietly enabling his Foreign Ministry to lob insults at top American officials such as Sec of State Pompeo
- Canada is in the midst of all this, both with the BC Court’s decision to finally extradite Huawei CFO and founder’s daughter Meng Wanzhou; with detained Canadian citizens Michael Krovig and Michael Spavor still in Chinese custody after 1 year
- TSMC has acknowledged the cessation of delivery of its products to Huawei
- The UK has publicly started a campaign — dubbed D+10 of allied democracies ie the G7 plus Australia. South Korea and India — to block Huawei in 5G markets worldwide
- A few days later the UK proposed to extend a path to citizenship to British National Overseas in Hong Kong, potentially 3 million people
- President Trump announced he would revoke Hong Kong’s special trade status, further endangering the city state’s place as a top tier financial center
These events demonstrate:
- Beijing’s failure to properly develop a robust domestic consumer market weakens it vis à vis the rest of the world, which it desperately needs for its economic output. Xi’s tactical deal with Putin, symbolized by a rapprochement that would make Mao spin in his grave, remains a puny entente, except for energy. The vaunted Belt Road project is surely going to be resized post-covid19.
- For all its bluster, Beijing remains an assembly shop,“chinese” companies with world-class IP are in fact mostly Taiwanese: TSMC, HTC, Acer, etc. Even Foxconn, Apple’s main partner, is not a mainland company but hails from the island state. Chinese unicorns such as Alibaba, Tencent etc mostly operate on their domestic market and are not yet known for intellectual property deemed crucial enough for the West to really care.
- Taiwan has the upper hand as it publicly supports Hong Kong to show the world that cultural Chinese are in fact ready and able to function as a democracy, which the CCP refuses to acknowledge, as this endangers its power base.
- Taiwan’s international diplomacy is growing again, as it notably is petitioning — with Canada’s support — for an official entry into the WHO. Its praised management of the covid-19 crisis on the island is to be celebrated and has further enhanced Taiwan’s soft power.
Intuition leads to the following realization: Taiwan is most surely brokering a deal with Beijing, both for itself and for Hong Kong.
The deal terms could be: “we Taiwan and Hong Kong serve a useful purpose for China as IP developers and operators of world class companies for one, the main financial hub in the region for the other. Let us pursue our common paths, which reinforce each other, without undue friction. Should you, Beijing, resort to force in Hong Kong and/or Taiwan, you will further shed the few remaining lumps of credibility you still possess.
There is more than one way to be Chinese and successful, we in Taiwan and Hong Kong have embraced democracy because our societies mandated it. We recognize this is not (yet) the case in the mainland and that is something we cannot and will not interfere with. Let us live in peace with each other, as Chinese cousins, and rebuild the goodwill we have lost in 2020.”
Faced with such a prospect, Xi needs to weigh his actual strength within the CCP. His rivals are either imprisoned (Bo Xilai) or sidelined (everyone else). Yet misjudging the Shanghai clan as weak would prove a fatal mistake. There is a steady and growing opposition to Xi’s maximalist and Putinesque politics within Chinese society, which resents being fingered as responsible for mismanaging and infecting the world with covid-19. Xi is somewhat of a weak figure in the end and he should be very careful as there are many who are both rooting for his failure and are precipitating it. There is a possible scenario where Xi is visited by elder CCP members and realizes that aping Putin was in effect the source of his problems and that restarting the steady ascension of his successors is in his best interest.
Hubris and arrogance rarely give the best counsel and it should be expected that there are still some wise old men in the CCP to remind Xi that not forking his path back to Deng’s system he risks it all.
In conclusion (for now), a personal intuition: Xi should realize that Putin’s core challenge is the lack of an orderly succession. Xi’s ambition to rival Mao could lead him to make the same mistake as the father of modern China and end up close to crashing the entire CCP. In any event I don’t see Xi coming out a winner of 2020. He will either become Chairman Emeritus à la Benedict XVI or finish his days banished, like other excommunicated CCP leaders.
Lastly, who will be this era’s Deng Xiaoping ? Or perhaps there won’t be any at all, and almost a century later Mao’s foe Chiang Kai-Shek will be the victor beyond the grave.
