This Week’s Clue: China Plays its Hand

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Stability.

This is China’s card.

Stability made China an economic power during the 1990s. Stability is the "gift" China now seeks to give the world.

At a time when the U.S. is contributing mightily to global instability, other nations have been grabbing Chinese stability as a lifeline. Most Americans have not noticed because stability is quiet. It doesn’t make headlines. And, we thought, it didn’t impact us.

In The Chinese Century I posited an unstable way in which Chinese stability might be imposed on us. I saw things happening in an American way, dramatically, with big sudden events arising from simple misunderstandings.

In fact it’s happening far more subtly, in a Chinese way. Recently, for instance, U.S. markets tanked. So did European markets. So did commodity prices. Analysts on CNBC were saying things like "nothing is working."

Well, something was working. The Chinese Central Bank was working.

What was happening was a subtle shift of Chinese investment out of the dollar. Slower purchases of U.S. assets mean both lower values and higher interest rates.  The message we weren’t getting from our media, was that we had lost control of our economy. But the markets heard loud and clear.

This was followed in China by an attempt to cut lending and slow the Chinese economy.  It is being called a "subtle shift" of economic policy, an attempt to create a "soft landing" by a pilot, Zhou Xiaochuan, who has never flown the economic plane before.

They have a cold, we catch the flu. China wants to cool off its growth, we slide into recession. The policies which control our economy are being made in Beijing, not in Washington. That’s how other economies have had to deal with America’s changes for decades. That’s what we have to get accustomed to now.

China is quietly taking control of the world’s resources, especially in Africa. Its message of stability is vital there. Authoritarian governments across Africa are embracing their new Chinese masters.   China is also paying more attention to Latin America than we are. Chinese economic ties to Brazil are especially close.

There are ways in which the U.S. can meet this threat, but the first step is acknowledging where that threat lies. It does not lie with China’s military. It lies with our economy.

The way forward for us is clear. We need a freer Internet, with wider lanes, to spur innovation. We need to take advantage of our creativity and make change happen faster.

A small example of how we can win is Open Source Storage. This is a Sunnyvale company that has built a facility to customize Linux-stack servers and can deliver to U.S. customers faster than foreign providers. It’s the quick turnaround and customization that’s the secret, despite the common assumption that "open source" benefits foreign competitors.

This is why the idea of Open Source politics is so vital. Open source politics drives open source economics. The things we need to do in order to compete and win against China are precisely the things this government is refusing to do. The practical philosophies of the Internet make these values intelligible to the majority of Americans, because most people in this country have used the Internet.

There’s irony in the fact that I’m saying sharing is the key to defeating what we have long thought of as Communist China. But their economy is entirely built on an industrial, proprietary model. We have to grasp the future in order to win.

And here’s the bonus. By competing economically, by using open source and the Internet, by forcing economic and technology change, there are no losers. The pressure of our growth will force China to open up its society. Without that pressure, as we’ve seen the last few years, there is no such pressure. The only way to free China is to beat China, so that China will be forced to free itself. 

There don’t have to be any losers here. That’s the message we need to take forward.