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  • Author: Derek Scissors
  • Publication Date: 07-2020
  • Content Type: Special Report
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Partial decoupling from China is overdue. The People’s Republic of China (PRC) suppresses foreign competition and infringes intellectual property. It is an ugly dictatorship at home and increasingly aggressive overseas. Decoupling involves a range of tools and economic activities. Policymakers should quickly move to document and respond to Chinese subsidies, implement already legislated export control reform, monitor and possibly regulate outbound investment, and provide legal authority to move or keep supply chains out of the PRC. Decoupling has costs—higher prices, lower returns on investment, and lost sales. But they are dwarfed by the costs of continued Chinese economic predation and the empowerment of the Communist Party.
  • Topic: Foreign Policy, Defense Policy, Bilateral Relations
  • Political Geography: China, Asia, North America, United States of America
  • Author: Derek Scissors
  • Publication Date: 07-2020
  • Content Type: Special Report
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: As expected given COVID-19, China’s construction and, especially, investment around the world plunged in the first half of 2020. The decline may be exaggerated by Chinese firms not wanting to report global activity, but Beijing’s happy numbers are not credible. From what little can be discerned, the Belt and Road Initiative is becoming more important, primarily because rich countries are more hostile to Chinese entities. American policy needs to shift. Incoming Chinese investment is now extremely small, but technology is still being lost due to lack of implementation of export controls. Growing American portfolio investment in China is unmonitored and may support technology thieves, human rights abusers, and other bad actors.
  • Topic: Foreign Policy, Investment, COVID-19
  • Political Geography: China, Asia, North America, United States of America
  • Author: Derek Scissors
  • Publication Date: 01-2020
  • Content Type: Special Report
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Chinese investment and construction around the world contracted in 2019, regardless of Beijing’s claims to the contrary. However, the decline is concentrated in large, headline-winning deals, and Chinese firms remain active on a smaller scale. A contraction in acquisitions in rich economies has boosted the relative importance of greenfield spending. The number of countries in the Belt and Road continues to expand, and power plant and transport construction continues to be preeminent. American policymakers were initially spurred to act by intense Chinese investment in 2016. This has dropped sharply, but there are challenges related to investment review that are more important, starting with strengthening export controls.
  • Topic: Foreign Policy, Economy, Belt and Road Initiative (BRI), Investment
  • Political Geography: China, Asia
  • Author: Derek Scissors
  • Publication Date: 03-2020
  • Content Type: Special Report
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: There is a considerable chance China will stagnate by 2040, with gross domestic product growth at 1–1.5 percent. The process has started, seen most clearly in stark trends for debt and aging, but better-quality data on productivity would clarify how far along stagnation is and whether it at some point reverses. China shows no sign of adopting pro-productivity reform. It will not spur growth by leveraging or bolster a shrinking labor force through current population and education policy. Innovation will help, but a large economy requires broad innovation, and the party dislikes competition. A twist comes from China’s global position, which will not deteriorate much. Outbound investment has retrenched, and the yuan’s rise was exaggerated. Consumption exports and commodities imports will stall. But China will easily be a top-two market in most sectors, and other countries are not acting to displace it. Instead, localization will occur. Commodities producers and some developing countries will lose, the latter as Chinese capital dries up. Countries that make difficult reforms will win. Consumer goods will see inflation, but innovation will be healthier with less Chinese influence. American firms will seek new pastures, and Chinese stagnation means production may relocate to the US.
  • Topic: Foreign Policy, Defense Policy, GDP, Economic growth
  • Political Geography: China, Asia
  • Author: Derek Scissors
  • Publication Date: 08-2019
  • Content Type: Special Report
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Contrasting China at various stages of reform to Japan and Korea at analogous stages shows China as less successful. The payoff is personal income, where China’s growth in local currency terms is similar to Japan’s. But it is slower than Korea’s, and, in comparable dollar terms, China is far behind Korea and Japan 40 years into the respective “miracles.” In evaluating key contributors to income gains—agricultural productivity, labor quantity and quality, leveraging, and innovation—China failed to extend education in the first 25 years of reform. A recent failure is the explosion in leveraging in the past decade. Other indicators of success roughly match Japan but trail Korea. China’s size makes it important even with less development success. For example, Chinese research and development spending affects the world while being inadequate to offset aging and indebtedness. When projecting economic size, though, trend extension is misleading. Korea and Japan illuminate how innovation and other factors will alter China’s trajectory.
  • Topic: Foreign Policy, Defense Policy, Economics, Reform
  • Political Geography: Japan, China, Asia, Korea
  • Author: Nicholas Eberstadt, Ashton M. Verdery, Zeng Yi, Wang Zhenglian, Wang Feng, Shen Ke, Cai Yang, David E. Scharff, Jacqueline Deal, Michael Szonyi
  • Publication Date: 09-2019
  • Content Type: Special Report
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Over 2,500 years of family tradition in China is on an unavoidable collision course with 21st-century China’s new demographic realities. The demographic forces transforming the Chinese family are extraordinary and historically unprecedented. Curiously, despite the small library of studies on population change in modern China, little has been written on what these changes in the Chinese family portend. This cross-disciplinary volume is an exploratory foray into that intellectual terra incognita. The chapters in this volume describe the demographic dimensions of the changes in family structure already underway and visible out to the horizon, as well as their implications for China’s people, economy, and role in the world. The volume features works by authors Ashton M. Verdery; Zeng Yi and Wang Zhenglian; Wang Feng, Shen Ke and Cai Yong; David E. Scharff; and Jacqueline Deal and Michael Szonyi—leading scholars in their respective fields.
  • Topic: Foreign Policy, Defense Policy, Demographics, Family
  • Political Geography: China, Asia
  • Author: Nicholas Eberstadt, Alex Coblin
  • Publication Date: 10-2019
  • Content Type: Special Report
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Due to extremely low levels of fertility over the past generation, urban China now requires a constant inflow of rural migrants to maintain, much less increase, the workforce in China’s cities. Beijing’s current official “urbanization drive” is attempting to bolster China’s flagging economic growth rates by accelerating the movement of peasants into the cities. But since most highly skilled labor from the countryside is already working in urban areas, the next wave of migrants may be less productive than authorities anticipate. “Migration with Chinese Characteristics” means police state controls on urban influx, including Beijing’s notorious hukou system for individual identification and registration. Since authorities still prevent most migrants from obtaining new hukou where they currently reside and work, China now has hundreds of millions of “illegal aliens” toiling in its cities. The urbanization drive does not plan to fix this problem.
  • Topic: Demographics, Migration, Urbanization, Population Growth
  • Political Geography: China, Asia
  • Author: Gary J. Schmitt, Michael Mazza
  • Publication Date: 10-2019
  • Content Type: Special Report
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The People’s Republic of China’s (PRC) interference in Taiwan’s democracy—efforts to influence politics in Taiwan through both overt and covert, both legal and illicit means—is a matter of importance not only for Taiwan but for the United States as well. As the Taiwan Relations Act (1979) states unequivocally, “It is the policy of the United States … to consider any effort to determine the future of Taiwan by other than peaceful means … a threat to the peace and security of the Western Pacific area and of gave concern to the United States.” The issue of PRC interference in Taiwan’s democracy came to a head in the November 2018 elections for local mayors, county magistrates, and township councils. Although the exact extent of the interference is difficult to quantify, that it existed is not difficult to see. And while the margins of electoral victories for the Kuomintang (KMT) suggest that the interference was unlikely to have been decisive in many or most instances, the PRC’s efforts almost certainly boosted KMT candidates and eased their paths to victory. Understanding the level and character of this interference is important if for no other reason than that future elections—such as the upcoming national election for president and the legislative assembly in January 2020—may be closer and, in such elections, Chinese Communist Party (CCP) influence operations could well make a real difference. For Americans, understanding what happened in Taiwan is undoubtedly informed by our own recent experience with foreign interference in elections. But there are important differences to be kept in mind and which make the case of China and Taiwan unique. First, China has the advantage of being ethnically and linguistically far more in sync with Taiwan than Russia could ever be with the United States. Second, the United States is a country of 330 million. As sophisticated as the Russian operation might have been, Moscow’s capacity to move the electoral meter in the United States was always going to be marginal, even if important in key instances.
  • Topic: International Relations, Politics, Democracy, Foreign Interference
  • Political Geography: China, Taiwan, Asia
  • Author: Neena Shenai, Joshua Meltzer
  • Publication Date: 02-2019
  • Content Type: Special Report
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The US–China economic relationship has reached a critical juncture. Over the past year, the US has imposed tariffs on $250 billion worth of Chinese imports and China has retaliated, raising tariffs on a similar amount of US exports. At the G-20 leaders’ summit in November 2018, Presidents Trump and Xi agreed to resolve the trade dispute within 90 days—by March 1, 2019, though this deadline has been recently extended. The US concerns that underpin these bilateral trade tensions stem from specific practices endemic to China’s economic model that systematically tilt the playing field in favor of Chinese companies domestically and globally. Progress on specific trade issues will require China to comply with its World Trade Organization (WTO) commitments and to make certain reforms that will likely touch on areas of state control over the economy. In addition, new trade rules are needed to address China’s economic practices not covered by its WTO commitments, including in areas such as state-owned enterprises (SOEs), certain subsidies, and digital trade. These issues also come at a time of increasing US concern over the national security risks China presents, particularly with respect to technology access. All of these matters underscore the complexity of US-China bilateral negotiations as well as the stakes at play. Resolving US-China differences in a meaningful way will take time. This policy brief assesses the state of the US-China trade relationship by first looking at the economic impact on the US The policy brief then looks at why the Chinese economic model is so concerning. Despite the challenges the US has had at the WTO, the policy brief argues that the WTO should be central to resolving US-China trade tensions. We outline a multi-prong strategy, including bilateral, multilateral, and unilateral actions as well as working with allies that together would constitute positive next steps for this critical economic relationship. In taking this multifaceted approach, the US needs to stay true to its values and not accept short-term gains or “fig leaf” deals. In particular, creating a managed trade relationship with China would not be a constructive outcome. Instead, the US should work with China to agree on long term solutions. The resulting deal should address the real issues at hand in a free market manner and strengthen the multilateral global trading system and rule of law that the US has championed in the post-World War II era.
  • Topic: Foreign Policy, Bilateral Relations, Economy, Trade
  • Political Geography: China, Asia, North America, United States of America
  • Author: Derek Scissors
  • Publication Date: 03-2019
  • Content Type: Special Report
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: When will China pass the US in economic size? “The year 2030” is not a bad estimate, but so is “never.” Claims that China’s economy is already the world’s largest may be exaggerated by up to 30 percent. They are also dubious because purchasing power parity often does not hold. National wealth is not well measured, either, but shows the American lead expanding. The more popular belief that China is smaller than the US but will catch up soon is similarly unconvincing. Chinese government statistics are unreliable, since Beijing publishes sanitized data and many transactions may be close to worthless. More important, projections of Chinese growth are sensitive to unjustified optimistic assumptions. Debt and aging indicate true Chinese growth is lower than reported, and low growth now could put off Chinese catch-up indefinitely.
  • Topic: Foreign Policy, Defense Policy, Economics, Bilateral Relations
  • Political Geography: China, Asia, North America, United States of America