Photo: Jan Oberg 2018
Asia specialist and distinguished columnist David P Goldman is convinced the US and Europe stand a chance against the Red Dragon – but the clock is ticking
By Urs Gehriger, New York
He was a phantom among journalists, using the mysterious nom de plume, “Spengler.” Like his German philosopher namesake, the cultural critic returned again and again to his despairing theories of the decline of the West.
The work of “Spengler” drew from a deep and rich intellectual pool. And since the herald has revealed his true identity, we learn why. David P Goldman – philosopher, economist, mathematician and musicologist – is a Renaissance man. A former investment banker for the Bank of America and Credit Suisse, the American is known for his widely read column for Forbes magazine and Asia Times.
Dutch writer Leon de Winter crowns Goldman’s work as “among the most interesting in the world.”
This article was originally published by Switzerland’s Weltwoche
We meet at the noble Princeton Club in Midtown Manhattan where Goldman is a member. He is intensively involved with China. Informed by close experience in the country and with its people, Goldman counsels caution toward the aggressive Asian empire. But before training a critical eye on the East, the keen observer sharply examines his own culture and the president for whom he voted in 2016.
As we speak, the country is in turmoil. For the fourth time in US history, a president might be impeached. Your thoughts?
Trump’s real liability isn’t impeachment. It’s China and the economy. What the Trump administration has been doing so far, vis-à-vis China, is an own goal — ein Eigentor [“an owner”].
Why is it an eigentor?
Because the effect of the tariffs on the US economy is at least as bad as the effect of the tariffs on the Chinese economy. American export orders are collapsing. We have the weakest industrial reading since June of 2009. We are in a manufacturing recession, according to the Federal Reserve. Factory output is contracting. Trump won in 2016 by carrying key manufacturing states like Pennsylvania, Ohio, Michigan, and Wisconsin. This blunder could lose him the election. This is much more dangerous than the impeachment masquerade. China’s also suffering, but appears to be suffering less. And the big difference is Xi Jinping [China’s president] doesn’t have a presidential election in 2020 and Trump does.
In fact, President Xi will never face an election. He is elected for life.
That is true. But all that can change if he fails to succeed.
You have compared the situation that the US is facing toward China to the siege and conquest of Baghdad by the Mongols in 1258.
The Mongols, by themselves, did not have the capability to penetrate the twelve-foot-thick walls of the city of Baghdad. But they hired a thousand Chinese siege engineers. Within three weeks, the Chinese mercenaries breached the walls, at which point the Mongol horsemen went in and killed the entire population of Baghdad.
Who are today’s Chinese siege engineers who are breaching the American fortress?
Huawei very much is the spearhead, because in the Chinese model of economic expansion and the development of world economic power, broadband is the opener to everything else.
It’s a company with a lot of very talented people. Ten years ago – if you asked people, “What Chinese products do you buy?” – you wouldn’t mention a single brand name. But everyone now knows Huawei. They produce the world’s best smartphones. They certainly dominate 5G internet. But Huawei is not a Chinese company. It is an imperial company.
The Chinese empire is doing better than us because it’s absorbed the talent of a very large number of others. Fifty percent of their engineers are foreign. They bankrupted their competition and hired their talent. They have 50,000 foreign employees, and a very disproportionate amount of their research and development (R&D) is conducted by foreign employees.
I’ve seen this personally. I worked for several years as an investment banker in Hong Kong for a Chinese-owned boutique. During that time, I collaborated with people from Huawei. I introduced them to foreign governments. Huawei was very clear about its objectives. They’d tell, for example, the government of Mexico, “Let us build a national broadband network. Once you get broadband, you get e-commerce and e-finance, and then we’ll supply the logistics and the financing for that, and we’ll integrate you into the world market.”
They’ve become one of the most connected societies on earth. China has, by far, the highest percentage of e-commerce of any society in the world. Electronic payment systems and electronic banking are much more advanced there than anywhere else.
When I interviewed US Secretary of State Mike Pompeo during his visit to our country this summer, he strongly warned, “Switzerland should stay away from Huawei.” Across Europe, the Americans are sending out the same message. How successful have they been, so far, in stopping European partners from cooperating with Huawei?
As you say in Yiddish, “Soll ihr gor nischt helfen.” The campaign has been a humiliating failure and, in fact, one of the most comprehensive policy failures that the United States has ever had.
A very senior Cabinet-level US official told me recently that the Chinese were way ahead of us before we figured out what was going on, but now we’re catching up. That statement is wrong on two grounds. First, they haven’t figured out what is going on. Secondly, they’re not catching up. Two years ago, the US Intelligence community realized that what 5G would do is not only give China a great deal of economic power, which by itself is a national security concern, but it would also, within the next several years, eliminate America’s advantage in signals intelligence.
Can you explain how?
I actually broke the story in July in the Asia Times. It’s since been discussed in various other media. The Chinese have pioneered a communications technique called “quantum communications” which uses the entanglement of electrons at a distance to create a communications signal. The quantum system is such that if you interfere with it in any way, the signal disappears. The quantum state is destroyed. So, it’s like a letter that disappears the moment you look at it. It’s theoretically impossible to hack. The 5G bandwidth is so powerful that you can integrate quantum communications into ordinary 5G communications and make it standard.
We already know that the Chinese are using quantum communications for sensitive data transmission inside China through fiber optic cable. But there are a half-dozen major groups working on embedding quantum communications in 5G. SK Telecom is working on it. Toshiba is working on it. There’s a group at the University of Bristol, which claims very good results. So, the result is America’s ability to eavesdrop on everyone else will disappear in two or three years.
It is one thing for the Americans to say, “Do not buy into 5G Huawei.” But, eventually, customers in the West need 5G technology. Is there an alternative for Europeans to Huawei?
Well, there isn’t at present which is what makes the American initiative so ineffective. A senior official of Huawei told me, “We don’t understand why the Americans didn’t have Cisco buy Ericsson and create a competitor.” Of course, the answer is that would have brought down Cisco’s equity prices, and we don’t do anything in the United States that brings down stock prices.
What would be the right policy?
The right policy would be to do exactly something like that. Have a merger of Cisco and Ericsson, or get Microsoft involved. Google. There are many American companies that could compete effectively. It might require some subsidies, tax subsidies, perhaps direct research and development subsidies. You’d have to bring the CEOs into the Oval Office and tell them, “Tell us what you need to make it happen.” I think that all of the European countries would be very happy to work with the United States as opposed to China even if it involves some delay in the rollout of 5G. But as long as there’s no American alternative, the Europeans are all over the place.
I hear a lot of people say, “Americans have eavesdropped on the German Chancellor Merkel. They have stolen data from around the world, as we learnt from Edward Snowden. Why worry about Huawei when the Americans do exactly the same?” What do you say to this?
Well, [chuckles]. A former head of the Central Intelligence Agency told me it’s a matter of whether we steal everybody’s data or the Chinese steal everybody’s data. And don’t you prefer having the Americans steal your data?
Most would say, “We don’t want anybody to penetrate our privacy.”
Well, I think this is a moot question anyway because the development of cryptography — particularly quantum cryptography — will eliminate the US ability to eavesdrop in any case. I think all that has happened is the US intelligence agencies look for a way to delay the 5G rollout until they’ve figured out how to address this problem. They are basically floundering.
Remember, we spend $80 billion a year on our intelligence services. The vast majority goes for signals intelligence. [“SIGINT” is intelligence derived from electronic signals and systems used by foreign targets, such as communications systems, radars and weapons systems.] All of a sudden, the screens will go dark at the National Security Agency. They will lose an enormous amount of power.
When we learn about this vastly growing Chinese global influence, we start to wonder: What is China’s grand strategy behind it?
China was the world’s dominant manufacturing power for most of the last 1,000 years. Then it dropped about 200 years ago at the beginning of the Industrial Revolution. The Chinese view this as a temporary aberration, and they want to re-establish China’s preeminence. They look at Chinese technological dominance, both in terms of innovation and in control of major world markets, as the key to Chinese power and prosperity.
Remember, China had dynasties which fell because of famine, plague, foreign invasions and so forth. It really hasn’t been a stable country. This is the first generation of Chinese that doesn’t have to fear hunger. They’ve basically removed the main source of fragility of the Chinese system. And, now, China is turning outward and asserting its power globally. The combination of telecommunications, logistics, e-finance, e-commerce and the other applications, artificial intelligence, are the instruments of Chinese expansion.
The Chinese understanding is that every smartphone is a data gatherer. It’ll gather data on health, on consumer transactions, on the environmental traffic patterns. All of this data can be uploaded to the Cloud. It can be processed by Chinese computers, and it can give China massive advantages in terms of industrial controls, health systems, the environment, urban planning and, of course, social and political control.
Since 800 A.D., the Chinese borders have stayed the same. I don’t see any intention to expand (apart from the South China Sea).
So, what is their strategy? What do they want?
They want to have everybody in the world pay rent to the Chinese Empire. They want to control the key technologies, the finance and the logistics, and make everyone dependent on them. Basically, make everyone else a tenant farmer.
How far have they gotten so far on this road?
Well, it’s very preliminary, because basically what China wants to do is to transform other countries the way they transformed themselves. This is not easy to do. You have political obstacles, cultural obstacles. For example, in a country like Pakistan, where they’ve invested enormously, you have 50% illiteracy and a great deal of political instability, massive infrastructure deficits. No one is going to make Pakistan look like China anytime soon. A country like Brazil, for example, where China is building a national broadband network — that’s a candidate. The whole of Southeast Asia — Vietnam, Malaysia, Cambodia, Thailand — these are candidates to be transformed into economic adjuncts of the Chinese Empire. If you include Indonesia, Southeast Asia is already 600 million people.
Once the Chinese achieve their goal, would they press their “tenant farmers” politically and ideologically?
I think the Chinese are not curious about how the barbarians govern themselves as long as they’re subordinate to China, economically and technologically. The Chinese are the least ideological people in the world and the most pragmatic.
A lot of my American friends say the problem is the wicked Chinese Communist Party which is oppressing the good Chinese people. I think that’s complete nonsense. I see the Communist Party as simply another manifestation of the Mandarin administrative cast which has ruled China since it was unified in the third century BC.
Compared to the Russians, with their schools for spies and their subsidies for local Communist parties and so forth, the Chinese have no interest in such things. The ideological ambitions of the Chinese Communist Party are vastly exaggerated by authors like Michael Pillsbury, the American director of the Center on Chinese Strategy at the Hudson Institute in Washington DC, and other American critics. But that doesn’t mean China is not dangerous, or that they’re not a challenge to us.
The most prominent expert on China in the western hemisphere is Henry Kissinger. In his book, “On China,” he explains that the Chinese operate like in a kind of three-dimensional chess. “Go,” I think the game is called.
This sounds like the Chinese have some sort of a superbrain.
I think that can be exaggerated. What holds China together is the ambition of the Mandarin cast. China has always been a very disparate set of ethnicities and languages, and so forth. What holds it together is that the Chinese Empire has recruited, through the Mandarin system, the cleverest people from the provinces and aligned their interests with the center.
What, in your view, is the biggest misconception about China in the West?
The single biggest misconception is that you have a wicked government and a good people. The Chinese have had 3,000 years for the government and the people to shape each other. The institution in the West that most closely resembles the Chinese system is, in fact, the Sicilian mafia. You have a capo di tutti capi who prevents the other capi from killing each other. Because they’re natural anarchists, they don’t like any form of government. They’re loyal to their families. The emperor is nothing but a necessary evil. The idea of public trust and subsidiarity that’s fundamental to democracy is unknown to the Chinese.
What holds a country of anarchists together, if not the emperor?
There’s an old joke about [former American President] Eisenhower and
[former Israeli Prime Minister]
Ben Gurion from the 1950’s. Eisenhower tells Ben Gurion, “It’s hard to be president to 200 million Americans.” And Ben Gurion says, “It’s even harder to be prime minister of 2 million prime ministers.”
Well, China is a country of 1.4 billion emperors. Everyone wants to be an emperor. Everyone strives for his own and his family’s power. There’s no sense of Res publica. Certainly no Augustinian sense of common love to hold a country together. What holds the country together is ambition. Therefore, it’s critical that the meritocracy be fair.
Xi Jinping’s daughter goes to Harvard, but no Chinese president can get his child into Peking University unless she gets the right score on the gaokao, the university entrance exam.
So, all hope is not lost for the West when the Chinese ‘capo di tutti capi’ is educating his offspring in one of America’s Ivy League schools?
Well, the one thing that we’re much better at than the Chinese is innovation. As I mentioned, Huawei is very much dependent on Western employees for innovation. I’m not saying the Chinese can’t innovate. During the Tang dynasty (618 to 906 A.D.), which is considered a golden age of Chinese arts and culture, the Chinese invented the clock, the compass, gunpowder, printing and, virtually, all of the elements of the beginning of the Industrial Revolution. However, the Chinese form of meritocracy, which is based on standardized exams, is the second-best way of running that meritocracy. Albert Einstein, who sat in the Swiss patent office because he couldn’t get a university job …
… and then invented the theory of relativity at his private home …
Right. This is unimaginable in China. If you ask the Chinese what worries them the most, many will say, “How come we have no Nobel prizes?” Eight Chinese have won the Nobel prize in sciences, but they are all Chinese who lived in America.
The Chinese system is very bad at identifying those eccentrics, like an Einstein, who make fundamental contributions. We are much better at that. The Western idea of the divine spark in the individual simply doesn’t exist in China. So, I think we do have a chance against the Chinese.
President Donald Trump has been saying all along, “We have to stop the Chinese from stealing our innovations and ideas.” He is right, isn’t he?
Well, I think there are good points and bad points to it. Certainly, the rise of China is a threat to the prosperity and security in the West, and he’s right to call attention to it. Joe Biden as vice president appears to have been interested in China mainly to help his son. A few months ago, he said the Chinese are nothing to worry about. Now that’s either a stupid statement or a corrupt one. Of course, we need to worry about the Chinese. If the Chinese dominate the next wave of major industrial applications, we’ll be poor, and we’ll be less secure. We’ll be dependent on them, and I don’t like that.
I don’t think the Chinese plan to invade us or establish an American Communist Party on the model of the Chinese Communist Party.
You don’t see any military confrontation emerging anytime soon?
No. If you look at the disposition of Chinese forces, it looks like a person with a gigantic head and tiny legs. The Chinese spend $1,500 to equip a foot soldier. That’s basically a rifle, and a helmet and some boots. Americans spend $18,000 to equip a foot soldier. We have enormous airlift capability. We have an enormous amount of technology applied to the infantry. The People’s Liberation Army (PLA) infantry is one of the most poorly-equipped and badly trained in the world. On the other hand, their missile forces, their satellite forces, their submarines, and so forth, are extremely good.
The entire Chinese military strategy is focused on controlling their borders.
Control of the South China Sea. They have perhaps 100,000 Marines and mechanized infantry they could put in Taiwan pretty quickly. But apart from that, they’ve shown no interest. They have, of course, the base in Djibouti. One can expect the Chinese to put more resources into their Navy because the United States is showing less interest in the security of the Persian Gulf. My view is more Chinese presence in the Persian Gulf is inevitable because of basic economic interests. But that’s not the same as projecting a military empire. It’s not the Soviet Union.
Some people say that confrontation is the wrong strategy, that we should become friends. Do the Chinese have the same concept of friendship that we have?
The Chinese, as individuals, have no friends. China, as a country, all the less so.
A peasant somewhere out in the Chinese countryside doesn’t have friends?
It was explained to me by my Chinese colleagues while I worked there that, when you’re in first grade in primary school, you look to your left and right and try to figure out whom you’re going to walk over. In China, you have your family. Otherwise, you have inferiors and superiors. But there are no parallel institutions. There’s no group of people coming together, spontaneously, to do something together as equals. You have a superior and you have inferiors. There’s no concept of political friendship in Aristotle’s sense.
No personal friendships?
People have personal friends, of a sort. But you don’t have the Western idea of political friendship, which goes back to Aristotle. China only has interests; it has no friends. There’s a term that was applied to southern Italy called “amoral familism” where you’re completely amoral with dealings of the world except for your family where you have different standards. That very much characterizes China.
It is obviously in the Chinese interest to appear “friendly.” They have launched a tremendous PR strategy buying space and time in Western media to propagate themselves as a friendly giant.
They do a very bad job, don’t they?
Why do you think?
Because the Chinese are tone-deaf to Western sensibility, they’re very bad at conducting a dialogue in Western terms. The thing I’m least worried about is Chinese propaganda in the West.They’re very good about generating influence through money and technology and so forth.
But they are not winning hearts and minds?
No. I think the Chinese system is so alien to what Westerners want or expect that it will never look attractive to us.
Kipling was not completely wrong when he wrote, “East is East, and West is West, and never the twain shall meet”?
You can never be China’s friend. We obviously have to do business with China. You can’t isolate 1.4 billion clever and industrious people. That’s absurd. But one can only deal with them successfully from a position of strength.
President Trump is pursuing a strategy of threats and demonstration of power. Does this impress the Chinese?
I don’t think it does, at present, because the president makes a lot of threats that he doesn’t execute. Iran is a good example. It’s fine to say, “We’re locked and loaded, ready to attack Iran.” We’re not going to attack Iran. If we’d attacked Iran, we’d have a major interruption of oil supplies in the Persian Gulf. On the other hand, the Chinese are very paranoid about the United States.When Steve Bannon goes around talking about trying to destabilize the Chinese political system, I know a lot of Chinese in very senior positions who think that he’s secretly speaking for President Trump even though he was never really doing so.
You have called Trump’s strategy of economically confronting China a failure.
I think it has been a complete failure. Now, I voted for Trump. I will almost certainly vote for Trump again. I would like to see him re-elected. But I’m distressed that he may be his own worst enemy.
He ran on a platform of reviving American industry. American manufacturing is the weakest sector of the economy. And because his re-election depends on victory in several manufacturing states, I think his re-election is in greater jeopardy than it might have been. So, I think the tariffs hurt.
And, as I mentioned before, the attempt to persuade the rest of the world not to buy Huawei’s 5G equipment has been a complete failure. Huawei will ship 600,000 5G base stations this year, and it can now produce them with no American components.
The humiliating thing is we invented the semiconductor. We invented the displays. We invented the optical networks. Every single component to the digital economy was an American invention. Yet, we produce very little of it, or, in some cases, none in the United States.
So, for Trump to say, “It shouldn’t be like this,” is completely reasonable. But I think the methods that he’s chosen have been ineffective and even counterproductive.
Has America lost? Or can you catch up?
Of course, we can. But it’s very hard to say exactly how it will happen. Under the Reagan administration, I consulted for the National Security Council. The United States spent in direct federal subsidies for research and development (R&D) the equivalent of $300 billion in today’s dollars — about one and a half percent of GDP. Every one of the major corporations had laboratories employing thousands of scientists. Every single invention that created our modern digital economy came from a Pentagon project. In many cases, the results were much more far reaching than anything we anticipated.
In 1976, the US Defense Department decided they wanted fighter pilots to be able to do weather forecasting in the cockpit. They asked for a fast and light computer chip. What they developed was immediately applied to “look down radar.” Look down radar requires computer imaging, and the development of the chips at RCA labs made that possible. The Defense Department did anticipate that, but that was one of the technologies that gave us a decisive advantage over the Russians during the Cold War.
If we have the mobilization of resources that I would like to see, similar to what we’ve done in the past, I believe we’ll get results greater than we anticipate. The important thing is to restore the culture of innovation and mobilize human and corporate resources to do this.
What would a winning strategy towards China look like?
I’ll give you an example. Part of the single biggest Chinese investment is now in semiconductors. China is the largest importer of semiconductors. They import more than $200 billion worth of semiconductors. They’d like to produce most of that at home. So, they’re spending vast amounts on chip fabrication plants. Chip fabrication plants are extremely expensive. The latest one that Taiwan Semiconductor built cost $30 billion for a single plant. There are new physical techniques for creating semiconductors. They can be grown as opposed to pressed.
Let’s say we were to take some of these experimental technologies and make them work. Then we would wipe out $100 billion worth of Chinese investment in semiconductor fabrication plants. I would try to target critical technologies where innovation can make radical changes and wipe out the value of existing Chinese investments.
Where do you see China’s weak spots that could cause substantial problems for their future?
China has a set of weak spots. First, they’ve got a very rapidly aging population. Like all countries with aging populations, they need to export capital and employ young people and other countries to pay for the pensions of their own people. Germany does this, too. That’s part of the motivation for China’s strategy. They will have an enormous burden supporting the aged in the future. They’re hoping to deal with that through automation, through more efficient health care.
Their biggest problem is the ambitions of their young people. The Chinese created a generation of which 10 million people each year take the gaokao (university) exam. A third of them study engineering. They expect opportunities.
If China loses its edge in technology, if they fall behind the West, if the Communist Party is seen to have failed in competing with the West, I think that will be a significant threat to its power.
You can’t effect that by complaining about human rights in China. China’s violation of human rights is repugnant to us. Of course, we will complain. But that doesn’t really do anything. The Chinese only respect power, and our power is in innovation. If we show that we can out-innovate the Chinese and leave them behind in critical sectors of technology, I think that will undermine the credibility of the present government.
This article was originally published by Switzerland’s Weltwoche
Spengler – the name refers to the German philosopher, Oswald Spengler who predicted the fall of the West in Untergang des Abendlandes (The Decline of the West). Wikipedia about him and the book(s) here.