Monthly Archives: December 2016

The Larger Context

Author Gary Moreau

This is the time of year for self-reflection. The pensiveness just oozes out of columns, blogs, and news reports across the media spectrum. I prefer to think of it, however, as a time for putting things in a larger context. That, in my experience, is the first step toward understanding and, ultimately, hope.

With the election of Donald Trump and his proven ability to stir up angst in Beijing, one would think this blog would literally write itself. And he has created an abundance of topics to write about concerning US-China relations.

I find myself, however, having the opposite problem – writer’s block. What to say? Where to begin? What will he do?

That has brought me back to a saying I employed many times when living and working in the Middle Kingdom. In China things are never as good or as bad as they first appear. It’s all just part of the circular logic of inductive reasoning.

That said, I will offer a few predictions.

First of all, Trump will get nowhere on Taiwan. That’s just not in the cards on many levels, any more than California is in play with Mexico. If anything, his attempt to push the issue will only cause China to accelerate its plans for assimilation.

Ditto for the South China Sea. China will not back down. The man-made islands are there to stay and there will be military installations on them.

And trade negotiations alone won’t move the needle on US factory employment. Some jobs may move here, but it is the Chinese that will bring them. America offers many advantages to companies in certain industries. There is easy and inexpensive access to the US market, access to the best university system in the world, and one key benefit that is seldom mentioned – very cheap energy.

There will be limits to transferal, however. There are many very large companies in China, many of them state-owned. For every one of the behemoths, however, there are literally thousands of tiny companies that are critical to their operations. Unlike the US, which employs more of an integrated supply chain, China relies on a supply chain ecosystem that would be prohibitive and impractical to move. It may happen; but it will be a slow process. A phone call from the president isn’t going to do it.

Understanding China is available at Amazon in paper and electronic formats.

The real lesson of 2016, however, is a lesson I learned from the Chinese themselves.

The one question that plagued me throughout 2016 was: How did the world get so messed up? How could the shining city on the hill have such a debasing and acrimonious – and embarrassing – election after 240 years of maturation? How could racism still be the ball and chain about the ankle of what might well be the most educated society in history? How could Aleppo happen in what is arguably the most religious region of the world? How could? How could?

After pondering the larger context, however, I think I have an answer.

As always, it’s personal. Our worldview defines how we interpret reality. And the way in which we interpret reality defines both our expectations and our interpretation of actual results versus those expectations. It is at the heart of both glee and sadness.

I have concluded that there are essentially two worldviews. One is defined by its reliance on inductive logic, where the result is all that matters and everything else is wasted conjecture. The other is based on deductive logic, where effect is always preceded by cause and understanding that relationship is the key to our sense of personal well being.

In the extreme, inductive logic gives us religious and political fanaticism. We don’t need to ponder our beliefs; they are what they are. We only need to project them into action.

Deductive logic, on the other hand, gives us political correctness. What is political correctness, after all, but an extreme focus on cause? The focus is on language, bigotry, racism, and homophobia, etc. And since cause is the key, the results become a taboo topic for open discussion. Such discussions almost always revert back to cause – “You are a racist, a homophobic, or a misogynist.”

Tit for tat is based on an inductive worldview. You did this; I am justified in doing that. Cause is irrelevant. You did; I do back.

Progressive ideology, on the other hand, is deductive in nature. It’s built on the never-ending quest to understand why. It is the perpetual quest for deciphering cause and effect.

Most of the world, it would seem, has adopted an inductive worldview. That’s not surprising. It is much simpler to wrap your head around. It’s clean, if you will. There is more clarity.

Many in the West, however, cling to a deductive worldview. For most of my life, I have been one of them. That’s why I don’t sleep at night. I’m always pondering why.

I’ve moved a long way toward an inductive worldview, however, as a result of living and working in China for so long. I still don’t sleep but the world makes a lot more sense to me. There is less anxiety.

And it is that migration in worldview that gives me hope for the future. I am an old dog but the Chinese taught me a new trick. As a result I am more tolerant; I listen better; I am less judgmental; and I have a far better understanding of world events, as depressing as they are on the surface.

Donald Trump is an inductivist with some extremely deductive personality traits. He is not a student of cause but believes in the power of cause. He believes that the desired result can be achieved through the raw force of personality and tough negotiation. And Twitter, of course.

My simple hope for 2017 is that the Trump team comes to recognize this contradiction. It’s a contradiction that has made Trump a success in the rough-and-tumble world of American commercial real estate. It is not, however, a worldview shared by most world leaders, who tend to fall more on either side of the inductive/deductive spectrum.

In the end, all of the tough negotiations in the world will not make China, or much of the world for that matter, become more like us. The Chinese are perhaps the toughest negotiators on the planet. When we do, they will do back. Win-win is not in their lexicon. That’s a deductive negotiating strategy. For them, there is only winning.

There is hope, nonetheless, for a peaceful and mutually beneficial relationship between the US and China. We just need to focus a little more on the way things are rather than endlessly debating our strategic interests in an effort to ‘cause’ the world to do what we want it to.

Contact: You may reach the author at Mr. Moreau is also available for public speaking and the provision of third-party written content for your website or other communications material.

Taiwan Redux

Author Gary Moreau

One of the hallmarks of this blog since it launched in 2013 is that I never write on the same topic twice in a row. It’s part of my identity. I aspire to help the reader understand China and since no country or culture is one-dimensional, I believe variety is essential and symbolically appropriate.

This post is an exception. But the 2016 US presidential election was also an exception on many levels and it set the stage for breaking with tradition. Based on the behavior of President-elect Trump during his transition to office, moreover, I doubt very much it will be the last.

Breaking with four decades of precedent, the president-elect took a congratulatory phone call from the leader of Taiwan, Tsai Ing-wen, on December 2, 2016. And as I noted in my last post, the Chinese leadership in Beijing took strong exception to the unprecedented move but otherwise appeared to signal that all would be forgiven as long as it didn’t happen again. (China considers Taiwan to be a renegade province.)

In the days that followed the phone exchange, however, the president-elect demonstrated in no uncertain terms just how unconventional he would be as the leader of the Western world. He has gone on record noting that he feels no obligation to accept the “one China” policy that has guided US diplomatic behavior since the US transferred official diplomatic recognition from Taipei to Beijing in 1979.

With a population of 25 million people it would seem unlikely that Trump would ultimately jeopardize the US relationship with the world’s second largest economy and the US’s third largest export market. And what would be the justification? Principle? To date the president-elect has not outlined any over-riding personal principles that would seem to support such extreme action.

Except, that is, his fundamental belief in the art of the deal.

As several observers have noted, the president-elect is more than likely using Taiwan as a bargaining chip to extract trade and other concessions from Beijing. And that would be a very, very dangerous strategy indeed.

Understanding China is available at Amazon in paper and electronic formats.

In my book, Understanding China, I advised Westerners to avoid negotiating directly with the Chinese unless they have significant experience in Chinese culture and negotiation. Westerners negotiate to a win-win. The Chinese, on the other hand, negotiate to a win-lose. It’s an issue of worldview and culture.

The Chinese, I am confident, will call Trump’s bluff. They will not negotiate over Taiwan. The only question is whether or not they will take pre-emptive action to clearly demonstrate their resolve.

We must remember that Chinese political strategy today is built on the foundational memory of the Century of Humiliation. That is the period from 1840 (the First Opium War launched by Britain) to 1949 (Mao Zedong’s victory over the Nationalists), when China suffered mightily during invasions by imperialist Japan and the West.

It was a particularly humiliating period for China because Chinese culture turns on obligation, and obligation gives rise to the notion of “face.” Embarrassment is the ultimate suffering.

The Century of Humiliation is often alluded to by Chinese President Xi Jinping and remains a vivid and bitter memory for even the youngest of Chinese, as witnessed this past week by moving memorials to the 1937 Massacre of Nanjing (also known as the Rape of Nanjing due to the number of rapes that occurred), during which 200,000 to 300,000 Chinese, including many entire families, were massacred by invading Japanese forces. (Nanjing was called Nanking at the time and was the capital of China.)

To put Taiwan on the table as part of a larger economic negotiation, in other words, is both insulting to the average Chinese citizen and ignores the basic realities of Chinese history and culture. The desire to rebuild face has propelled Chinese nationalism among all age groups to a level that most in the West would find unfathomable.

The Global Times, a state-run newspaper ultimately controlled by the Communist Party, editorialized earlier this week, that “The Chinese mainland should display its resolution to recover Taiwan by force… If the Chinese mainland won’t pile on more pressure over realising reunification by using force, the chance of peaceful unification will only slip away.”

Just words? Perhaps. But the best compass of truth when assessing potential threats is rationality. And this approach does make sense. Who can honestly say what President-elect Trump will do in the future? There is no body of past political behavior to gauge the risk by. And, in fact, the case can be easily made that the risk of confronting the US on such a scale will arguably be less when the president-elect’s term of office is in its infancy and Americans are overwhelmingly focused on the economy.

I am not a military expert or a career diplomat. My gut instinct, however, based on nearly a decade of living and working in China, is that China has long had the military power to vanquish Taiwan in a matter of days, if not hours. And the Taiwanese know this, raising the distinct possibility that not a single shot will be necessary once intent is clearly established.

The reality is, moreover, that China does not need to take military action to make Taiwan suffer for its transgression. It has many diplomatic and economic tools (e.g. Prohibiting travel between the Mainland and Taiwan.) in its arsenal to effectively crush Taiwan economically and emotionally. And there is relatively little the US could do about it. Taiwan could not even appeal to the United Nations as it is not a member and Beijing sits on the veto-empowered Security Council (as does Russia).

Let us hope that all of this is simply part of the president-elect’s learning process and that the tensions will soon be dialed back. If this is simply a test of Chinese resolve, so be it. In business, however, the failure of a negotiating gambit merely results in the loss of a deal. In diplomacy, the stakes are much higher.

Contact: You may reach the author at Mr. Moreau is also available for public speaking and the provision of third-party written content for your website or other communications material.

Taiwan: Issues of Economics, Not Politics

Author Gary Moreau

On December 2 Tsai Ing-wen, the political leader of Taiwan, spoke by phone to President-elect Trump, igniting a firestorm of conjecture and no small amount of indignation. China lodged a formal complaint, as would be expected, but the incident seems to have gained far more media attention than it deserves. Nothing, in the end, is likely to come of it.

Taiwan, historically known as Formosa, is an island that lies approximately 140 miles to the east of the Chinese province of Fujian, with which it shares a common native dialect. It is home to 25 million people, roughly the population of Shanghai or Guangzhou, two of China’s larger urban centers.

The original inhabitants of Taiwan are thought to have journeyed from southern China and after a brief stint as a Dutch colony, the island fell under the rule of the Qing Dynasty until 1895, at which time the island was forcibly ceded to Japan as a result of the First Sino-Japanese War.

At the conclusion of World War II, most of China was still under the control of Chiang Kai-shek and the Kuomintang (KMT) government, to which the Allies gave control of the island. Mao Zedong and the Communists, however, ousted the KMT and created the People’s Republic of China in 1949.

At the time, Chiang Kai-shek and his followers fled to Taiwan and created the Republic of China (ROC). It is estimated that roughly 15% of Taiwan’s current population has ancestral ties to that one mass migration.

Understanding China is now available at Amazon in paper and electronic formats.

To further muddy the waters of history, the KMT, after fleeing to Taiwan, initially claimed sovereignty over all of China, which it claimed it would ultimately re-occupy. The KMT was, in fact, given China’s seat on the United Nations Security Council and was recognized by many Western governments as the only legitimate government in China.

Mao Zedong, however, and virtually all subsequent Chinese leaders, never saw Taiwan as anything more than a renegade province that would eventually be reunited with the mainland, by force if necessary. And that remains China’s official policy.

In 1971 the UN finally concurred and China’s seat on the Security Council was granted to Beijing. In 1979, moreover, the US and then-President Jimmy Carter formally severed diplomatic ties with Taiwan, leaving the ROC in the political no-man’s-land in which it currently finds itself. No US president since has communicated directly with the leader of Taiwan.

And hence the flap. As far as China is concerned the move was akin to having the governor-elect of Missouri communicating directly with German Chancellor Angela Merkel on matters of state.

But here’s where context becomes so important. Hong Kong, Taiwan, and Macau are all governed on the principle of “One China.” They are officially part of China but have been given great latitude to operate independently, within limits, as long as that principle is not violated. Mainland Chinese can travel easily to both places but require some special documentation.

The problem in the West is that many people, including a good swath of the media, wants to see the One China policy done away with. To these folks, the overriding issues are political and individual freedoms. Many, as a result, are cheering Tsai Ing-wen on, just as they cheered on the Umbrella Movement in Hong Kong in 2014.

What’s happening in Taiwan and Hong Kong, however, is not that different than what happened in the US during the 2016 presidential election, or during the Brexit vote, or even during the Italian vote this past weekend that led to the resignation of Italy’s PM. These are all economic movements driven by populist sentiment reacting to increasing income disparity, slow economic growth, and the growing sense by many that the country is leaving them behind. They are losing hope.

Contrary to a lot of the Western media innuendo, in fact, Tsai Ing-wen was not elected in May, 2016 on a platform of political independence from Beijing. She was elected on a platform of greater economic independence. Many young Taiwanese feel, as many feel elsewhere, that China’s burgeoning economy and financial strength might well squeeze them out of the career opportunities their parents enjoyed.

The simple reality is that no poll has demonstrated that anything beyond a small minority of Taiwanese want anything to do with political independence from China. They want an economic future, plain and simple.

I have done business in both Hong Kong and Taiwan and can tell you from firsthand experience that the idea of separating either territory from China is akin to wishing for the cessation of Texas. It’s not going to happen. And no one really wants it to. (There are always outliers, of course.)

Both Taiwan and Hong Kong are among the biggest investors in Mainland China. The financial districts of Beijing, Shanghai, and Guangzhou are awash with Taiwanese and Hong Kong businessmen who have never had it so good. (Your Apple device was probably assembled in Mainland China by a Taiwanese company.)

The real lesson here, as well as in the US, is that people need to have hope. When they lose that, all is lost and they will ultimately do what they feel they must do to get it back.

No one – perhaps even the man himself – knows what Trump will actually do as President. And he unnecessarily added fuel to the Taiwan fire by tweeting about currency manipulation and the South China Sea. To date, however, I don’t believe he has done anything to sour the relationship between the US and China longer term. There is just too much at stake for both sides.

As in all of life, however, there are limits to everything.

Contact: You may reach the author at