Business·Analysis

State grip on economy means foreign sanctions won't shift Chinese resolve: Don Pittis

A giant and growing internal economy and state grip on economic levers mean external threats won't change China's mind. Only the Chinese people can do that.

But as in other Asian economies, don't rule out transformative power of the people

Anti-national security law protesters march on the anniversary of Hong Kong's handover to China from Britain, in Hong Kong on July 1. (Tyrone Siu/Reuters)

Last week, former prime minister Brian Mulroney urged that this country begin an "urgent rethink" on its relations with China.

A front-page story in the Globe and Mail on Canada Day declared that the former Progressive Conservative PM had backed off on his previous suggestion of sending a high-level business negotiating team to Beijing to resolve Canada-China differences. Instead, he advocated a firmer stance.

"There has to be an immediate and urgent rethink of our entire relationship," Mulroney told the Globe. That included kicking Chinese telecom company Huawei off Canada's 5G systems and staying close to the U.S.-led Five Eyes spy network.

But those who think taking a hard economic line on China — a country that is neck and neck with the biggest economy on Earth — will change its aggressive and anti-democratic outlook must understand Chinese exceptionalism.

Change from within

Instead, as many China scholars have told me in the past, change within China must come from the Chinese people — and not necessarily as represented by the Chinese Communist Party.

That may seem far-fetched to those watching Beijing's crackdown on Hong Kong, its vicious police tactics backed by central government financial support to help keep the Chinese region's business community sweet.

As the New York Times reported last week, "The business world has largely fallen in line behind China's campaign to tighten its grip on Hong Kong."

JD.com, owner of this fresh food chain, raised $3.9 billion US in Hong Kong at the end of last month — one of many Chinese firms helping to keep the former colony's economy healthy. (Tingshu Wang/Reuters)

While officials have offered moral and cash support for the former British colony, the most significant reason for the latest burst of business activity comes from a different source.

U.S. regulatory restrictions on Chinese firms and fear that the U.S. administration and Congress may impose financial penalties have made Hong Kong's sophisticated marketplace a more-than-tolerable second choice to New York for raising cash.

As Walid Hejazi, an associate professor of international business at the University of Toronto's Rotman School of Management, suggested in the context of threatened U.S. trade restrictions, squeezing China out can have perverse effects.

"Given there is a trade war, it can push China into doing things that could really help it over the longer term in terms of diversifying itself into Asia, into other markets, but also developing its domestic economy," Hejazi told me at the time.

Like the U.S. in an earlier stage in its own development, China may be on the verge of building a domestic economy so large, exports become of decreasing importance.

Unlikely impact

Even if Canada and the U.S. could do without China's increasingly high-level technology, of which Huawei is only a single example, even if they could withstand a reduction in the Chinese market for their exports of food and resources, the Asian country's increasing self-sufficiency means some sort of new economic cold war is unlikely to have the desired impact.

Even if, as some credible sources have suggested, Chinese economic data is fudged, there is no question that the country's economy is huge and growing. Beijing is spending a fortune on the education of its billion-plus population. It seems serious about trying to bring its poorest into the wage economy.

Condemned by human rights groups for forced birth control for minorities and other abuses, nonetheless the power of a command economy gives it strategic advantages at this point in its evolution. Unlike the U.S. and Canada, it does not have to negotiate with wealthy taxpayers to create university places or make what it considers to be essential investments.

But while Beijing rejects attempts at outside coercion, developments in Hong Kong may reveal a path to domestic transformation.

People power

While Beijing's strong-arm tactics can work on powerless Uighurs, Hong Kong may be a Chinese microcosm of what can happen when an authoritarian government runs out of legitimacy with informed and educated citizens who do not want to be imposed upon.

People who think of South Korea and Taiwan as healthy pluralistic democracies may not realize that in my lifetime, both were run by nasty militarist — anti-communist in those cases — dictatorships. The running street battles between police and students before the removal of South Korea's Park Chung-hee are legendary.

WATCH | Nathan Law flees Hong Kong:

'I think the future's grim,' Law said, but noted he will continue to voice Hong Kongers' demands for democracy. 2:09

Even as Hong Kong becomes more like China, the former colony may have inoculated the entire country with a taste for self-government and some ideas on how to get it. By alienating so many Hong Kongers, China has wasted an opportunity.

Now, the self-exile of Hong Kong democracy leader Nathan Law harks back to earlier times, when Russian anti-government leader Vladimir Lenin retreated to England and Vietnamese revolutionary Ho Chi Minh hid out in France.

Without even trying, places where you are allowed to think and say just about what you like create a refuge for dissent. Canada's suspension of extradition rules is a sign that Hong Kong has strayed too far from that ideal.

Canada need not give up on China as a place where pluralism and democracy will one day help its people rule themselves.

In years gone by, North American economic sanctions may have had the clout to pressure even large countries into adjusting their policies. It is implausible to think that China, with an economy that the IMF says is still growing — while Canada, the U.S. and Europe will shrink about eight per cent this year — will be pressured.

That will be the job of its own people.

Follow Don on Twitter @don_pittis

About the Author

Don Pittis

Business columnist

Don Pittis was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London. He is currently senior producer at CBC's business unit.

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