A special report on China and America

A dragon of many colours

Oct 22nd 2009
From The Economist print edition

America will have to get along with China. But which China will it be?

ReutersXi Jinping, princeling-in-waiting

“OUR policy has succeeded remarkably well: the dragon emerged and joined the world.” So said Robert Zoellick, then deputy secretary of state, in 2005, in a speech suffused with confidence in America’s ability to shape China’s progress. But, said Mr Zoellick, who is now president of the World Bank, China’s behaviour on the world stage left room for improvement: the country needed to become a “responsible stakeholder” in the global community.

This anodyne catchphrase helped to redefine the two countries’ relationship. It was, in effect, an admission that America could cohabit with a powerful China. Many in his audience of American businessmen in New York, however, felt uneasy. As Mr Zoellick recalls, they saw his remarks as “too harsh and demanding”. Had he delivered the same speech to the political elite in Washington, DC, he reckons, he might have been criticised for being too soft. But China, despite being a bit unsure at first how to translate the word “stakeholder” (a term for which a standard rendering in Chinese had yet to be found), quickly warmed to the new formulation.

It was not then obvious to Chinese officials that America really could accept the rise of China as it was, a one-party system controlled by communists. China saw the invasion of Iraq in 2003 and the “colour revolutions” against authoritarian governments in former Soviet-block countries as evidence that America wanted to go it alone as a superpower and was bent on re-creating the world in its own image. The Chinese media accused America of instigating the pro-democracy movements in Georgia, Ukraine and on China’s doorstep in Kyrgyzstan. A young Chinese diplomat proudly told Mr Zoellick that he spent until 4 o’clock the next morning explaining the significance of the New York speech in a cable to Beijing. “The Chinese saw it as just about right,” says Mr Zoellick.

Mr Obama’s administration has made less use of the “responsible stakeholder” tag, but its strategy is clearly the same. Mr Obama and Mr Hu have agreed to forge what they call a “positive, co-operative and comprehensive relationship” (a step up, presumably, from what was previously dubbed a “candid, constructive and co-operative relationship”). Notwithstanding the tyre tariffs, Mr Obama can expect a warm reception in Beijing next month. China’s leaders see acceptance by America as a boost to their legitimacy at home.

Prepare for all eventualities

“We no longer have the luxury of not getting along with China,” John Podesta told a congressional committee in September. Mr Podesta was the head of Mr Obama’s transition team and now heads the Centre for American Progress, a think-tank close to the Obama White House. He said it was time to move beyond the past strategy of “engage and hedge” and adopt one that “maximises opportunity but also manages risk”. But American respect and goodwill, as this special report has argued, cannot be relied upon to ensure that relations remain on solid ground. And whether called hedging or managing risk, America has no choice but to prepare for the possibility that China might one day threaten American security.

The risk is not that China’s current leaders might one day discard their pragmatism and march into all-out conflict with America, whether in the economic or military sphere. It is rather the instability of China itself. So far the most disruptive influence on Sino-American relations has been public and political opinion in America. China’s bloody crackdown in Tiananmen Square in 1989 was hugely destabilising, but consistent with a time-honoured approach to political threats.

What do the Chinese think?

Increasingly, however, public opinion in China will play a role as well. Chinese censors ensure that criticisms of the Communist Party quickly disappear from the internet, but xenophobic opinions are usually left untouched. The internet magnifies nationalist sentiment in China, sometimes even putting the government on the back foot. Such sentiment is invariably hostile to America.

Elite-level politics is another worrying factor. Over the past 30 years leadership changes in China have had remarkably little effect on the relationship between the two countries, but there have been occasional deviations. The Taiwan Strait crisis of 1995-96 erupted at a time of heightened political uncertainty in China, with Deng Xiaoping’s health fading and his relatively inexperienced successor, Jiang Zemin, trying to burnish his credentials. The spy-plane crisis of 2001, which resulted in a tense stand-off as China detained 24 American crewmen for 11 days, broke close to a period of leadership transition.

China’s preparations for another change at the top in 2012 and 2013 appear to be in hand, but America would be wise to be cautious. The workings of China’s leadership remain as much of a mystery to outsiders as they were when China and America established diplomatic relations in 1979, if not more so. Mr Hu is more cautious in his meetings with foreigners than his predecessors were (which may be a blessing for Mr Obama, probably safe from Mr Jiang’s predilection for bursting into song). Leaks from politburo-level deliberations, few and far between at the best of times, are now almost unheard of.

Vice-President Xi Jinping looks the most likely man to take over, with Li Keqiang as his prime minister. Mr Xi is a “princeling”, as the descendants of communist China’s revolutionary founders are often called. As the party chief of Zhejiang Province from 2003 to 2007 he promoted greater openness in grassroots government. But in February a widely circulated video clip of Mr Xi accusing “well-fed foreigners with nothing better to do” of interfering in China’s affairs suggested that he might incline towards nationalist crowd-pleasing. And the succession is still not certain. Party leaders meeting in Beijing in September failed to announce Mr Xi’s widely expected promotion as deputy commander-in-chief of the armed forces. He currently has no military post.

It is reasonable to think that China may well get richer yet stay authoritarian, at least for the next 10-20 years. But there are two other scenarios that are worth thinking about. One is that China might in fact become more democratic. A politically more liberal China would put enormous strains on the multi-ethnic empire that China’s communists inherited from imperial times. Minorities across the Tibetan plateau and in Xinjiang would step up demands for greater autonomy. That, in turn, would jeopardise either China’s democratic development or the unity of the state. And a more democratic China would be unlikely to countenance the permanent separation of Taiwan. It might even pursue irredentist claims more aggressively.

The other possibility is that China might be convulsed by the same kind of tumult that occurred in much of the rest of the communist world two decades ago. This would be a nightmare for America. In such a scenario, the conservative and inward-looking armed forces would play a critical role. As President Clinton put it in 1999, “as we focus on the potential challenge that a strong China could present to the United States in the future, let us not forget the risk of a weak China, beset by internal conflict, social dislocation and criminal activity; becoming a vast zone of instability in Asia.” Ten years and much economic growth later, his words are still worth heeding.

The threat posed by China is not (yet, anyway) one of military expansion but one of great new uncertainty looming over the global order. Mr Obama will need to keep reminding China that America would be irresponsible not to prepare for the worst even as it hopes for the best. Chinese leaders would be wise to be just as cautious about their own future.

A special report on China and America

The rich scent of freedom

Oct 22nd 2009
From The Economist print edition

Will a wealthier China become less authoritarian?

AFPNot happy, and not afraid to protest

FOR Americans, the psychological tremors of a Chinese moon walk could coincide with another shock. Some time in the next 20 years, if China’s growth stays on course, its economy will overtake America’s to become the largest in the world.

By the 2020s China’s middle class, today in its toddler phase, will be striding into maturity. And by 2050, some economists predict, China’s economy will be double the size of America’s at current exchange rates. As with China’s space efforts, there will be less to this than meets the eye. In 2020 income per person in America will still be four times China’s, and vast swathes of the Chinese countryside will look much the same as they do now.

The numbers may say little about the relative strength of China and America, but they will raise big questions about China itself. With the growth of a middle class, many observers have long believed, the country’s politics will change too. Henry Rowen of Stanford University has predicted that by 2020 Freedom House, an American NGO, will rate China as “partly free” in its annual country rankings (putting it in the same category as relatively open but not fully democratic societies such as Singapore and Hong Kong). Freedom House currently rates China as “not free”, one of 42 such countries in 2009.

For China, which routinely imprisons dissidents, heavily censors the media, bans any opposition to the Communist Party, bars citizens from electing the country’s leaders and officially allows religious activity only in places of worship controlled by the government, this would be a big step forward. Mr Rowen bases his optimism on the numbers. By 2020, he reckons, China’s GDP per person at 1998 purchasing-power parity will be over $7,500. In 1998 all but three of the 31 countries above this level of GDP per person were rated as free. People who live in rich countries (oil-rich ones notably excepted) generally enjoy high levels of political rights and civil liberties, Mr Rowen concludes.

But what if he is wrong? An unsettling possibility for America is that China could grow richer and yet remain authoritarian. In his book, “The China Fantasy: Why Capitalism Will Not Bring Democracy to China”, James Mann, an American journalist, argues that his countrymen like to believe they are changing China and that the Chinese are becoming Americanised. “These assumptions have never been borne out in the past,” he writes. American political debate tends to concentrate on two scenarios: the gradual liberalisation of China and, occasionally, the possibility of political upheaval there. A third, highly plausible scenario—that there will be no real political change—is also worth considering, says Mr Mann. American officials have often said that their country’s trade and engagement with China would help to change it politically, but they may have been mistaken.

Unchanged, and yet changing

Mr Mann may have understated the extent of recent changes in China. Its political institutions and its treatment of organised opposition to the party remain unaltered. But property rights, which hardly existed in China until the 1990s, have widely taken hold. Citizens protest against forced evictions from their homes to make way for development. A new army of private lawyers take on the state in court (and usually lose, but at least they try). The middle class, armed with the internet (users of which remain a step ahead of censors), demands, and sometimes gets, redress for abuses of power by local governments.

But for a disconcertingly large number of urban Chinese, authoritarianism has its attractions. The government’s swift response to the financial crisis—a huge stimulus package adopted without any reference to legislators—has reinforced this view. Chinese often say local officials are corrupt and uncaring, but describe the party leadership as well-intentioned and capable. There are no dissidents who are household names across the country. “In this financial crisis, China’s political system has proved no worse than America’s,” says Yang Fan, an economist.

It is becoming increasingly possible to imagine that when China puts a man on the moon and surpasses the output of America’s economy, it will still be a one-party state that brooks no organised opposition. For America this should be cause for concern. The resilience of Chinese authoritarianism will inspire dictators around the world. It will frustrate America’s efforts to cajole China into using its soft power to intervene more actively in humanitarian crises. China may be shifting slightly away from its lie-low policy in international affairs; its willingness to engage in anti-piracy efforts off Somalia has been praised in Washington, DC. But as an authoritarian country it will remain fearful of setting a precedent that could justify Western “meddling” in China’s own internal problems.

Mr Obama’s predecessors found themselves having to backtrack. President Clinton realised soon after taking office in 1993 that America’s attempts to force change in a then more fragile China were of no avail. In not much more than a year he abandoned his attempt to make the annual renewal of China’s low-tariff trade terms dependent on China’s progress with human-rights protection. Mr Bush in his second inaugural speech in 2005 said it was America’s policy to support democratic movements everywhere, “with the ultimate goal of ending tyranny”. During his visit to China later that year China rounded up dissidents or put them under house arrest. Mr Bush, anxious not to upset his hosts, remained tight-lipped in public.

One argument commonly heard for keeping quiet is that criticism of China’s human-rights policies, especially in public, plays into the hands of nationalist hardliners. But if America is ill-equipped to influence the development of democracy in China, it is almost as impotent when it comes to managing the growth of nationalism. Trade between the two countries more than tripled in value between 2000 and 2008, with a huge surplus in China’s favour. Mr Bush kept human-rights differences largely hidden. Yet virulent anti-Western nationalism erupted in China after the protests in Tibet in March 2008, with America and its allies accused of trying to break up the country. Some Western journalists received death threats.

As president, Mr Obama has refrained from being too ambitious about human rights in China. He declined to meet the Dalai Lama during the Tibetan leader’s October visit to Washington, DC, an unusual break from past presidential practice. He preferred to wait until some time after his trip to Beijing. Mr Obama’s administration has even signalled that human rights are not among its top priorities. Before her trip to Beijing in February, Mrs Clinton said that pressing China on human rights must not interfere with talks on the economic crisis, climate change and security issues.

You never know

China is well aware that its critics’ priorities are shifting. A senior American official says the environment has become a greater threat to China’s international image than repression in Tibet. Chinese leaders might well interpret this as meaning that a greener China could get away with locking up dissidents. But human-rights differences with China could suddenly cloud the relationship, just as they did in the final months of Mr Bush’s presidency with the upheaval in Tibet. Mr Bush decided not to boycott the opening ceremony of the Olympic games, as some NGOs and politicians had suggested he should. They included Mr Obama and Mrs Clinton, both then candidates for the Democratic nomination. China’s stubborn resistance to political change could still embarrass them.

A special report on China and America

A message from Confucius

Oct 22nd 2009
From The Economist print edition

New ways of projecting soft power

The Bridgeman Art LibraryBack in fashion

ON THE ground floor of one of the University of Maryland’s redbrick Georgian-style buildings is the small office of the Confucius Institute. When it opened five years ago, it was the first of its kind in America. Now there are more than 60 of them around the country, sponsored by the Chinese government and offering Chinese culture to win hearts and minds.

China’s decision to rely on Confucius as the standard-bearer of its soft-power projection is an admission that communism lacks pulling power. Long gone are the days when Chairman Mao was idolised by radicals (and even respected by some mainstream academics) on American university campuses. Mao vilified Confucius as a symbol of the backward conservatism of pre-communist China. Now the philosopher, who lived in the 6th century BC, has been recast as a promoter of peace and harmony: just the way President Hu Jintao wants to be seen. Li Changchun, a party boss, described the Confucius Institutes as “an important part of China’s overseas propaganda set-up”.

China’s partial financial backing, its hands-off approach to management and the huge unmet demand in many countries for Chinese-language tuition have helped Confucius Institutes embed themselves in universities that might have been suspicious. The University of Maryland’s institute does not offer courses that count towards degrees (and nor do many of the others). It helps with Chinese-language teaching in the wider community, not just on campus. The director, Chuan Sheng Liu, is appointed by the university, as most of them are.

There are occasional hints of politics. Earlier this year the University of Maryland’s institute organised an exhibition of photographs from the Tibetan plateau. At an opening ceremony a senior Chinese diplomat made a speech criticising the Dalai Lama. The pictures, he said, showed the “remarkable social changes and improvement” in Tibet under Chinese rule and demonstrated that Tibet had been “part of China since ancient times”. But the website of the Confucius Institute in Edinburgh promotes a talk by a dissident Chinese author whose works are banned in China. Even the Pentagon has been helping to fund some language courses at Confucius Institutes under the National Security Language Initiative, launched by George Bush in 2006 to promote the study of “critical-need” languages.

The late Samuel Huntington, in his 1996 bestseller “The Clash of Civilisations and the Remaking of World Order”, describes a Confucian world, with China at its centre, that will find itself in growing conflict with the West. This is the kind of view that the Confucius Institutes are intended to dispel. Mr Liu, a long-time physics professor at the university, says his mission is to promote cultural understanding. He speaks of the “amazing similarity” between Confucian teachings and George Washington’s etiquette guide, “Rules of Civility and Decent Behaviour in Company and Conversation”.

Some American officials grumble that Chinese universities are far less receptive to America’s cultural-promotion efforts than American ones are to China’s. But as one comforts himself, “if you’re in a system that’s that paranoid, your soft power is self-limited.”

A special report on China and America

Overkill

Oct 22nd 2009
From The Economist print edition

China is piling up more weapons than it appears to need

WHEN Hillary Clinton said in January that America should exercise “smart power”, Chinese officials and commentators pricked up their ears. Here was a neat way of describing, some of them said, what China too was trying to do: find the right mix of military might, cultural influence and economic clout—hard power and soft power—to secure its place in the world. Yet both countries are at risk of dangerously mishandling this exercise in carefully calibrating their dealings with each other.

AFPA sight to terrify the enemy

China’s demonstration of military might and authoritarian muscle on October 1st, its national day, was one recent example of how its judgment can go awry. The parade of thousands of goose-stepping troops through central Beijing, along with military hardware intended mainly to intimidate America and its quasi-ally Taiwan, was a throwback to the imagery of cold-war days. It did not help that dissidents were rounded up and the public kept away from the event (except on television).

Such scenes touch raw nerves in America, where intellectual and political opinion has long been bitterly divided over how to assess China’s rise. Left-wing Democrats, alarmed by China’s human-rights abuses, find themselves in league with right-wing Republicans who see China as a new Soviet Union, to be distrusted and contained. The October 1st extravaganza also worried a third, more centrist, camp: those who see the Communist Party’s resort to nationalism as a sign of its weakness and of China’s vulnerability to upheaval that could have damaging global consequences.

Mr Obama’s smart-power strategy towards China resembles that of his predecessor, George Bush, who after the attacks of September 11th 2001 abandoned talk of China as a “strategic competitor” and sought instead to downplay differences. China, no less smartly, began in 2003 to emerge from its diplomatic shell by organising six-nation talks to deal with the nuclear crisis on the Korean peninsula. By the middle of this decade it had also begun to back away from its belligerent rhetoric on Taiwan (while continuing to amass more weaponry should it ever wish to attack the island). America breathed easier.

The Centre for Strategic and International Studies, a think-tank in Washington, DC, that helped popularise the notion of smart power with a study on American foreign policy in 2007, issued a report in March which drew attention to a “strategic mistrust” between the two countries’ leaders. American policymakers, it said, should start a “new narrative” and show respect for China’s status as a rising power. Mr Obama, who has put more emphasis than Mr Bush did on China as a solver of global problems, appears to agree.

America’s friendly rhetoric may help to secure more constructive thinking in Beijing about issues such as tackling climate change or dealing with North Korea. But the intractable problem of Taiwan will continue to fuel a dangerous escalation of the two countries’ hard-power capabilities with respect to each other. In the realm of soft power (a term defined by Joseph Nye, a Harvard professor and former senior official, as a country’s ability to persuade or influence others without the threat of force), China has only recently begun to play a global part. Its efforts so far, whether in securing oil and mineral deals in Africa or in trying to promote its view of the world through the internet, have often merely raised American hackles.

Unlikely but not unthinkable

On the military side, the Pentagon worries that China is acquiring capabilities that go beyond what is needed to deal with possible conflict over Taiwan. China does not speak publicly of displacing American power in Asia. It has good reasons, indeed, to support it, given that America’s presence helps to deter North Korean aggression against South Korea, keep Japan from becoming militarily more assertive and protect shipping lanes in South-East Asia. But China’s military build-up, which began to gather pace in the late 1990s and has shown no sign of slacking, could one day tempt Chinese leaders to think that they could fight and win a war, either over Taiwan or over a host of mostly uninhabited islands whose sovereignty China disputes with countries from Japan to Malaysia.

China’s growing armoury would make it far more difficult for America to respond to a crisis in the Taiwan Strait in the way it did in 1996 when it sent two aircraft-carrier battle groups close to the island. The Pentagon says China is developing medium-range ballistic missiles that could be guided to their targets far out into the Pacific beyond Taiwan: a clear threat to the American navy. Medium-range missiles are also being targeted at American bases in Japan and Guam. China, says the Pentagon, has the biggest missile programme of any country in the world.

Although it is well aware of the dangers of misunderstandings, China has brushed off repeated American overtures for more dialogue. Talks between the two armed forces typically sputter on for a few months before being called off again by China to express its disapproval of American military support for Taiwan. There have been glimmers of progress. This year multinational anti-piracy operations in the Gulf of Aden (China’s first active naval engagement beyond Asia) saw Chinese and American ships operating in the same zone and communicating with each other in a friendly enough manner.

But Pentagon officials have never been allowed to visit the headquarters of the Chinese armed forces, an underground facility in the Fragrant Hills west of Beijing. Attempts by the Pentagon over the past few years to persuade the chief of China’s strategic nuclear forces to visit America have so far failed (although he has visited other countries). In 2008 the two countries agreed to establish a hotline between their two defence ministries. But for unexplained reasons the two sides did not use it when Chinese boats harassed an American surveillance ship, the Impeccable, in the South China Sea in March.

Few expect rapid progress. Dennis Wilder, a former adviser to the National Security Council under President Bush, says there is a dangerous lack of knowledge even about basic issues such as China’s nuclear-alert system. China has a few dozen land-based nuclear missiles capable of hitting some or all parts of America and is soon expected to deploy them on submarines. America’s nuclear force is far larger, but as Richard Bush and Michael O’Hanlon of the Brookings Institution argue in a book published in 2007, nuclear war between the two countries over Taiwan is not unimaginable.

No less worrying to the Pentagon is what appears to be a lack of effective communication between the Chinese armed forces and other parts of the bureaucracy. This was evident in April 2001 when an American EP-3 military spyplane hit a Chinese fighter jet off the Chinese coast. American officials believe the crisis was escalated by distorted information that was fed to Chinese leaders by the armed forces before other departments were able to weigh in with sounder analysis. It seemed that the Chinese armed forces did not promptly inform China’s foreign ministry about the Impeccable incident.

China bristles at any American suggestion that its behaviour could be construed as threatening. America’s latest National Intelligence Strategy, the first issued by the Obama administration, makes one brief mention of China, saying that its “increasing natural-resource-focused diplomacy and military modernisation are among the factors making it a complex global challenge.” This statement of the obvious was enough to trigger howls of protest. The Chinese foreign ministry called on America to abandon its “cold-war mentality and prejudices”. At an annual gathering of regional defence ministers in Singapore earlier this year, a speech by the deputy Chinese chief of staff, Ma Xiaotian, was sprinkled with critical allusions to American “cold-war” behaviour in Asia.

China has reason to feel uncomfortable about the imbalance between its own military power and America’s. American ships and spy planes claim the right to operate only 12 nautical miles from the Chinese coast (a boundary observed by Soviet and American military craft off each other’s coasts during the cold war). They routinely come closer than the 200-mile boundary that China insists on. China does not have the means to project its power anything like as close to America’s shore, and shrewdly refrains from suggesting that it would like to.

But some Americans worry that China could make a cold war with America a self-fulfilling prophecy by trying to acquire more of the trappings of a global military power. For example, China is quietly developing its first aircraft-carrier. The Pentagon reckons the country is unlikely to have one in operation before 2015, but is considering building at least two by 2020, along with associated vessels. “The Indians have one, the Italians have one, so why can’t China have one?” asks a Chinese general.

Pentagon officials profess not to worry. America’s navy would be well equipped to deal with a Chinese carrier-borne force, particularly one with little experience (it would be an “easy target”, says one former senior official in the Bush administration). But China’s deployment of a carrier would send a powerful signal that its naval interests are no longer confined mainly to coastal defence. A senior Chinese officer once quipped to Admiral Timothy Keating, who is about to retire as America’s top commander in the Pacific, that when China has aircraft-carriers the two countries should draw a line down the middle of the Pacific through Hawaii to define their spheres of operation. Mr Keating politely declined.

Culture wars

On the soft-power side, China is slowly learning. After much complaining from Western politicians and NGOs, it has used its considerable economic clout to give Sudan and Myanmar at least little nudges towards accommodating Western concerns in those countries (less so, however, in the case of Iran). Soft power was mentioned for the first time by a Chinese leader in public in 2007. Culture, said Mr Hu (oblivious, it seemed, of the cold-war overtones of his remarks), was of growing significance in the “competition in overall national strength”. China should therefore “enhance culture as part of the soft power of our country”.

A cursory glance at the streets and shops of Chinese cities suggests what Mr Hu may have had in mind: the all-pervasiveness of American brands and cultural products, from Coca-Cola to (pirated) boxed sets of a comedy series, “Friends”, from Kentucky Fried Chicken to Starbucks. America’s intellectual drawing power is evident in the queues of students waiting for visas at the American embassy: in the 2007-08 academic year more than 81,000 Chinese were studying in American colleges. Such exposure to American ideas does not always work in America’s favour. Many of the nationalists who have staged protests against America in recent years have been members of an internet-savvy generation immersed in American popular culture. But the Chinese government now hopes that by taking its own cultural message to foreigners it can help to convince them that China’s rise is nothing to be feared (see next article).

Bagehot

Time for a novice

Oct 22nd 2009
From The Economist print edition

How the country is secretly run by the young

Illustration by Steve O'Brien

THE greybeards are back, some in rumour but others in fact. The Conservatives deny reports that Michael Heseltine, aka Tarzan, is set to return to government in a putative Tory administration; but other veterans are likely to serve alongside Ken Clarke, now the shadow business secretary, who will be 70 soon after the general election expected next year. The infatuation with youth, which helped to secure the Tory leadership for David Cameron and that of the Liberal Democrats for Nick Clegg, seems to have waned—on the surface of politics, at least.

For Bagehot, perhaps the most intriguing overall lesson of the party-conference season was the extreme youth of many of those in important positions in the party hierarchies, making policy and conducting high-level negotiations. This is one of the hidden features of the political machine: the callow age of many of its cogs, including some big ones.

The office of George Osborne, the shadow chancellor, generates many of the Tories’ best ideas, and some less good ones. Mr Osborne himself is 38, stunningly young for a would-be chancellor. But he seems venerable beside his advisers. His fecund brains trust comprises Rohan Silva (28) and Rupert Harrison (30). Matthew Hancock, his chief of staff, has just turned 31.

It isn’t only the Osborne nursery. News footage of Mr Cameron on the night before his conference speech showed the leader conversing with his wife, Mr Osborne, William Hague (the shadow foreign secretary)—and Ameet Gill. Mr Gill is Mr Cameron’s main speechwriter. He is 27. The head of the party’s policy unit is 33. Interview a shadow minister and you will often find him accompanied by a scowling young press officer; it can be hard to decipher who is managing whom. Many of these rising Tory stars were inducted into politics when it was dominated by Tony Blair. They acquired a Blairite grasp of presentation and a focus on electability, as well as a reverence for new technologies.

Something similar is true of Labour. Gordon Brown once bragged to George Bush that he had ministers in his cabinet who were under 40. Some less conspicuous but quietly influential players in government are younger still. Torsten Henricson-Bell is a former Treasury civil servant and now a political adviser to Alistair Darling, the chancellor. Mr Henricson-Bell is highly regarded in Whitehall; he is said, in the parlance, to be able to “deliver” (ie, speak for) his boss. He is 27 too. Mr Brown’s own speechwriter is said to be 29. There are some boyish members of his policy unit, an outfit that deserves more credit than it tends to get: its output is mangled by the politicians.

Of course, politics is not the only sphere in which people assume awesome responsibilities at a tender age (the army is another), or in which careers now tend to peak earlier than they did. And thrusting young researchers and special advisers are a long-established feature of it. An even fresher-faced Mr Cameron worked for assorted members of the previous Tory government, as, somewhat forlornly, Mr Brown often points out. Under Mr Blair, twenty-somethings proliferated: Ed Miliband, Ed Balls and others advised ministers before becoming ministers.

The triumph of youth

But the decisions taken in politics are unique in their reach and repercussion. And the phenomenon is especially striking now because the challenges—war, recession, the restructuring of the economy and the disgrace of Westminster—are so grave. Does it matter that so many of those in the business are so green?

One reason for the preponderance of young apparatchiks is common to other high-pressure professions—management consultancy, say, or parts of the civil service. It is a form of institutionalised exploitation that, like bullying in public schools, is handed down between generations. Contrary to popular belief, politics is gruellingly hard work, especially in the epoch of 24-hour media and instant rebuttal. Most of the young advisers stress how privileged they feel to be involved, etc; but they are, in essence, sweated labour, unencumbered and energetic enough to work inhumane hours for less money than they could earn elsewhere.

Old(er) politicians bring political know-how and thick skins: a less weathered person might not have endured the opprobrium that Mr Brown has withstood. The young, at least by their own account, offer ideas and intellectual vitality, unconstrained by ingrained consensus and past failures. And in a world dominated by the icons and references of popular culture, which politicians are expected to recognise, they can provide tactical insights into it. (The “zeitgeist tape” that a middle-aged minister is forced to watch in “The Thick of It”, a satirical television series, is only a mild exaggeration of reality.)

The kids have drawbacks, however. Damian McBride was 34 when his puerile antics led to his sacking as Mr Brown’s political spokesman, and some years younger when he started spinning (his successor Michael Dugher, also 34, is much soberer). Experience, rather than wisdom, may be the main deficiency. Much of the substance of politics—pensions, child-rearing and so on—is grimly adult: too much of it, arguably, an imbalance that may reflect older people’s greater propensity to vote. To many of those devising solutions, these problems are distant and hypothetical.

Still, lack of personal experience does not disqualify someone from holding valid opinions, if curiosity and hard work compensate. And the young plainly have no monopoly on gross misjudgment. Probably the triumph of youth is less a worry than a startling and contradictory oddity. The thrust of political discourse is that serious times call for mature statesmen. Superannuation, rather than sprightliness, is ostensibly in vogue. But, contrary to Mr Brown’s famous dictum, beneath the rhetoric and behind the scenes, it is indeed time for a novice.

Crime and politics

The velvet glove

Oct 22nd 2009 | HIGH POINT, NORTH CAROLINA
From The Economist print edition

Why the soft approach sometimes works

Getty Images

LOOKING after small children is never easy. Many dribble; some bite. But for Joyce Chavis, the problem until a few years ago was that she could not let toddlers in her care step outside her house. The street was packed with prostitutes. Drug-dealers loitered aggressively with pit bulls at their heels. In the local playground the bushes concealed only some of the things that crack-addicted young women were doing to earn their next fix.

Until 2004 the West End neighbourhood in High Point, North Carolina, was an open-air drug market. Gun shots punctuated the night. Honest folk were scared to walk to the shops. Jim Summey, a local preacher, recalls a Sunday when his flock could not park because the street was jammed with johns seeking sex and drugs. When he remonstrated with the dealers, they smashed up his car and shot out 58 windows in his church.

Yet West End is now as peaceful as evensong. It is still poor, but thugs with dogs no longer menace passers-by. The prostitutes have gone, or gone indoors. The corners are quiet. What happened?

The High Point police used to deal with drug-dealers in the traditional manner. They would “come rolling in like an occupying army,” as Jim Fealy, the police chief, puts it. They would grab young men, pat them down and arrest the ones with drugs in their pockets. They sent many to jail, but never shut down the drug market for more than a few hours. African-Americans in neighbourhoods like West End detested the police, and the police grew frustrated that no one in these places called them to report crimes.

But then they tried something different. On the advice of David Kennedy, a professor at the John Jay College of Criminal Justice in New York, they started talking to community leaders in West End. They found out who the street drug-dealers were. There were fewer than they had expected: only 16, of whom three were habitually violent. Patiently, they compiled dossiers on each of them. Then they arrested and prosecuted the violent ones, and invited the rest in for a chat.

The young dealers were shown the evidence against them, and given a choice. If they stopped dealing drugs and carrying guns, they would not be prosecuted. A “community co-ordinator” sat down with each of them and asked him what he needed to go straight: a job? Drug treatment? A place to stay? An alarm clock to get to work on time? The community promised to help with all these things. The dealers’ neighbours and even grandmothers stood up and told them that what they were doing was wrong, and had to stop. Then prosecutors warned them that if they did not stop that day, they would be sent to jail, possibly for the rest of their lives.

It worked. Nearly all the dealers reformed, bar the odd bit of shoplifting. You can still buy drugs behind closed doors in High Point, but the intervention was never about drugs. It was about making the neighbourhood liveable again. Fears that the open-air drug market would simply move elsewhere proved unfounded. As the same technique was tried in other neighbourhoods and for other types of crime, such as gang-related muggings, the city’s overall violent crime rate fell noticeably, from 8.7 per 1,000 people in 2003 to 7.3 in 2008.

The debate about crime is often emotional. Voters want vengeance. Politicians oblige. Barack Obama supports the death penalty even though he believes it “does little to deter crime”. It is justified, he says, because it expresses “the full measure of [a community’s] outrage”. Such reasoning is widespread, but Mark Kleiman, the author of “When Brute Force Fails: How to Have Less Crime and Less Punishment”, argues that it is unwise. The only good reason to punish, he says, is to prevent crime, either by locking criminals up so they cannot reoffend, or by deterring others.

More threats, less force

Prison sometimes works. Some credit tougher sentencing for the sharp drop in crime since the early 1990s. The number of incarcerated Americans has quadrupled since 1980, to 2.3m, and many of these people make the streets safer by their absence. But some 500,000 are non-violent drug offenders. And it “ought to bother us” that the incarceration rate for black Americans exceeds that in the Soviet Union at the peak of the Gulag, ventures Mr Kleiman. Incarceration hurts criminals’ friends and relatives. It upsets the sex ratio in high-crime areas, making it very hard for young black women to form stable families. The lesson of High Point is that you can reduce crime by making credible threats, without having to lock up so many people.

To deter, a punishment must be swift, certain and severe. Of these, severity matters the least, reckons Mr Kleiman, and there is a trade-off: the harsher the punishment, the more legal safeguards are required to ensure it is not misapplied. States that execute murderers do so only after decades of appeals. This costs millions in legal fees. So they hardly ever do it, which means it is not much of a deterrent.

It turns out that milder sanctions can be swifter and more certain. For example, in Hawaii, until recently, felons ignored the terms of their probation because the only punishment available was a harsh one: being sent back to prison for the remainder of their term, typically five to ten years. Courts and probation officers were too swamped to handle the necessary paperwork and rebut the legal challenges to such harsh penalties. So violators typically got off scot free. This led people to conclude that they could misbehave with impunity. The chaos only ended when a judge started handing out instant sentences of a week or so. The certain prospect of spending a few days behind bars straight away made most of the probationers behave.

Mr Kleiman suggests several other promising, non-macho approaches to curbing crime. Raise alcohol taxes. Start school days later to prevent after-school crime. Force probationers to wear GPS tags, thus making probation a tough (and much cheaper) alternative to prison. Americans should experiment with such ideas, he says, and if they are serious about justice, the object should be to cut crime, not to make criminals suffer.

Schumpeter

The three habits...

Oct 22nd 2009
From The Economist print edition

...of highly irritating management gurus

Illustration by Brett Ryder

STEPHEN COVEY is fond of telling people that he is writing a book on the evils of retirement, “Live Life in Crescendo”. There is no danger of a diminuendo for this particular guru. Mr Covey is working on nine other books, including one on how to end crime. He also presides over a business empire that is even more sprawling than his ever-growing family (he had 51 grandchildren as The Economist went to press).

Mr Covey has been stretching his brand since 1989, when the publication of “The 7 Habits of Highly Effective People” turned him into a superstar. He followed up with a succession of spin-offs such as “The 7 Habits of Highly Effective Families” and “The 8th Habit”. He is also the co-founder of a consultancy, FranklinCovey, that markets success-boosting tools and techniques. So far the original “7 Habits” has sold 15m copies in 38 languages and three of Mr Covey’s other books have sold more than a million copies.

His stroke of genius was to blow up the wall between management and self-help. “The 7 Habits” mixes the language of management consultancy—“synergy” and the like—with the moral exhortations that you find in Samuel Smiles’s “Self-Help”, Norman Vincent Peale’s “The Power of Positive Thinking” and the 12-step literature put out by Alcoholics Anonymous and its offshoots. Mr Covey insists that the key to success, for both individuals and organisations, is to unleash the power that resides in everyone. “Private victories precede public victories,” as he likes to say.

It is tempting to dismiss Mr Covey as merely a fringe figure. But this would be a mistake. He is a paid-up member of the management-theory club, with an MBA from Harvard. The club contains many serious thinkers, some of whom, such as Clayton Christensen, have endorsed him in glowing terms. He says that he got the idea for “The 7 Habits” in part from the claim of Peter Drucker, the most hallowed of gurus, that “effectiveness is a habit” and that the third (curiously) of the seven habits, “put first things first”, comes straight from Drucker. FranklinCovey claims 90% of Fortune 100 and 75% of Fortune 500 companies as clients.

Nor is Mr Covey the first to mix management with self-help. In the early 1900s Frank Gilbreth, one of the pioneers of industrial psychology, tried to raise his 12 children according to Frederick Taylor’s principles of scientific management. He discovered that you could cut the time it took to shave if you used two razors at once—but then abandoned the idea when he found that it took an additional two minutes to bandage the resulting wounds.

Mr Covey is only an outlier in the sense that he embodies, in an extreme form, many of the most irritating habits of the guru industry, not least the habit of producing numbered lists of habits. Three habits are particularly worth noting.

The first is presenting stale ideas as breathtaking breakthroughs. In a recent speech in London Mr Covey declared capitalism to be in the middle of a “paradigm shift” from industrial management (which treats people as things) to knowledge-age management (which tries to unleash creativity). Gary Hamel, who according to the Wall Street Journal is the world’s most influential business thinker, proclaims, “For the first time since the dawning of the industrial age, the only way to build a company that’s fit for the future is to build one that’s fit for human beings.”

But management gurus have been making this point for decades. William Ouchi announced it in 1981 in the guise of “Theory Z”. Elton Mayo and Mary Parker Follet had made much the same point 60 years before. It makes you long for some out-of-the-box thinker who will argue that the future belongs to companies that are unfit for human beings (which it may well do).

The second irritating habit is that of naming model firms. Mr Covey littered his speech in London with references to companies he thinks are outstandingly well managed, including, bizarrely, General Motors’ Saturn division, which is going out of business. Tom Peters launched his career with “In Search of Excellence” in 1982. Jim Collins has written a succession of books celebrating the great and the good of the corporate world.

In search of rigour

But do these corporate hagiographies prove anything? The gurus routinely ignore such basic precautions as providing a control group. Five years after “In Search of Excellence” appeared, a third of its ballyhooed companies were in trouble. Andrew Henderson of the University of Texas has recently subjected “excellence studies” to rigorous statistical analysis. He concludes that luck is just as plausible an explanation of their success as excellence.

The third irritating habit is the flogging of management tools off the back of numbered lists or facile principles. Mr Covey reinforces his eight habits with various diagnostic devices such as “the XQ test” (which measures organisational efficiency much as an IQ test measures intelligence). Consultancies like to tell their clients that the key to success lies in “customer-relationship management” and then sell tools to improve it.

But most of these rules are nothing more than wet fingers in the wind. Gurus preach the virtues of “core competences”. But in the developing world many highly diversified companies are sweeping all before them. Customer-relationship management is all about learning about and from your clients. But Henry Ford pointed out that if he had listened to his customers he would have built a better horse and buggy.

Which points to the most irritating thing of all about management gurus: that their failures only serve to stoke demand for their services. If management could indeed be reduced to a few simple principles, then we would have no need for management thinkers. But the very fact that it defies easy solutions, leaving managers in a perpetual state of angst, means that there will always be demand for books like Mr Covey’s.

A special report on China and America

A wary respect

Oct 22nd 2009
From The Economist print edition

America and China need each other, but they are a long way from trusting each other, says James Miles (interviewed here)

Eyevine

“OUR future history will be more determined by our position on the Pacific facing China than by our position on the Atlantic facing Europe,” said the American president as he contemplated the extraordinary commercial opportunities that were opening up in Asia. More than a hundred years after Theodore Roosevelt made this prediction, American leaders are again looking across the Pacific to determine their own country’s future, and that of the rest of the world. Rather later than Roosevelt expected, China has become an inescapable part of it.

Back in 1905, America was the rising power. Britain, then ruler of the waves, was worrying about losing its supremacy to the upstart. Now it is America that looks uneasily on the rise of a potential challenger. A shared cultural and political heritage helped America to eclipse British power without bloodshed, but the rise of Germany and Japan precipitated global wars. President Barack Obama faces a China that is growing richer and stronger while remaining tenaciously authoritarian. Its rise will be far more nettlesome than that of his own country a century ago.

With America’s economy in tatters and China’s still growing fast (albeit not as fast as before last year’s financial crisis), many politicians and intellectuals in both China and America feel that the balance of power is shifting more rapidly in China’s favour. Few expect the turning point to be as imminent as it was for America in 1905. But recent talk of a “G2” hints at a remarkable shift in the two countries’ relative strengths: they are now seen as near-equals whose co-operation is vital to solving the world’s problems, from finance to climate change and nuclear proliferation.

Choose your weapons

Next month Mr Obama will make his first ever visit to China. He and his Chinese counterpart Hu Jintao (pictured above) stress the need for co-operation and avoid playing up their simmering trade disputes, fearful of what failure to co-operate could mean. On October 1st China offered a stunning display of the hard edge of its rising power as it paraded its fast-growing military arsenal through Beijing.

The financial crisis has sharpened fears of what Americans often see as another potential threat. China has become the world’s biggest lender to America through its purchase of American Treasury securities, which in theory would allow it to wreck the American economy. These fears ignore the value-destroying (and, for China’s leaders, politically hugely embarrassing) effect that a sell-off of American debt would have on China’s dollar reserves. This special report will explain why China will continue to lend to America, and why the yuan is unlikely to become a reserve currency soon.

When Lawrence Summers was president of Harvard University (he is now Mr Obama’s chief economic adviser), he once referred to a “balance of financial terror” between America and its foreign creditors, principally China and Japan. That was in 2004, when Japan’s holdings were more than four times the size of China’s. By September 2008 China had taken the lead. China Daily, an official English-language newspaper, said in July that China’s massive holdings of US Treasuries meant it could break the dollar’s reserve-currency status any time. But it also noted that in effect this was a “foreign-exchange version of the cold-war stalemate based on ‘mutually assured destruction’”.

China is exploring the rubble of the global economy in hopes of accelerating its own rise. Some Chinese commentators point to the example of the Soviet Union, which exploited Western economic disarray during the Depression to acquire industrial technology from desperate Western sellers. China has long chafed at controls imposed by America on high-technology exports that could be used for military purposes. It sees America’s plight as a cue to push for the lifting of such barriers and for Chinese companies to look actively for buying opportunities among America’s high-technology industries.

The economic crisis briefly slowed the rapid growth, from a small base, of China’s outbound direct investment. Stephen Green of Standard Chartered predicts that this year it could reach about the same level as in 2008 (nearly $56 billion, which was more than twice as much as the year before). Some Americans worry about China’s FDI, just as they once mistakenly did about Japan’s buying sprees, but many will welcome the stability and employment that it provides.

China may have growing financial muscle, but it still lags far behind as a technological innovator and creator of global brands. This special report will argue that the United States may have to get used to a bigger Chinese presence on its own soil, including some of its most hallowed turf, such as the car industry. A Chinese man may even get to the moon before another American. But talk of a G2 is highly misleading. By any measure, China’s power is still dwarfed by America’s.

Authoritarian though China remains, the two countries’ economic philosophies are much closer than they used to be. As Yan Xuetong of Tsinghua University puts it, socialism with Chinese characteristics (as the Chinese call their brand of communism) is looking increasingly like capitalism with American characteristics. In Mr Yan’s view, China’s and America’s common interest in dealing with the financial crisis will draw them closer together strategically too. Global economic integration, he argues with a hint of resentment, has made China “more willing than before to accept America’s dominance”.

The China that many American business and political leaders see is one that appears to support the status quo and is keen to engage peacefully with the outside world. But there is another side to the country. Nationalism is a powerful, growing and potentially disruptive force. Many Chinese—even among those who were educated in America—are suspicious of American intentions and resentful of American power. They are easily persuaded that the West, led by the United States, wants to block China’s rise.

This year marks the 30th anniversary of the restoration of diplomatic ties between America and China, which proved a dramatic turning point in the cold war. Between the communist victory in 1949 and President Richard Nixon’s historic visit to China in 1972 there had been as little contact between the two countries as there is between America and North Korea today. But the eventual disappearance of the two countries’ common enemy, the Soviet Union, raised new questions in both countries about why these two ideological rivals should be friends. Mutual economic benefit emerged as a winning answer. More recently, both sides have been trying to reinforce the relationship by stressing that they have a host of new common enemies, from global epidemics to terrorism.

But it is a relationship fraught with contradictions. A senior American official says that some of his country’s dealings with China are like those with the European Union; others resemble those with the old Soviet Union, “depending on what part of the bureaucracy you are dealing with”.

Cold-war parallels are most obvious in the military arena. China’s military build-up in the past decade has been as spectacular as its economic growth, catalysed by the ever problematic issue of Taiwan, the biggest thorn in the Sino-American relationship. There are growing worries in Washington, DC, that China’s military power could challenge America’s wider military dominance in the region. China insists there is nothing to worry about. But even if its leadership has no plans to displace American power in Asia, this special report will say that America is right to fret that this could change.

Politically, China is heading for a particularly unsettled period as preparations gather pace for sweeping leadership changes in 2012 and 2013. Mr Hu and the prime minister, Wen Jiabao, will be among many senior politicians due to retire. As America moves towards its own presidential elections in 2012, its domestic politics will complicate matters. Taiwan too will hold presidential polls in 2012 in which China-sceptic politicians will fight to regain power.

Triple hazard

This political uncertainty in all three countries simultaneously will be a big challenge for the relationship between China and America. All three will still be grappling with the aftermath of the global financial crisis. Urban Chinese may be feeling relaxed right now, but there could be trouble ahead. Yu Yongding, a former adviser to China’s central bank, says wasteful spending on things like unnecessary infrastructure projects (which is not uncommon in China) could eventually drain the country’s fiscal strength and leave it with “no more drivers for growth”. In recent weeks even Chinese leaders have begun to sound the occasional note of caution about the stability of China’s recovery.

This special report will argue that the next few years could be troubled ones for the bilateral relationship. China, far more than an economically challenged America, is roiled by social tensions. Protests are on the rise, corruption is rampant, crime is surging. The leadership is fearful of its own citizens. Mr Obama is dealing with a China that is at risk of overestimating its strength relative to America’s. Its frailties—social, political and economic—could eventually imperil both its own stability and its dealings with the outside world.

Selling foreign goods in China

Impenetrable

Oct 15th 2009 | SHANGHAI
From The Economist print edition

Despite widespread hope that China will help pull the world out of recession, foreigners are finding it as arduous as ever to do business there

Reuters

EVERY year, says Paul French, head of Access Asia, a research firm based in Shanghai, the same company buys the same report from him on the market for a particular product in China. That is because each year the company in question sends a new executive to China with instructions to break into the local market, who soon departs in despair—having failed to find an opening given the (brief) time and (insufficient) resources allotted.

Mr French’s customer is not alone. China accounts for less than 2% of the global sales of drugs giants such as Pfizer, AstraZeneca and Bayer, estimates IMS, another research firm. Procter & Gamble (P&G), a consumer-goods giant, is reckoned to generate only a bit over $3 billion annually in China, less than 5% of its overall sales. Unilever is thought to sell less than half as much; its local operations are barely profitable. AIG, an American insurance firm, was founded in Shanghai and has won greater access to China than many of its competitors. But its operations are still restricted to just eight cities. Analysts suspect its revenues in China are less than in Taiwan, a country with 2% of the population and stiffer competition.

The promise—and frequent disappointment—of doing business in China has been a common theme since at least the 19th century, when weavers in Manchester were said to dream of adding a few inches to every shirttail in China. Thanks to recession at home, foreign firms are keener than ever to capitalise on China’s growth. But Europe and America’s exports to China have remained broadly flat over the past year and amount to less than 7% of the total, even though shrinking exports to other countries flatter the figure. Even if the Chinese economy grows by the official target of 8% this year, the impact on Western firms’ total sales would be little more than a rounding error, says Ronald Schramm, a visiting professor at the Chinese European International Business School.

Many foreign firms, of course, are doing well in China, especially at the two extremes of the value chain: things like luxury goods, fibre-optic cable and big aeroplanes on the one hand, and oil, ores and recyclable waste on the other. But in between, both explicit legal impediments and hidden obstacles continue to hamper access to Chinese customers, despite China’s promises of reform when it joined the World Trade Organisation (WTO) in 2001. Publishing, telecommunications, oil exploration, marketing, pharmaceuticals, banking and insurance all remain either fiercely protected or off-limits to foreigners altogether. Corruption, protectionism and red tape hamper foreigners in all fields.

Recent reports from three lobbies for foreign businesses, the American Chamber of Commerce in Shanghai, the European Chamber of Commerce in China and the US-China Business Council, bear out this gloomy view. Their biggest gripes have nothing to do with typical business concerns, such as the availability of good staff or high costs. Instead, they complain about subsidised competition, restricted access, conflicting regulations, a lack of protection for intellectual property and opaque and arbitrary bureaucracy.

To operate in China, the Council itself must provide documents from America’s State Department, the Chinese Embassy in America, the cities of Washington and Shanghai, the local tax authorities and the local branch of the State Administration for Industry and Commerce. It takes six months to obtain a one-year licence. At least there is an established procedure, albeit a costly and cumbersome one. Others are not so lucky: upon joining the WTO, China agreed to allow foreign firms to compete to offer booking systems to local airlines, but according to the European Chamber it has not yet produced the necessary regulations.

Local officials go to great lengths to protect companies on their patch, often by giving them preferential access to land or credit, or by easing bureaucratic constraints for them. All the red tape would at least provide plenty of work for multinational law firms, were they permitted to employ Chinese lawyers—which they are not. The government, by dint of its control of the media, also controls advertising rates. That makes the cost of reaching a consumer in China higher than in many Western countries, although the potential rewards are much lower since most Chinese are so much poorer, says Tom Doctoroff, the boss of JWT, an advertising firm. There is little reliable business news (see article).

Firms that have managed to overcome these obstacles tend to produce locally in China; their products are perceived to be of high quality (few foreigners succeed by undercutting prices) and they have invested tremendous amounts of time and effort building distribution networks and raising awareness of their brands. Take Goodyear, an American tyremaker. It has had to find local partners for all of its 760 dealerships in China, who in turn had to obtain permits from the authorities. It has got around the state monopoly on advertising by deploying its trademark blimps, and pre-empted objections to that by using them to advocate a worthy cause: safe driving.

As always, there are local tastes to consider too. Chinese consumers seem to have even more of a taste for variety than most. P&G produces its Crest brand of toothpaste in a mouth-watering array of flavours, including lemon, tea, strawberry, salt and honey. A similar proliferation of offerings has served Nokia, the world’s biggest handset-maker, well too.

One strategy that has brought success to several foreign firms has been to charge high prices—a surprise, given that earnings in China remain quite low. A survey by the Nielsen Company concludes that Chinese believe that foreign brands are more expensive, even when they are not. That suggests that they should aim to compete on quality rather than cost. At any rate, Apple, General Motors and Levi Strauss all sell certain products at higher prices in China than elsewhere. So do many luxury brands. But relatively few foreign firms have managed to reap such rewards.