Commentary / World

Crisis exposes China's institutional problems

by Stephen R. Nagy

The health effects of the COVID-19 pandemic are obvious. Perhaps more worrisome is what the outbreak means for global economic prospects and our ability to understand and rely upon decision-making within the Chinese government’s black box.

A question that comes to mind is what is the reliability of governance under Xi. It was the hardening of authoritarian rule that created the conditions for the COVID-19 outbreak to be mismanaged so disastrously. Now it is a pandemic. Worse still, it has the potential to push many economies into recession and usher in a transnational disease epidemic into regions that are unprepared economically or materially for it.

Other questions include how widespread is the decision-making process breakdown in China? Is the health sector the tip of the iceberg in terms of the calcification of the decision-making process? Are there appropriate control mechanisms over the People’s Liberation Army’s maritime, land, space and cyber forces? What about the ability of Beijing to manage a “made in China” financial crisis as we saw in the 2008 financial crisis?

The reliability of the Chinese state is now in question as governments, business, and the non-state sector will inevitably engage in a COVID-19 epidemic post-mortem.

There are many examples to suggest that the decision-making process is frozen, resulting in decisions not being made as we saw in the early phase of the COVID-19 crisis or in the poor quality of information provided to the central government in the 2019 Hong Kong District Council elections in which pro-Beijing candidates were ousted in favor of local representatives. In both cases, either accurate information was not given to the central government or decisions were suppressed at the local level for fear reprisal.

Policymakers in Japan and other countries should be raising questions as to what is the robustness and quality of the decision-making processes in other theaters such as the East China Sea, South China Sea and Taiwan Straits. These are zones of friction and frequent interaction between the PLA Navy and the U.S. as well as critical sea lanes of communication. After the COVID-19 outbreaks mismanagement, one must wonder about the decision-making process in these zones of tension and how another poor decision could lead to an incident or worse the onset of a regional conflict.

The potential for accidental conflict in these zones is amplified by the lack of a crisis management mechanism between major stakeholders and a shared understanding of the rules of engagement as we saw between the U.S. and the Soviets during the Cold War.

Another area of concern is the global institutions that are being put forward by Beijing such as the “Belt and Road” initiative. Hitherto, the BRI has lacked transparency and there are substantive concerns about fiscal and environmental sustainability of projects under Xi’s signature initiative.

If the decision-making process is broken down between the local and central government in China, what does that mean for projects in the BRI and the recently advocated third-country infrastructure cooperation between Japan and China?

Can Japanese partners rely on their counterpart’s ability to commit to bilateral agreements without explicit sanctioning by the top leadership in Beijing? The lack of answers to these questions suggests prudence as a necessity approach in cooperation in third countries.

In an environment in which decision-making is problematic, an even bigger concern is Beijing’s ability to manage a “made in China” financial crisis, as we saw in 2008 with the global financial crisis.

The COVID-19 response by Beijing has slowed the spread of the coronavirus to a trickle in China while at the same time it has seriously disrupted supply chains that China and the rest of the world depends on for economic growth.

What would be Beijing’s decision-making process in the event of a financial crisis? Would countries rally around Beijing in the way they rallied around Washington in the weeks following the global financial crisis?

The answer here is again not as simple as it appears. Working with Washington in the wake of the global financial crisis was relatively easy considering the U.S.’ transparent legal system, its decades of working with in the global financial system, and the comparatively transparent decision-making process.

Working with Beijing in this regard may prove more difficult in the wake of the failures of the decision-making process during the initial outbreak of COVID-19, the lack of transparency of its legal system, and the continued preference for rule by law versus rule of law.

Xi himself has said that China must never adopt constitutionalism. In other words, there will be no checks and balances on the party and what it wants to do. With no checks and balances on the party, a lack of transparency in decision-making, states will vacillate in working with Beijing in the event of a “made in China” financial crisis.

As difficult as it may be, Beijing can allay these concerns by focusing on transparency, strengthening its legal system such that it meets standards associated with responsible stakeholders.

Beijing’s COVID-19 response exposed decision-making problems that are deeply inculcated into China’s authoritarian system. These problems are likely not just relegated to its response to a transnational disease crisis like COVID-19. On the contrary, they are likely found in most parts of China’s government to varying degrees.

Japan and other states should ensure that their interactions with Beijing are based on transparency, reciprocity and rules-based behaviour. They must also continue to collaborate and find shared solutions to make the Chinese black box of decision-making more transparent and predictable.

The consequences of China’s response to the COVID-19 crisis only re-enforces the need to maximize engagement with Beijing to foster transparency and rules-based behavior. Simultaneously, the cascade of negative ramifications stemming from China’s political system’s inability to quickly contain the COVID-19 outbreak should be a critical juncture in how states think about their comprehensive relationship with China and the need to not be overly dependent on China for their prosperity.

Stephen R. Nagy (@nagystephen1) is a senior associate professor at the International Christian University and a visiting fellow at the Japan Institute for International Affairs.

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