In How I’ll Respond to China’s Rising Power Mitt Romney uses the Wall Street Journal opinion pages to lay out a high level approach to China. Mr. Romney’s piece is long on invective and attacks on President Obama but short on concrete policies. Mr. Romney, who has made a fortune in part by benefiting from the decades-long trends of globalization and blind adherence to free trade ideology, appears to have read James Mann’s prescient book The China Fantasy (2007).
First, highlights from the op-ed:
With China’s billion-plus population, its 10% annual average growth rates, and its burgeoning military power, a China that comes to dominate Asia and much of the globe is increasingly becoming thinkable. The character of the Chinese government—one that marries aspects of the free market with suppression of political and personal freedom—would become a widespread and disquieting norm.
But the dawn of a Chinese century—and the end of an American one—is not inevitable. America possesses inherent strengths that grant us a competitive advantage over China and the rest of the world. We must, however, restore those strengths…
In the economic arena, we must directly counter abusive Chinese practices in the areas of trade, intellectual property, and currency valuation. While I am prepared to work with Chinese leaders to ensure that our countries both benefit from trade, I will not continue an economic relationship that rewards China’s cheating and penalizes American companies and workers.
Unless China changes its ways, on day one of my presidency I will designate it a currency manipulator and take appropriate counteraction. A trade war with China is the last thing I want, but I cannot tolerate our current trade surrender…
A nation that represses its own people cannot ultimately be a trusted partner in an international system based on economic and political freedom. While it is obvious that any lasting democratic reform in China cannot be imposed from the outside, it is equally obvious that the Chinese people currently do not yet enjoy the requisite civil and political rights to turn internal dissent into effective reform…
The sum total of my approach will ensure that this is an American, not a Chinese century. We have much to gain from close relations with a China that is prosperous and free. But we should not fail to recognize that a China that is a prosperous tyranny will increasingly pose problems for us, for its neighbors, and for the entire world.
Last year I wrote in James Mann And His Prescient Book “The China Fantasy” that:
Mr. Mann lays out three general scenarios for China. In the first, the “soothing scenario”, trade and engagement with China brings capitalism, political liberalization and eventually democracy (Western-style democracy, not the intra-party democracy China has introduced). In the second, the “upheaval scenario”, China is headed for chaos, disintegration and collapse (see Gordon Chang and his now two decades of foolishness on this topic).
His third scenario is the most controversial. It also increasingly appears to be the most prescient. For the third scenario Mr. Mann asks:
What if China manages to continue on its current economic path, yet its political system does not change in any fundamental way? What if, twenty-five or thirty years from now, a wealthier, more powerful China continues to be run by a one-party regime that still represses organized political dissent much as it does today, while at the same time China is also open to the outside world and, indeed, is deeply intertwined with the rest of the world through trade, investment and other economic ties? Everyone assumes that the Chinese political system is going to open up—but what if it doesn’t? What if, in other words, China becomes fully integrated into the world’s economy, yet it remains also entirely undemocratic?
Mr. Mann was asking the right questions five years ago, and it is good to see that a presidential candidate understands the challenges America faces, even if he is long on provocative rhetoric and short on substance or credible policies.
As for the question of hypocrisy in the title of this post, my understanding is that Mr. Romney still benefits financially from all Bain Capital investment funds, even though he long ago left the firm and stopped participating in investment decisions. Last month Bloomberg wrote that “though he retired from Bain in February 1999, Romney, 64, continues to benefit from the firm’s profitable private equity funds and to invest alongside them in so-called “co- investment” vehicles.”
Assuming that is correct, that means Mr. Romney has likely profited from Bain Capital’s investment in Chinese Youtube clone Youku. Youku is listed on the New York Stock Exchange, Bain Capital was an early investor, a Bain Capital executive sits on Youku’s board, and I believe the firm has made more than $100m on its investment.
I use Youku, have friends who work there (or did before this post), and think it has one of the best management teams of all the Chinese Internet companies. The company is now a staunch defender of foreign and Chinese copyrights and a partner to many American video rights holders.
However, in its early days Youku was a pirate’s den of copyright infringement (of both foreign and Chinese content) and had it not ignored intellectual property rights it is unlikely it would be as successful as it is today. Remember, in his WSJ op-ed Romney writes “we must directly counter abusive Chinese practices in the areas of trade, intellectual property, and currency valuation.”
Youku, like all Chinese Internet companies, has to obey China’s laws and regulations, which include censoring content and limiting free speech. In the op-ed Romney also emphasizes “the character of the Chinese government—one that marries aspects of the free market with suppression of political and personal freedom.”
So tell us Mr. Romney, did you profit from Bain Capital’s investment in Youku?
I have investments in China and have no fundamental problems with investing money here. But I am also not running for president and bashing China to pander for political points.
Mitt Romney should itemize all the China investments he currently holds or once held, directly or through any funds, Bain Capital or otherwise, and he should disclose how much he has made from them.
I realize that calling a presidential candidate a hypocrite is about as insightful as saying dogs slobber, but we can always hope for better, right?