Miles Yu warns Communist China gaming free-market to gain world domination

China is exploiting access to the capitalist economic system to achieve global dominance and ultimately seeks to control the world economy, two former Trump administration China experts warned a congressional commission on Thursday.

Miles Yu, former State Department policy planning official for China, said the U.S. must demand strict reciprocity in dealing with the Chinese Communist Party to level the economic playing field and prevent Beijing from achieving its goals.

“If there’s one thing that every American should understand about the People’s Republic of China, it is that it is a communist dictatorship ruled by a Marxist-Leninist party,” Mr. Yu told a hearing of the U.S.-China Economic Security and Review Commission.

“However, unlike most other communist countries, China has been afforded the benefits of a global free market system. It enjoys largely open access to international trade, capital markets and advanced technologies.”

Unfettered access to the international capitalist system has fueled China’s economic rise, empowered the Chinese government and undermined democratic, free market systems, he argued.

As a result, “Beijing poses a mortal threat to the United States and to the very international   economic system that has enabled the rise of the communist state,” said Mr. Yu, now with the Hudson Institute.

Matt Pottinger, until January deputy White House national security adviser, urged Congress to codify into law the tough Trump administration actions that blocked China from access to some American capital markets and financial institutions. The American strategy should include curbing the billions of dollars in capital flows from U.S. business into China’s intertwined military-industrial complex.

“Somehow Wall Street missed the memo that Beijing is waging an existential fight whose objective is ‘the eventual demise of capitalism and the ultimate victory of socialism,’ to quote Chairman Xi [Jinping],” Mr. Pottinger said. “It’s not too much to require American index funds, university endowments, pensions, and venture capital firms to stop funding the expansion of the Chinese empire.”

“Let Beijing finance its own bid for world domination,” he added.

The two prominent China critics laid out the case against Beijing at a virtual hearing of the congressional U.S.-China Economic and Security Review Commission examining the publication of China’s latest five-year economic plan.

Under Beijing’s so-called military-civilian fusion plan, China is obtaining large amounts of American and Western technology and know-how. Mr. Yu said the Chinese system of secrecy poses a threat to Western businesses.

“Lack of transparency endangers American investors, as many of the Chinese state-owned companies listed on Western capital markets provide vague and opaque information, often keeping their financial records hidden from regulators and investors in free market countries,” he said.

Socialism and open markets

An important first step for the United States and liberal international economic order is to recognize the political and ideological differences between China’s socialist system and systems that rely on open markets.

“A fully free market system of international trade cannot coexist peacefully with a ‘socialist market economy with Chinese Communist Party characteristics,’” Mr. Yu said. “We should face the reality and redress the biggest foreign policy failure of the past half a century.”

Critics say that failure involved successive U.S. administrations that ignored or underplayed differences between the Chinese and non-communist model, and engaging China in the hope of bringing Beijing into the world capitalist system.

“Not only have we not changed the Chinese Communist Party with such thinking, the party is now poised to change us,” Mr. Yu argued. “It is trying to remake the global order in its own image.”

He proposed that the U.S. should counter China’s annual “Negative List” — a list identifying foreign companies restricted from investing. “A reciprocal response would prohibit Chinese investments in the United States,” he said. Areas to be restricted for Chinese investment should include agricultural, critical minerals mining, news organizations, film studios, cinemas and theater chains and cultural performance troupes.

Private companies also should be protected by congressional legislation that would allow them to file complaints about economic discrimination by Beijing.

“The ban on Facebook and Twitter in China should not be a Facebook and Twitter problem, but an American problem,” Mr. Yu said.

Also, he said, action is needed to counter Beijing’s large-scale lobbying effort, an effort that involves a “permanent class of China lobbyists and registered agents for China whose job is to sell corporate America access to senior Chinese officials so that they can continue making big profits and not offending the CCP autocrats.”

Mr. Pottinger, also now with the Hoover Institution, said the Justice Department should increase anti-monopoly actions against both American companies and Chinese state-backed monopolies.

Huawei Technologies, he noted, was indicted under U.S. racketeering laws that essentially pegged the technology giant as a criminal enterprise.

“How many other Chinese ‘national champions’ play by the same rules as Huawei?” Mr. Pottinger said. “Let’s ask the Department of Justice to find out.”

The China hawks also argued that U.S. officials need to use democratic ideals in the competition with China.

“Beijing has weaponized almost everything it can think of — trade, data, loans, fishing vessels, social media, diplomats, genetics, you name it,” Mr. Pottinger said. “The one thing the Communist Party can’t weaponize effectively is what it stands for, because the only thing it stands for is its own power. We must never, ever neglect the advantage of our values in this fight.”

Mr. Yu said China’s centralized regime commands enormous material and financial resources to engage in economic expansionism through programs like President Xi’s Belt and Road Initiative. The initiative is a global infrastructure finance and development program that critics claim is a stalking horse for expanding China’s influence with developing countries.

Targeting business

China’s economic power is also fueling a large-scale military buildup of both conventional and nuclear forces, along with asymmetric weapons in areas like space, cyber, deep sea and biogenetics, Mr. Yu said, while the government’s monopoly on power “also allows Beijing to impose strict control over financial resources, forcing non-state businesses to rely on state financing and banking institutions.”

Foreign businesses in China also must deal with strict currency controls that limit taking profits from China, forcing further investments.

After several decades of loosened controls, the Beijing government has begun cracking down on wealthy Chinese who are subjected to extralegal arrests and financial ruin, Mr. Yu said.

“In the past 15 years alone, no fewer than 27 Chinese billionaires have been arrested — the charges range from the bizarre to the absurd,” he said. “In America, we celebrate those who make it on the Forbes billionaires list. In China, getting on the Hurun rich people’s roster can be like being added to a hit list.”

Mr. Pottinger warned that Chinese economic coercion of Australia’s government is a harbinger of how China will seek to expand its influence globally.

After Australia proposed a World Health Organization investigation into the origins of the COVID-19 pandemic, Beijing began restricting imports of Australian beef, barley, wine and coal, exports on which the Australian economy heavily relies. The restrictions were followed by draconian demands by Beijing on Canberra.

“After punishing Australian businesses for months, Beijing released a list of 14 ‘disputes’ that are, in effect, political demands made of the Australian government,” Mr. Pottinger said.

China demanded that Australia repeal recently passed laws aimed at curbing Chinese covert influence operations, silence criticism of China in Australia’s free press, and back China’s disputed claims to territory in the South China Sea.

“Fortunately, the United States, our allies, and much of the world have wised up to Beijing’s goals,” Mr. Pottinger said.

Mr. Pottinger said the action taken by the Trump administration that most angered Beijing was the designation that China was engaged in genocide against the ethnic Muslim Uyghurs in China’s far western Xinjiang region.

“That should tell you something about the vulnerability and catastrophic anxiety of the Communist Party,” he said. “Congress has an important role to play here by using every opportunity to speak with candor to our businesses, our allies, and our adversaries about what Americans stand for, and who we stand up for.”