George Soros on China: Remarks Delivered at the Hoover Institution January 31, 2022
The following remarks were delivered at the opening of a Hoover Institution panel—China on the Eve of the Winter Olympics: Hard Choices for the World’s Democracies—on January 31, 2022.
2022 will be a critical year in the history of the world. In a few days, China—the world’s most powerful authoritarian state—will begin hosting the Winter Olympics, and, like Germany in 1936, it will attempt to use the spectacle to score a propaganda victory for its system of strict controls.
We are at, or close to, important decisions that will determine the direction in which the world is going. The German elections have already occurred, the French elections will take place in April 2022. In that same month, Hungary’s voters—against great odds—may turn an authoritarian ruler out of power. Together with Putin’s decision whether to invade Ukraine, these developments will help determine the fate of Europe.
In October, China’s 20th Party Congress will decide whether to give Xi Jinping a third term in office as Party General Secretary. Then, the U.S. will hold a crucial mid-term election in November.
Climate change will remain a paramount policy challenge for the world, but the dominant geopolitical feature of today’s world is the escalating conflict between two systems of governance that are diametrically opposed to each other. Let me therefore, define the difference as simply as I can.
In an open society, the role of the state is to protect the freedom of the individual. In a closed society the role of the individual is to serve the rulers of the state.
As the founder of the Open Society Foundations, obviously I am on the side of open societies. But the most important question now is, which system is going to prevail?
Each has strengths and weaknesses. Open societies unleash the creative and innovative energies of people, closed societies concentrate power in the hands of the one-party state. Those are the strengths. The weaknesses are more specific to local and regional conditions. For instance the relationship between the European Union and its member states is still evolving. The EU ought to protect Lithuania, which recognized Taiwan, from an unofficial blockade by China, but will it?The victory of open societies can’t be taken for granted, in a world teetering at the edge of military aggression, both in Ukraine and in Taiwan.
President Biden has generally adopted the right policies. He told Putin that Russia will pay a heavy price if he attacks Ukraine, but the U.S. will not go to war to defend Ukraine. If Putin attacks, his heaviest penalty will be greater TransAtlantic cooperation. Biden won’t make any unilateral concessions but is interested in finding a peaceful solution. The choice is up to Putin.
At the same time, Biden has made it clear to Xi Jinping that if he uses force against Taiwan, China will have to confront not only the U.S. but a larger alliance composed of the AUKUS, that is Australia, United Kingdom and the U.S. and the QUAD that is U.S., Japan, Australia and India, together with a number of other potential allies who have not yet fully committed themselves to joint action, such as South Korea and the Philippines. Japan is the country that has most fully committed itself to defend Taiwan.
On the other hand, Xi Jinping has declared that he is determined to assert China’s sovereignty over Taiwan by force if necessary. He is devoting enormous resources to armaments. Recently he surprised the world by demonstrating a hypersonic controllable missile.
The U.S. has nothing comparable and doesn’t intend to compete. I think that is the right policy because Xi Jinping’s hypersonic achievement doesn’t change the balance of mutually assured destruction that will stop the enemies from attacking each other. The missile is merely a propaganda victory. Still, war between the U.S. and its enemies has become more plausible and that is not a pleasant subject to contemplate.
Recently, I have asked myself the question, how did the current situation arise? When I embarked on what I call my political philanthropy in the 1980s, American superiority was not in question. That is no longer the case. Why?
Part of the answer is to be found in technological progress, most of which is based on artificial intelligence, or AI, which was in its infancy in the 1980s.
The development of AI and the rise of social media and tech platforms evolved together. This has produced very profitable companies that have become so powerful that nobody can compete with them, but they can compete with each other. These companies have come to dominate the global economy. They are multinational and their reach extends to every corner of the world. We can all name them: Facebook, Google, Apple and Amazon. There are similar conglomerates in China, but their names are less well known in the West.
This development has had far-reaching political consequences. It has sharpened the conflict between China and the United States and has given it an entirely new dimension.
China has turned its tech platforms into national champions; the U.S. is more hesitant to do so because it worries about their effect on the freedom of the individual. These different attitudes shed new light on the conflict between the two systems of governance that the U.S. and China represent.
In theory, AI is morally and ethically neutral; it can be used for good or bad. But in practice, its effect is asymmetric.
AI is particularly good at producing instruments of control that help repressive regimes and endanger open societies. Interestingly, the Coronavirus reinforced the advantage repressive regimes enjoy by legitimizing the use of personal data for public control purposes.
With these advantages, one might think that Xi Jinping, who collects personal data for the surveillance of his citizens more aggressively than any other ruler in history, is bound to be successful. He certainly thinks so, and many people believe him. I should like to explain why that is not the case. This will require a thumbnail history of the Chinese Communist Party, or CCP.
The first person to dominate the CCP, Mao Zedong, unleashed the Great Leap Forward that caused the death of tens of millions of people. This was followed by the Cultural Revolution that destroyed China’s traditional culture by torturing and killing the cultural and economic elite.
Out of this turmoil a new leader emerged, Deng Xiaoping, who recognized that China was woefully lagging behind the capitalist world. His motto was, “Hide your strength and bide your time”. He invited foreigners to invest in China, and that led to a period of miraculous growth that continued even after Xi Jinping came to power in 2013.
Since then, Xi Jinping has done his best to dismantle Deng Xiaoping’s achievements. He brought the private companies established under Deng under the control of the CCP and undermined the dynamism that used to characterize them. Rather than letting private enterprise blossom, Xi Jinping introduced his own “China Dream” that can be summed up in two words: total control. That has had disastrous consequences.
In contrast to Deng, Xi Jinping is a true believer in Communism. Mao Zedong and Vladimir Lenin are his idols. At the celebration of the 100-year anniversary of the CCP he was dressed like Mao while the rest of the audience was wearing business suits.
According to the rules of succession established by Deng, Xi Jinping’s term in power ought to expire in 2022. But Xi, inspired by Lenin, has gained firm control over the military and all other institutions of repression and surveillance. He has carefully choreographed the process that will elevate him to the level of Mao Zedong and Deng Xiaoping and make him ruler for life. To accomplish this, Xi had to reinterpret CCP’s history to show that it will logically lead to appointing him for at least another term.
Xi Jinping has many enemies. Although nobody can oppose him publicly because he controls all the levers of power, there is, a fight brewing within the CCP that is so sharp that it has found expression in various party publications. Xi is under attack from those who are inspired by Deng Xiaoping’s ideas and want to see a greater role for private enterprise.
Xi Jinping himself believes that he is introducing a system of governance that is inherently superior to liberal democracy. But he rules by intimidation and nobody dares to tell him what he doesn’t want to hear. As a result, it is difficult to shake his beliefs, even as the gap between his beliefs and reality has grown ever wider.
China is facing an economic crisis centered on the real estate market, which has been the main engine of growth since Xi Jinping came to power in 2013.
The model on which the real estate boom is based is unsustainable. People buying apartments have to start paying for them even before they are built. So, the system is built on credit. Local governments derive most of their revenues from selling land at ever-rising prices.
Eventually, prices had to rise beyond the level that ordinary people can afford. That happened in the middle of 2021. By then, the boom had grown to an unhealthy size. It accounted for nearly 30% of the economy and it was eating up an ever-increasing amount of credit.
After accelerating gradually, the property boom ended with a bang. Residential land prices in June 2021 were more than 30% higher than they had been the year before. The authorities tried to slow down the pace and ordered banks not to increase lending for residential real estate.
The directive had the opposite effect from what was intended. It made it difficult for the largest and most leveraged developer, Evergrande, to meet its obligations. Subcontractors who didn’t get paid stopped working, and people who had bought apartments started to worry that they might never receive the homes they were paying for.
When the main selling season started in September, there were many more sellers than buyers. For a while there were hardly any transactions at the advertised prices, but today prices for both land and apartments are starting to fall. That will turn many of those who invested the bulk of their savings in real estate against Xi Jinping.
Evergrande is now in receivership and other developers face a similar fate. The creditors of Evergrande started fighting to improve their position in receiving bankruptcy distributions. The courts took charge, and their first move was to protect the subcontractors who employ some 70 million migrant workers.
It remains to be seen how the authorities will handle the crisis. They may have postponed dealing with it for too long, because people’s confidence has now been shaken. Xi Jinping has many tools available to reestablish confidence – the question is whether he will use them properly. In my opinion, the second quarter of 2022 will show whether he has succeeded. The current situation doesn’t look promising for Xi.
Closely related to real estate, China also faces a serious demographic problem. The birthrate is much lower than the published figures indicate. Experts calculate that the actual population is about 130 million lower than the official figure of 1.4 billion. This is not widely known, but it will aggravate the real estate crisis, produce labor shortages, fiscal strain and a slowdown in the economy.
Xi Jinping has also encountered serious problems with vaccines. The Chinese vaccines were designed to deal with the Wuhan variant, but the world is now struggling with other variants, first Delta and now Omicron. Xi Jinping couldn’t possibly admit this while he is waiting to be appointed for a third term. He is hiding it from the Chinese people as a guilty secret.
All Xi Jinping can do now is to impose a “zero Covid” policy. This involves severe lockdowns at the slightest sign of an outbreak, but this is having a negative effect on economic activity. It is also inflicting severe hardship on the people who are instantaneously quarantined wherever they are and their complaints can’t be silenced.
Omicron threatens to be Xi Jinping’s undoing. It is much more infectious than any previous variant, although it is much less harmful for all those who have been properly vaccinated. But Chinese people have been vaccinated only against the Wuhan variant and Xi Jinping’s guilty secret is bound to be revealed either during the Winter Olympics or soon thereafter.
Omicron entered China mainly through the port city of Tianjin, which is 30 minutes by high-speed rail to Beijing. By now it has spread to an increasing number of cities across China. It is no longer under control.
Since the Winter Olympics is Xi Jinping’s prestige project the administration is going to incredible lengths to make it a success. The competitors are hermetically sealed off from the local population but it doesn’t make sense to continue the effort after the event. City-wide lockdowns are unlikely to work against a variant as infectious as Omicron. This is evident in Hong Kong where the Omicron outbreak looks increasingly serious. Yet the cost of zero-Covid is rising every day as the city is isolated from the rest of the world, and even from China. Hong Kong highlights the wider challenge Omicron represents for Xi Jinping.
He tried to impose total control but he failed. Given the strong opposition within the CCP, Xi Jinping’s carefully choreographed elevation to the level of Mao Zedong and Deng Xiaoping may never occur.
It is to be hoped that Xi Jinping may be replaced by someone less repressive at home and more peaceful abroad. This would remove the greatest threat that open societies face today and they should do everything within their power to encourage China to move in the desired direction.
Thank you.
He delivered this speech on Year of the Tiger New Years' Eve!
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