Behind China’s enthusiasm for free trade

Seamstresses sew clothes at a Chinese factory
Seamstresses sew clothes to be exported to Europe and the United States at a garment factory in Huaibei, China (source: dpa)

Is China the champion of free trade? Recent news would suggest it is. The Middle Kingdom and its mandarins are touring the world, extolling the many virtues of cross-border commerce. However, there is reason for skepticism.

China has a long history of “state consequentialism.” According to this philosophy, all actions that make the state stronger are morally good. It even makes it the moral task of the state and its servants to take actions that make it stronger. While such thinking is not particular to China, the most ancient form of state consequentialism is Mohism, a philosophical movement that emerged there around the fifth century BC.

Two hundred years later, Chinese Legalism pushed state consequentialism to the next level. Han Fei, its chief proponent, was opposed to domestic markets with the free exchange of goods. His ideal was a central planner that determined input and output and prices. However, he loved the idea of export – if controlled by the state. In chapter 46 of his Han Feizi text, he wrote: “If people attend to public duties and sell their produce to foreigners, then the state will become rich. If the state is rich, then the army will become strong. In consequence, hegemony will be attained.”

Hegemony is usually the political goal of state consequentialism. With such a rich tradition in this philosophy, it may be that Xi Jinping’s China is only embracing free trade to become a new hegemon.

There are three reasons to believe this hypothesis. First, state consequentialist thinking is very much alive in China (and elsewhere). Second, Mao Zedong, the founder of the People’s Republic, was a great admirer of Han Fei. Third, the Legalists’ texts are widely read in the Communist Party’s cadre schools.

China’s openness to international trade not the result of some belief in Smithian principles

This is not to say that China’s leaders are taking their cues from a book written more than 2000 years ago. But there are several clues that lead us to interpret China’s openness to international trade not as the result of some belief in Smithian principles, but of an adherence to state consequentialism.

For example, it is always the government that promotes exports. Imports, on the other hand, are dissuaded or made more difficult through various regulations. Countries and companies with which commercial deals are made are selected by political committees. Inter-provincial trade is underdeveloped and there is no program to boost it. Chinese foreign direct investment happens in regions deemed a priority by the state, while foreign direct investment in China is directed toward sectors that the state considers non-priorities. Though Vienna Convention contract law should cover cross-border deals, China applies its domestic rules.

Granted, such phenomena do not only occur in China, and there are other explanations for all of them. But taken together, their unequivocal political nature calls for closer scrutiny.

Reformer Deng Xiaoping famously wanted to “let some people get rich first.” The above examples might lead to many in the Middle Kingdom getting rich. But they have a political dimension as well, and they are indicative of a country seeking to play an important strategic role, maybe even to become a hegemon – just as Han Fei would have wanted. His motto may as well have been: “Let the country get strong first.”

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