By Prof. Dr. Bala Ramasamy, Associate Dean and Professor of Economics, China Europe International Business School (CEIBS)
The “one country, two systems” formula was designed to cajole Taiwan into returning to the motherland. When this failed, Deng Xiaoping (leader of the People’s Republic of China [PRC] throughout the 1980s), the mastermind behind the concept, used the same formula to engineer the return of Hong Kong instead. If the approach worked for Hong Kong, perhaps Taiwan would also be convinced. After more than 25 years since its implementation, the jury is still out on whether the formula has worked. Can capitalist and socialist political-economic systems coexist?
It was a very different China in 1997. World Trade Organization (WTO) membership had not been secured yet. Hong Kong was an important window into the world for China. In nominal terms, the size of the Hong Kong economy was about 18 percent of the Chinese economy. Approximately a quarter of China’s exports were to Hong Kong. Today, it is markedly different. Hong Kong’s economic output is about 2 percent of China’s, and its market is less than 1 percent of China’s total exports. There is little motivation for China to promote two systems. Thus, “one-country, two systems” is merely conforming to the basic law and nothing more.
If such is the fate of the “one country, two systems” principle, can two systems in one world coexist? Given the growing de-globalization, decoupling and de-risking trends vis-à-vis China, with countries having to take sides, a world with two systems seems inevitable. Some analysts have suggested that two systems in one world can coexist if there is a combination of both competition and cooperation (Wolf, 2019)1.
Unlike the United States and its democratic ideals, no real evidence shows that China is interested in spreading its socialist ideology to other countries. One claim that appears regularly in popular media concerns the role of the Confucius Institutes as the Chinese Communist Party’s (CCP’s) propaganda instrument to spread the glowing achievements of the Party among the young in universities and schools in the US (Heritage Foundation, 2021)2. However, policies encouraging foreign students to learn about the cultures and systems of the great powers are not new. Institutions such as the British Council, Goethe-Institut, Fulbright scholarships and others may have similar objectives as the Confucius Institutes.
China is basically looking for recognition that it is a significant player in the world economy and should be given a voice in determining the rules of the game. Thus, to ensure healthy competition, understanding the core values of each superpower is important. For the US and its allies, such as the European Union (EU), United Kingdom, Australia and Japan, democracy, freedom and laissez-faire economics are probably their fundamental principles. For China, order, non-interference in domestic affairs and a socialist economy with Chinese characteristics are perhaps its basic values. These values, both American and Chinese, have contributed in some way to the transformations of their respective economies. But these values also have their drawbacks. Democracy can breed corruption, while unbridled freedom and pure markets can result in disparities. Similarly, an overemphasis on order and non-interference can give rise to unchecked authoritarianism, while a socialist economy can also fuel disparities. At the end of the day, how these values are molded to create flourishing societies has to be the ultimate aim.
To ensure cooperation, on the other hand, the red lines of each superpower need to be understood as well. Democracy and freedom are perhaps the West’s red lines, while for China, it would be domestic interference, including Taiwan, Hong Kong and Xinjiang. If these red lines are crossed, any sort of negotiation will result in an impasse, or worse, confrontation. Since these red lines are also the involved parties’ core values, no compromises can be expected.
On the other hand, in the case of China, the role of the state in the economy (which some may claim gives Chinese companies unfair advantages), its trade surpluses and access to its markets—or even its claims in the South China Sea—are matters that can be discussed. But any attempts at reducing its sovereignty are non-starters in any bilateral conversations. Similarly, for the US and its allies, any evidence that shows interference by foreign powers in the election process that compromises freedom of choice, for instance, would only create barriers to negotiations.
The US will continue to defend its dominant position at all costs, even if it means changing the rules that it has supported in the past. If globalization does not favor its own economy, onshoring and restricting the movement of capital will be promoted. If multilateralism weakens its negotiating power, it will create alliances to weaken its enemies. At the same time, China will continue its journey to become an advanced and respected economy. It will continue to exert its influence among developing countries and, at a later stage, among developed ones as well. One cannot imagine China turning back on its development path and returning to a century of humiliation.
Thus, the only way to escape the Thucydides Trap is to recognize the respective red lines of each power and negotiate the gray lines that would benefit both parties and the world at large. This may result in a world with two systems, with the G7 (Group of Seven) on one side and China and its friends, including Russia and Iran, on the other. But the large gray area where the two systems overlap must also be acknowledged. The gray area may include issues relating to climate change, poverty eradication, trade rules, investment and technology. Those that choose not to take sides, such as India, Southeast Asia and Africa, can comfortably live within the gray area. In fact, this group of countries may represent about half of the world’s population (The Economist, 2023)3.
Southeast Asia is a good case to consider. Traditionally, several countries in the region, such as the Philippines, Thailand and Singapore, have been close allies of the US. Americans continue to provide some stability in the region. But today, China is ASEAN’s (Association of South East Asian Nations’) largest bilateral trading partner (Economist Intelligence Unit, 2022)4. The supply chains of both regions are closely intertwined. Thus, despite the territorial tensions in the South China Sea, ASEAN members must foster friendly economic ties with China. Taking sides is not an option for ASEAN members. A “one world, two systems” approach seems to be the only viable option for peace and economic stability in such an environment.
The nearly half-century of the Cold War was a period during which two systems tolerated each other. There were near skirmishes, but another world war was avoided. If the two systems can coexist and cooperate, peace on Earth is indeed possible. If opposing political parties can coexist within a nation, it is not inconceivable to imagine two systems coexisting in one world.
1 Financial Times: “The challenge of one world, two systems,” Martin Wolf, January 29, 2019.
2 The Heritage Foundation: “Confucius Institutes: China’s Trojan Horse,” Lee Edwards, May 27, 2021.
3 The Economist: “How to survive a superpower split: We analyse the crafty countries that don’t want to pick sides,” April 11, 2023.
4 Economist Intelligence Unit (EIU): “ASEAN strives to stay neutral as US-China tension rises,” August 10, 2022.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of CEIBS.