Frum: To reprise an old joke, in a democratic country, an official who is exposed as corrupt will lose power; in an authoritarian regime, an official who loses power will be exposed as corrupt.
Pei: Exactly—except it is far worse in a dictatorship. An official who loses power in a dictatorship will not only be exposed as corrupt, he would suffer far more devastating consequences. He would be depicted as morally degenerate and his family members could face prosecution and imprisonment.
Frum: What if anything would you revise, amend, or enlarge in your 2006 statement from the vantage point of 2018?
Pei: I would revise one of the scenarios for change in the conclusion. Although one of the scenarios—depicting the rise of a hard authoritarian leader vowing to save the regime with more conservative policies—unfortunately turns out to be true, I also constructed a more optimistic scenario in which provinces led the way of reform in a “middle-up” model. The changes in the last five years, during which provinces quickly fell in line with Beijing, show that the potential for generating systemic changes in China provinces is much less than expected.
Frum: Has China now arrived at the “trap” you foresaw? Is it stuck? If yes, does any further economic progress remain possible, or will China now succumb to Japanese-like stagnation at a vastly below-Japanese level of prosperity?
Pei: In terms of systemic or institutional change, China probably entered the trap a decade ago. Although China has maintained ostensibly reasonable growth rate, it has done so mainly by increasing debt or leverage. Future economic progress is doubtful without real and radical economic change, but what has happened in the last five years under Xi, who promised radical reforms but has not delivered on his promise, is discouraging. So the prospect of a Japanese-like stagnation is real. But because the party’s legitimacy depends on prosperity, such a scenario would be fatal to its survival.
Frum: If economic stagnation is fatal to regime survival—but the fuller reforms necessary to economic growth are regarded as unacceptable—what happens? In particular, does the regime turn to foreign adventurism as a new mode of legitimation? China’s foreign policy has become increasingly assertive over the past decade, to the point of provocation, even bellicosity. Is that the future to be faced?
Pei: Foreign adventurism in the context of declining economic performance is a distinctive possibility, but it is also very risky for the regime. If it succeeds, it will gain domestic legitimacy, but should it lose a war, it could lose power quickly. In the short to medium term, the Communist Party’s real strategy is to strengthen the security state, including the building of a powerful surveillance state. The strategic thinking behind it is that, since we can no longer deliver carrots, we will have to rely on sticks more. This explains the rising degree of repression in China, and things could get a lot worse if the economy performs more poorly. At the moment, China’s assertive foreign policy is partly designed to burnish the regime’s image at home, but it would be premature to say that Chinese leaders would be rash enough to decide to go to war with a neighbor and risk a military defeat (if the U.S. intervenes).