Countries like the Asian “tigers” that experienced rapid economic growth inevitably encounter slowdowns that signal a fundamental shift in their economies. At this juncture, transitioning their institutions and policies often proves to be a most daunting task. Cautionary comparisons like these set the tone for the conference titled “China’s Possible Futures” on May 12, 2017, when the China Program celebrated its 10th anniversary.

As China nears the end of four decades of reforms, “China’s Possible Futures” was a fitting theme to mark the China Program’s first decade at Stanford’s Shorenstein Asia-Pacific Research Center. The launch of the Program in 2007 began with an international conference titled “Growing Pains: Tensions and Opportunities in China’s Transformation,” which resulted in a book of the same title. This year’s 10th anniversary conference appropriately heralded both change and continuity of the themes that were explored in 2007. A decade ago, the conference showcased the tremendous reach and rise of China as an economic and international powerhouse, and in 2017, the conference expanded to highlight the critical juncture that China is again facing on its developmental path.

The full-day conference, held under Chatham House Rule, was divided into four sub-themes with speakers addressing China’s economic future; its political future; the future of its international relations and global economic engagements; and a comparative panel that examined China’s prospects from experiences drawn from Japan, South Korea and former Soviet and Eastern European countries.

Panel I: China’s Economic Future

Speakers agreed that China’s tremendous growth over the last 40 years has no easy parallels in history. Some argued, however, that the policies realized over the next few years will prove critical to China’s long-term growth. Favorable factors, such as demographic, migratory and structural changes supported by a stable international order, enabled China’s spectacular, double-digit growth over the last 40 years. When “miracle growth” countries of Northeast Asia – like Japan, Korea and Taiwan – entered their periods of moderate growth, however, painful readjustments were necessary. Restructuring was required because the very policies and institutions set up to enable rapid growth were counterproductive to creating a foundation for moderate, sustained growth. Speakers variously emphasized China’s need to invest in human capital and undertake financial reforms, urban-rural reforms and state-owned sector reforms.

In addition, several speakers noted that China is facing mounting demographic challenges as its population ages and as its elderly population lives longer. According to one speaker, people who are aged 60 and over in China will equal the population of people aged 0 to 14 within the next couple years; and by year 2045, the population of people who are 65 and older in China will be as large as the entire population of the United States today. This situation implicates rising costs in healthcare and calls for major institutional reforms in China’s health sector.

One speaker spoke of the rapid rise in China’s returns to education, i.e., the rise in income for each additional year of education, over the past four decades, which now looks more closely aligned with that of the international average of approximately 10 percent. Another speaker asked whether China was now pursuing a different developmental model with increasing focus on inland industrial development and explored what this might mean for social inclusion and labor conditions of workers.

Panel II: China’s Political Future

One speaker argued that Chinese President Xi Jinping’s reform agenda does not mark a break with the past, as many have argued, but rather continuity with his predecessors’ policies. Other speakers discussed the scope and scale of Xi’s corruption crackdown; fiscal imbalances in central-local state relations that underpin China’s corruption problems; and the implications of social media on Chinese governance. All speakers spoke about mounting difficulties in the political sphere, including powerful interest groups; local paralysis arising from corruption crackdowns; mounting local government debt and misalignment of central-local interests; and governance challenges stemming from the social media revolution. Overall, speakers seemed to suggest mounting difficulties for Xi’s reform agenda, which the Chinese government must push through to avoid a sharper downturn and slower growth prospects for China’s future.

Panel III: China’s International Relations and Global Economic Engagements

Speakers spoke at length regarding the history of U.S.-China relations since Deng Xiaoping’s “reform and opening”; territorial disputes in the South and East China Seas; China’s “Belt and Road” policy; and China’s outbound capital flows into various regions of the world. The speakers held varying views regarding Beijing’s motivations and intentions in the world, both militarily and economically. Speakers held different opinions about whether Beijing has a well-defined vision for its global role. One speaker questioned whether China’s maritime assertiveness in the South and East China Seas characterizes the expansionary policies of a rising power; or whether it represents something more singular as China protects what it considers its “core interests” in the region. One speaker expressed the view that the United States and the U.S.-led international order is still too important for China’s development for it to threaten its functioning in any meaningful way. Another speaker discerned a “broad brush strokes” of a developmental concept in China’s “One Belt, One Road” policy that the United States might do well to heed as it considers whether to join any parts thereof.

Panel IV: China’s Future: A Comparative Perspective

The conference also included speakers who provided comparative examples from Japan, South Korea, the former Soviet Union and Eastern Europe to inform their views on China’s “possible futures.” One speaker warned against directly applying Japan’s development model to China, warning that Japan experienced a massive credit boom and debt accumulation in the 1980s like China is experiencing today. Zombie firms were a key factor in Japan’s economic stagnation. As the speaker warned, zombie firms also proliferate in China’s economy. Another panel member highlighted Korea’s struggles to attract and retain global talent and drew lessons for China as it strives to escape the middle-income trap and build an innovation-driven economy.

Another panel member spoke of the key difference between China’s political environment in 1978 when Deng Xiaoping announced his “reform and opening” policy and today when Xi is implementing his Third Plenum decision of 2012. Vested interest groups are stymieing the implementation of urgently-needed reforms, especially in the state-owned sector and in China’s financial sector. In 1978, by contrast, the catastrophic results of the Cultural Revolution ironically enabled Deng to successfully champion and implement his agenda because bureaucratic interests had been gutted by Mao. The speaker spoke of the urgent need for Xi to change course in the next 3-4 years and use his personal power to push through tough, market-oriented reforms. Beijing’s leaders must not only craft correct policies and identify the most effective structural correctives, they must also break through the political logjam of entrenched interests that have benefited from the current system.

Panelists pointed to the increasingly difficult challenges that the government faces as China tries to avoid the middle-income trap after four decades of impressive gains and usher in sustained economic growth driven by innovation and domestic consumption. Speakers also agreed that the leadership is encountering a more complex and diverse society, a fractured elite, and the Gordian knot of economic and demographic predicaments, which require not only painful structural adjustments but also tremendous political will to realize policies that will ensure an optimal future for China.

Related links:

Brochure: Celebrating the First 10 Years of the China Program

Former ambassador reflects on US-China relations, Thucydides Trap

North Korea’s economy continues to move ahead despite years of isolation and international trade restrictions. The economy is performing at a moderate rate with a mean GDP growth rate of 0.7 percent from 2004 to 2015, and appears to be a focus of the regime’s policy decision-making, researchers have found.

“The government has embraced markets as an acceptable and effective way to improve performance and enhance legitimacy but maintains the ability to regulate marketized activities,” SK Center Fellow Yong Suk Lee and Shorenstein APARC Fellow Thomas Fingar wrote in a joint report released today.

The report, available in English and Korean (forthcoming), is an outcome of research collaboration between the Shorenstein Asia-Pacific Research Center (APARC) and the Institute for National Security Strategy (INSS), a research body focused on national security policy that is part of the South Korean government.

Conducted over the course of six months, the collaboration included two roundtable meetings at Stanford and in Seoul with the report’s co-authors from the INSS, Kwang-Jin Kim and Hyung-Seog Lee, and Korea-focused scholars at Shorenstein APARC, including Gi-Wook Shin, director of the center; Kathleen Stephens, the William J. Perry Fellow; and Daniel Sneider, associate director for research.

“We set out with the research question ‘how is the current North Korean regime performing,’ and through our engagements with the INSS, were able to combine our expertise and look at the question from new and different angles,” said Shin, also a professor of sociology and director of the Korea Program, who initiated the collaboration.

The researchers participated in discussions and parsed through data and qualitative accounts, including surveys from the INSS and reporting by journalists. From their collaboration, they determined two approaches to understanding the country’s economic and institutional expansion since Kim Jong-un assumed power six years ago, both of which are outlined in the report.

Their first approach suggests that organizational and personnel changes in Kim Jong-un’s cabinet, key ministries and committees were undertaken, at least in part, to enact operational effectiveness and a more productive economy.

“There’s evidence that indicates new appointments by Kim Jong-un were intended to maintain or enhance the ability of the government to meet continuing and new policy objectives,” said Fingar, a political scientist with an emphasis on Northeast Asia.

Kim Jong-un has attempted to consolidate control by removing at least two-dozen officials in the government’s main governing body – the Korean Workers’ Party, and in some cases, promoting them to different positions.

In the report, the researchers mapped the systems of North Korea’s three rulers since its founding in 1948 and the significant leadership changes under Kim Jong-un, noting that recent vice-premier promotions have included new economic responsibilities.

Personnel changes in the military have also involved positions responsible for oversight of foreign relations, commerce, oil and statistics, which suggest that officials are judged not only on their loyalty to the regime, but also on their performance at the job, Fingar said.

Their second approach suggests that North Korea’s improved economic performance is linked to its expansion of markets, and since 2009, its increased trade and investment with China.

“While the government maintains the ability to regulate market activities, North Korea’s growing dependence on the ‘private sector’ is a sign of the priority assigned to it and of its movement away from a socialist-style economy,” said Lee, an economist and deputy director of the Korea Program.

Officially licensed markets in North Korea have been estimated to number in the hundreds and the government collects taxes from them. There also exists a similar estimate for unofficial markets operating in the country, according to data cited in the report.

The researchers said it is improbable that North Korea will abandon market-oriented activities and capital inflows from outside its borders, particularly from China, in a time of tightening sanctions from the U.N. Security Council and other countries in response to North Korea’s repeated nuclear and missile tests.

“Taken together or apart, the two approaches we’ve put forth provide a comprehensive puzzle for future study,” said Lee. “We hope this report brings additional lenses that researchers can apply to analyze the performance of the North Korean regime and that policymakers can use to assess the efficacy of international sanctions.”

Colonel Patrick Winstead, the 2016-17 FSI senior military fellow at Shorenstein APARC, writes about the second annual orientation at U.S. Pacific Command headquarters

The mission of the Department of Defense (DoD) in the Indo-Asia-Pacific region recently became a bit clearer for 22 faculty and military fellows from Stanford, the Massachusetts Institute of Technology, the Naval Postgraduate School and the Daniel K. Inouye Asia-Pacific Center for Security Studies (APCSS). The U.S.-Asia Security Initiative at the Shorenstein Asia-Pacific Research Center (APARC) in the Freeman Spogli Institute (FSI) organized a group of faculty and fellows for a two-day orientation of United States Pacific Command (USPACOM) and its component military organizations in and around Honolulu, Hawaii, April 13-14, 2017. The purpose of the orientation was to provide researchers with a comprehensive understanding of how America’s armed forces both develop and implement U.S. national security strategy, doctrine and policy throughout Asia.

The trip began with a visit to the headquarters of USPACOM at Camp H.M. Smith. After receiving briefings about USPACOM's mission and operations, the group engaged in roundtable discussions with General Terrence O’Shaughnessy (Commander, U.S. Pacific Air Forces); Major General Kevin B. Schneider (Chief of Staff, USPACOM); Rear Admiral Mark Montgomery (Director for Operations, USPACOM); Major General Steven Rudd (Director for Strategic Planning and Policy, USPACOM); as well as other key joint directors and members of the command staff. The faculty and fellows provided short presentations on the situation in the South China Sea, U.S.-Philippine relations and cyber warfare to an audience of mid-grade military officers and civilian personnel assigned to USPACOM.

In addition to meeting with the leadership of USPACOM, the group was also afforded the opportunity to interact with personnel from the four separate component commands. Deputy Commanding General of U.S. Army Pacific, Major General Charlie Flynn, provided a command briefing at the U.S. Army Pacific headquarters at Fort Shafter. The briefing stimulated a wide-ranging discussion about Army initiatives and activities in support of USPACOM’s mission in the Indo-Asia-Pacific region. At Marine Corps Base Hawaii at Kaneohe Bay, under the guidance of trainers, the visitors took part in a hands-on experience operating Humvee simulators in a virtual-reality convoy setting and firing simulated weapons that Marines typically employ in combat operations. The first day of the trip ended with a working dinner at the historic Nimitz House with the Commander of the U.S. Pacific Fleet, Admiral Scott Swift, where the conversation ranged from Chinese military modernization to evolving U.S. naval doctrine.

Those themes carried into the second day, when the group met for several hours with faculty at APCSS for plenary presentations and multiple breakout sessions to facilitate in-depth dialogue on select topics including the threats posed by nuclear weapons on the Korean Peninsula and in South Asia. The day continued with a tour of the U.S.S Hopper, an Arleigh-Burke class guided missile destroyer, based at Pearl Harbor, Hawaii. Once onboard, the ship’s captain, Lieutenant Commander J.D. Gainey, provided briefings on Hopper’s mission and operational capabilities. In addition, the group spoke with members of the ship’s crew. The experience allowed the faculty and fellows to interact informally with sailors who serve in the Asia-Pacific theatre and to candidly discuss issues of concern. The second day of the orientation ended with a visit to the headquarters of U.S. Pacific Air Forces and a dialogue with O’Shaughnessy and his staff about the unique security challenges of the Indo-Asia-Pacific region, such as tyranny of distance, limited support bases and multiple emerging threats, and how those challenges impact the Air Force and the entire U.S. military’s preparations for contingencies in the region.

Overall, the orientation provided a unique opportunity to engage directly with high-level leaders of USPACOM and to learn first-hand about the challenges faced by those who serve in the armed forces. The orientation also provided a forum to discuss the United States’ national security interests in the region and its efforts to maintain peace and stability in the Indo-Asia-Pacific and to help maintain a rules-based, liberal democratic order.

Related links:

Photo gallery

As expected, Moon Jae-in has been elected as South Korea’s 19th president. In a five-way contest, Moon garnered 41.1 percent of the vote, with strong support from those in their 20s to 50s, winning most of the regions in the country. 

South Koreans’ longing for change had been expressed through the now-famous candlelight demonstrations that lasted for almost twenty consecutive weekends culminating in the impeachment of now former president Park Geun-hye. It was also reflected in the highest voter turnout in two decades, at 77.2 percent.

Just hours after his decisive victory, Moon began his five-year term without the usual practice of a transition team. Moreover, he took office during turbulent times — domestically and internationally — perhaps even more so than when former president Kim Dae-jung took office in 1998 when the nation was struggling with the Asian financial crisis.

First and foremost, Moon must deal with the mounting social and economic challenges that the country is facing. Having entered a period of low-growth coupled with an aging population, the economy confronts a host of difficult issues, including high levels of youth unemployment, income inequality, household debt, elderly poverty and rising social welfare expenditures.

The Moon administration immediately established a ‘job creation committee’ and pledged to create 810,000 jobs in the public sector. But it will not be easy to amass the financial resources needed by a government already struggling with serious budget deficits. Most agree that ‘economic democratisation’ is needed, but the details of how to achieve that — including reforming the chaebol — remain unclear.

Economic uncertainties have been a key factor contributing to social unrest. Words in vogue among South Koreans in their 20s and 30s reflect the social discontent with youth unemployment and inequality that ultimately erupted in the demonstrations.

‘Hell Joseon’ captures a sentiment of what it means to live in South Korea’s hellish reality. ‘Golden Spoons Dirt Spoons’ levels the charge that one’s life course is decided for good by one’s family background. ‘Gapjil’ refers to acts of impunity by the powerful against the weak, while the ‘Sampo generation’ is a generation forced to give up three things: courtship, marriage and children. If Moon fails to live up to the expectations of the country’s youth, a bloc that widely supported him, social discontent and symptoms of unrest will likely return.

Moon also faces daunting tasks in national security matters. North Korea has continued to develop weapons of mass destruction and relations have been all but completely severed. As controversy over the deployment of THAAD (Terminal High Altitude Area Defense) has shown, South Korea remains caught in the middle of a hegemonic struggle between the United States and China.

If that wasn’t enough, South Korea made a deal with Japan on the comfort women issue in late 2015 but the public now demands its renegotiation. South Korean–Russian relations are also at their grimmest. To top it all off, Moon must deal with a formidable set of nationalist and populist leaders — Donald Trump, Xi Jinping, Shinzo Abe, Kim Jong-un and Vladimir Putin — all known for their very strong characters, in stark contrast to Moon’s nice-guy, everyman personality.

The most urgent but also most challenging task is managing inter-Korean relations. As Pyongyang steps up its nuclear and missile programs, Seoul must reaffirm to the international community that it will continue its efforts to denuclearise the North. At the same time, relations between the two Koreas must be improved to strengthen South Korea’s strategic position in the region as well as reduce tensions on the peninsula.

Trump has been sending out confusing messages probably because he has no suitable plan to deal with Pyongyang. As such, if Seoul were to bring to the table a persuasive policy of engagement, Washington would be receptive unless it weakens US efforts towards denuclearisation. Both Beijing (pressured by Washington to solve the North Korean nuclear issue) and Pyongyang (concerned about becoming overly dependent on China) would welcome Seoul taking the initiative to improve inter-Korean relations.

Some pundits at home and abroad worry that the Moon administration might follow in the footsteps of the Roh administration (2003–2008), whose outcomes lagged too far behind its good will to bring about reform. Moon served as Roh’s chief of staff and the two administrations overlap in manpower. But Moon and his team have also learned many lessons from the trial and error of the Roh administration, preparing themselves over the past ten years of conservative rule.

With the new administration in place, political turmoil over the last six months has finally ended. Moon’s first moves as president, including key appointments in the Blue House and opening up communication channels with the public, have been well received. A public poll conducted by Gallup Korea one week after the inauguration showed that 87 percent of the respondents expected him to do well. Despite mounting challenges, South Koreans remain hopeful that their new leader can take the nation to the next level.

This piece was originally carried by East Asia Forum on May 23, 2017, and reposted with permission.

Researchers urge Moon Jae-in to form a close working relationship with Donald Trump and to establish a new special envoy role for North Korea policy emulating the “Perry Process”

Researchers from the Shorenstein Asia-Pacific Research Center (APARC) said they are optimistic about the election of South Korean president Moon Jae-in who assumed office last week following waves of protest across the country.

Now that the vacancy left in the wake of former President Park Geun-hye’s impeachment has been filled, the South Korean government needs to work to strengthen bilateral relations with the United States amid escalating tensions in Northeast Asia, they said.

The Moon administration should immediately engage U.S. President Donald Trump and his senior staff at the White House and government agencies, said Kathleen Stephens, the William J. Perry Fellow at Shorenstein APARC.

“Moon would do well to establish a personal relationship with Trump,” said Stephens, who was U.S. ambassador to South Korea from 2008 to 2011. “The new administration must set up a meeting as early as possible and be ready to engage on a range of issues.”

“In a sense, Moon has to play catch-up,” said Shorenstein APARC Director Gi-Wook Shin, who noted that Trump already held in-person meetings with other Asian heads of state in the United States, including summits with Chinese President Xi Jinping and Japanese Prime Minister Shinzo Abe.

Shin added that a coherent U.S. strategy toward Asia and senior staff appointments in the State and Defense Departments would also aid in supporting the foundation upon which the South Korean and American governments work together on policy challenges, especially North Korea.

North Korea’s nuclear and missile capabilities have become more and more advanced over the past few months, and provocations have continued to ratchet up, including its firing of a ballistic missile that landed in the sea near Russia on Sunday and repeat threats to conduct a sixth nuclear test.

The Moon administration must focus on establishing trust and cooperation with the Trump administration because it is the only pathway to finding a resolution to North Korea’s program, said Siegfried Hecker, a senior fellow at the Center for International Security and Cooperation, an additional center in the Freeman Spogli Institute.

“Any solution must be compatible with the interests of Seoul, but it has to be done in concert with Washington to get Pyongyang’s attention,” said Hecker, who served as director of the Los Alamos National Laboratory and has traveled to North Korea seven times since 2004 to survey its nuclear facilities.

During the campaign, Moon repeatedly spoke of his proposals to reengage the North Korean regime, such as holding talks with its leader Kim Jong-un and re-opening Kaesong Industrial Complex, a joint economic zone on the North Korean side of the border.

Stephens and Shin said Moon’s proposals for North Korean engagement would be a step in the right direction if pursued in due time and led under the direction of a special envoy from South Korea emulating the American “Perry Process.”

The Perry Process, proposed by former U.S. Secretary of Defense William Perry and implemented in the late 1990s under the Clinton administration, entails the appointment of a senior-level, bipartisan representative to pursue a two-track approach of engagement through joint projects and of continued dialogue on denuclearization with North Korea.

Appointing one person in South Korea to lead North Korea policy would help centralize and streamline its organization, which currently requires coordination of activities across dozens of government agencies, the two researchers noted.

“We recognize that establishing such a position and filling the position would be far from easy,” said Shin, co-author of the study Tailored Engagement. “But the magnitude of the nuclear crisis requires restructuring the way in which the South Korean government deals with North Korea, achieving domestic consensus, and shoring up international support for its efforts.”

The United States, China, Japan and Russia are the key international countries concerned with the peace and stability of Northeast Asia, yet South Korea has both an acute need and the potential to assume greater leadership of North Korea policy, said Shorenstein APARC Fellow Thomas Fingar.

China, as North Korea’s largest trade partner, exercises influence over North Korea by maintaining a commercial relationship in the hope of avoiding a collapse of the regime. Yet, its leverage only goes so far, he added.

The Moon administration should consider the limits of Chinese influence before making policy decisions regarding North Korea, Fingar said, for example, whether to freeze or remove the U.S. anti-ballistic missile system, Thermal High Altitude Area Defense (THAAD), deployed last April in South Korea, which the Chinese government strongly opposed.

“There is little that Beijing can or will do that would persuade Pyongyang to be more receptive to initiatives from Seoul than it would otherwise be,” said Fingar, a China specialist who served as chairman of the U.S. National Intelligence Council. “Seoul should not ‘pay’ much to obtain Chinese assistance because China already supports reengagement and would not do more no matter what Seoul offered as an inducement.”

It is of vital importance the Moon administration seeks to strengthen trilateral cooperation between South Korea, Japan and the United States, and to consider holding a summit to address areas of collaboration, all of which would function alongside the China-Japan-South Korea trilateral structure toward creating stability in the region, according to Daniel Sneider, associate director for research at Shorenstein APARC.

“Such cooperation is essential to the security of the region – without it, the United States cannot fulfill its obligation to defend South Korea against the threat posed by North Korea,” said Sneider, who leads the Divided Memories and Reconciliation research project. “Moreover, it’s in the interest of all three countries to tighten such cooperation to balance the rise of China.”

The Moon administration should, above all else, take time to consider its first steps despite pressures to perform early, said Michael Armacost, a fellow at Shorenstein APARC who held a 24-year career in the U.S. government.

“Getting things right is more important than making a quick splash,” said Armacost, a former U.S. undersecretary of state for political affairs. “I would advise any new president to proceed at a deliberate pace, focusing particularly on the key personal issues first, and consulting widely before enunciating major policy departures.”

Related links:

South Korea's election: Shorenstein APARC scholars offer insight

Yonhap News: 미 한반도 전문가 그룹 "한국형 페리 프로세스 필요" (May 16, 2017)

VOA: 미 전문가들 "한국 정부, 미국과 북 핵 협력 중요...대북특사도 임명해야" (May 17, 2017)

Moon Jae-in was elected South Korea’s president on a pledge to address domestic inequality and to renew dialogue with North Korea. In the midst of Tuesday’s vote, Shorenstein APARC scholars offered insight to local and international media outlets.

Gi-Wook Shin, professor of sociology and director of Shorenstein APARC’s Korea Program, provided comment to The Economist about the challenges facing an administration led by Moon, a progressive candidate who is assuming power when an active conservative camp remains. He is also cited in an article in the New York Times focused on Moon's economic agenda and featured in a video from a Korea Society event that examines next steps for the new president.

Rennie Moon, the Koret Fellow in the Korea Program, co-authored an analysis piece on the East Asia Forum with Shin analyzing recent polls and the Moon administration's economic and security agenda.

Daniel Sneider, associate director for research at Shorenstein APARC, wrote an analysis piece for The National Bureau of Asian Research. In the piece, he explores how the election could impact the U.S.-Republic of Korea alliance amid escalating tensions on the Korean Peninsula.

Kathleen Stephens, the William J. Perry Fellow at Shorenstein APARC, appeared in a live interview on CNBC. In the taping, she discusses the significance of the vote and the new administration’s priorities as Moon swiftly takes office following the removal of his predecessor.