Focusing on the wrong Chinese reforms

While the end of the infamous Laogai labor camp system and the relaxation of the one-child policy are making all the headlines, China might be bracing for two other reforms that will deeply and positively affect the livelihoods of hundreds of millions of its citizens.

This is not to underestimate the importance of the suppression of prison camps, with its tremendous implications for human rights and the rule of law in China, as well as for the approximately 200,000-300,000 inmates populating the camps at any given time, nor to underscore the relevance of easing the one child policy, so that urban couples in which just one espouse is a single child himself/herself (as opposed to both) will now be able to have two children: this certainly is a much-needed change of course, but one that will not dramatically effect fertility rates unless complementary policies to enhance work-life balance are devised and implemented.

Enter two additional decisions taken at the Third Plenary Session of the 18th CPC Central Committee, confirmed on November 15 by the Xinhua News Agency. First, the reform affecting China's gigantic SOEs: by 2020, they will have to pay 30% of their profits directly to the government, with the proceedings being redirected to "improving the people's livelihoods". How much do SOEs pay now? Anywhere between 0 and 15% of their benefits. We are talking about huge amounts of money: China's SOEs had pocketed almost 300 billion dollars in profits (1.77 trillion yuan) through the first 9 months of 2013.

This particular reform, surprisingly overlooked in many reports published by major newspapers, will not only benefit the state's coffers, but also level the playing field for private companies to flourish. Just ask any entrepreneur what it would mean not to pay any taxes (while the competition duly pays) and have nearly unrestricted access to credit: that's basically how SOEs operated in China, and this reform, coupled with plans to allow the creation of small-to-medium sized private capital banks, promises to bring sweeping changes to the Chinese market.

The second reform that must be duly highlighted is the removal of all restrictions to legally reside in towns and smaller cities, a crucial first step towards the eventual scrapping of the Hukou system, that binds every single Chinese to his/her birthplace. The vastness and implications of the floating population in Chinese cities can and should overwhelm most observers: 236 million people, or 1/6 of the total population of the country, including more than half of those labor-age born after 1980, left their places of origin to seek employment or education elsewhere, and now lack access to even the most basic public services.

Changing the anachronistic and deeply unfair Mao-era Hukou system is crucial for the accelerated urbanization process China is currently undergoing to be successful. This initial step, coupled with increased government revenue in form of taxes from SOE benefits, can mean that a stronger, more comprehensive social safety net –covering universal free education, healthcare and basic pensions– is eventually created and implemented nationwide. This would, in turn, allow an emerging middle class to allocate less of their disposable income to saving for the future and increase their consumption, thus fueling the increase in internal consumption that is urgently and sorely needed to balance China's economy and guarantee its amazing economic growth continues.

Nevertheless, all that glitters is not gold. Coupled with the already revealed announcement that a security committee, headed by President Xi himself, would be created (highlighting why Xi and not Putin is the most powerful man on Earth), the CPC reiterated its resolve to "strengthen public opinion guidance and crack down on Internet crimes". In other words, more censorship, both for separatists and restive ethnic minorities (a.k.a. "terrorists") and for dissidents. Luckily enough for them, they will no longer be sent to labor camps and might even benefit from a further promise to explore the establishment of a judicial system that is properly separate from the local administration...

The roles of confidence in the Iran nuclear deal

Confidence is widely understood to be a positive asset, crucial to succeed in life, to carve a successful career and, obviously enough, to maneuver towards good deals in negotiations. Reality, however, is always more complex, as the ongoing negotiations between Iran and the P5+1 ‒ the five permanent members of the United Nations Security Council plus Germany ‒ over Tehran's nuclear program clearly demonstrate.

This rich setup of interests, personalities and priorities is bringing together those who have no confidence, those who are not so confident and those who are overconfident. If success is defined by Iran freezing its nuclear program in exchange for the lifting of the tough sanctions that are crippling its economy, for the Geneva talks to eventually end up successfully, the parties should not let neither the non-confident nor the overconfident to control the agenda.

On the one hand, there are those who lack confidence in Iran, with French Foreign Minister Laurent Fabius as their accidental spokesman. With his assertion that France could not accept a "fool's game" (i.e. a weak deal) with Iran, Fabius immediately killed momentum in the talks and highlighted internal divisions in the Western camp, as acknowledged by Swedish Foreign Minister Carl Bildt via Twitter. Even if we can argue that Fabius' statement is just a reflection of French impotence in world affairs and inner lack of confidence, the main practical issue is a different one: showing no confidence in the incentives for compliance ‒ in this case, a dramatic improvement of the Iranian economy, the mandate upon which Rouhani was surprisingly elected last June ‒ and the goodwill of the opposing side, no deals are possible.

On the other hand, there are those who are brimming with confidence, headed by Israel's Prime Minister Bibi Netanyahu. It is easy to see how, in this case, confidence in one's power and influence can kill a deal instead of fostering agreement. While the influence of pro-Israeli hardliners and Netanyahu himself within certain sectors of America's political and economic establishment is undeniable, this overconfidence can also backfire. The diplomatic charm offensive by new Iranian President Hassan Rouhani has already opened up a gap between the White House and Netanyahu's government, and Europe is quietly but robustly sending signals of its disapproval of Netanyahu's policies regarding both Palestine and Iran.

The same happens with the hawks in the U.S. Congress, who could well derail the deal by passing tougher sanctions against Iran. While swimming against the tide can reap political benefits, U.S. politicians opposing negotiations with Iran should take note of the most recent episode of Washington brinkmanship, featuring a painful Government shutdown and a last-minute increase of the debt ceiling from which President Barack Obama emerged the sole political winner. In any case, the power of these overconfident elements of the anti-deal camp should not be underestimated, as they might be capable to derail the talks or the implementation of any eventual agreements if they can impose their views by playing on the fears of the negotiators and decision-makers.

We are, therefore, in the hands of the moderately confident for some tangible outcomes to emerge from Geneva. One of, them, surprisingly, might be Iranian Supreme Leader Ali Khamenei. As Iran expert Kenneth Pollack recently asserted in an interview, Khamenei's relative lack of confidence ‒ at least compared to his predecessor Khomeini ‒ has led him to give Rouhani the freedom to maneuver. Even if Khamenei does have the power to force his will through the system and to overcome the opposition, he has been willing to listen to his longtime aide Rohani.

This much was already clear last August, when Rouhani appointed outgoing Foreign Minister Ali Akbar Salehi, a pragmatist, to head Iran's nuclear program: Khamenei, not confident enough in his own power to steer Iran towards regional hegemony as a nuclear power despite internal economic hardship, was giving Rouhani the green light to negotiate, showing moderate but remarkable confidence in the new President.

Similarly, the moderate pragmatism and confidence shown by U.S. Secretary of State John Kerry, together with a very proactive EU High Representative Catherine Ashton, leading diplomatic efforts in Geneva and highlighting the EU's ability to lead when it speaks with one voice on the international stage, show the way to go: only a savvy combination of effective multilateral diplomacy, pragmatism and cautious optimism ‒ as opposed to threats, overconfidence and lack of trust ‒ can produce a substantial deal that can satisfy both Iran and the major powers.

As argued by Stephen Walt, this is a winnable battle by the P5+1 group. However, success will, at least on this occasion, depend on the ability of the involved parts to put their weight with the relatively confident and ignore both those brimming with confidence in their abilities to derail the talks and those threatening to derail them due to their lack of confidence. We must concur with Kenneth Pollack on affirming that this may well be the best opportunity that the West has ever had, and maybe that it will ever have, to get a deal with Iran – even if it involves accepting Iran's right to enrich uranium for nuclear energy production.

The most effective and efficient way to win the hearts and minds of those living in hostile regimes is to offer them a fair deal and to embolden the agents of change with reciprocal trust. There is too much at stake not to let the moderately confident moderates to take center stage in Geneva: let's be moderately confident that this will be the case.

Why the European Union should take a leaf from Deng’s book

Last September, Armenia stunned Brussels when it gave up on its association and free trade deal with the EU following Russian demands for Yerevan to join the Customs Union, thereby excluding the possibility of a free trade agreement with the EU.

It was not Armenia’s decision in itself that shook the EU foreign policy community, but a fear of the possible shape of things to come. As EUISS expert Nicu Popescu asserted, the Union is right to feel uneasy: its influence in world affairs should no longer be taken for granted, and it will become increasingly dependent on the ability of Member States to stick act in economic, security, and foreign policy matters.

A few weeks later, former Bangladeshi general Muniruzzaman Khan published an opinion article in which he pointed out that India, China and Pakistan depend on the glaciers of the Himalayas for water. Those glaciers are melting fast, and the world’s most populous countries, all with significant military capabilities (including nuclear weapons), could well find themselves facing an existential crisis within two decades. And, as Mr. Khan wisely pointed out, people do not always make the wisest decisions when faced with deprivation of an essential resource.

The combination of both articles made me think about the section Henry Kissinger devotes to Deng Xiaoping’s famous guidelines for the rule of an emerging but still poor China in his monumental book On China. Here is what Kissinger wrote:

As he receded from the scene, Deng decided to buttress his successor by leaving behind a set of maxims for his guidance and that of the next generation of leaders. In issuing these instructions to Communist Party officials, Deng chose a method from Chinese classical history. The instructions were stark and succinct. Written in classical Chinese poetic style, they embraced two documents: a 24-character instruction and a 12-character explanation restricted to high officials. The 24-character instruction read:

'Observe carefully; secure our position; cope with affairs calmly; hide our capacities and bide our time; be good at maintaining a low profile; and never claim leadership.'

The 12-character policy explanation followed with an even more restricted circulation among the leaders. It read:

'Enemy troops are outside the walls. They are stronger than we. We should be mainly on the defensive.'

It might sound premature, exaggerated or even completely offshoot, but maybe – just maybe – the European Union should consider adopting a longer-term approach, calmly take the backseat and capitalize on strengths that are more durable than the benefits of free trade agreements, financial innovation and even technological leadership – valuable assets that can nonetheless be rapidly eroded in the era of networks and globalization.

In the context of a G-Zero world threatened by climate change, ideological radicalism and sectarianism, growing inequality and explosive demographic growth, Europe enjoys what emerging and even some more established powers do not: food security, internal stability and (still) fairly distributed economic wealth. Securing these enormous privileges while maintaining a relatively low profile – i.e. being an actor but not a leader – and ensuring greater internal cohesiveness makes quite a lot of sense for an ailing Europe.

It can be argued that demography is not at all on Europe's side if it really wants to be patient. However, it is not on the side of China, either, and a Pakistan or Nigeria-like demographic boom is no boon either. What is urgently needed for an approach based on strategic patience to be feasible is a comprehensive reform of EU immigration regulations and policies and an agreement on a common immigration policy for Europe.

Making sure that the right immigration flows enter the continent will not only help offset the strains tied to lower birthrates and longer life expectancy at home, but will also be crucial to ensure a greater degree of stability and prosperity in the EU's immediate neighborhood and beyond – all, of course, in a perfectly compatible manner with this low-key, benevolent strategic approach.

As Henry Kissinger correctly points out in his book, with his words, Deng wanted to invoke virtues such as calm in the face of adversity, high analytical and strategic ability, and discipline in pursuit of a common purpose. Seemingly unable to revert their crisis-fueled internal disunion, facing a potentially explosive combination of emerging threats and emerging powers, and increasingly impotent to make their partners follow EU norms, European leaders could definitely take a leaf from Deng's playbook: keep calm, keep close and wait for the right time to reemerge.