The Chinese government recently clamped down on cryptocurrencies. Owning or brokering Bitcoin is now frowned upon, and mining digital money has been outlawed all together.
This isn’t the first time that China has acted to keep out digital innovation. For years, China has blocked her citizens from using many of the social media platforms and search engines – Facebook, Google, Twitter – that are ubiquitous elsewhere.
The actions of the Chinese government might impact these digital innovations in the short terms. But in the longer term, the behavior of the Chinese government does more to hinder China.
Following the move against cryptocurrency, the price of Bitcoin plunged. But, as of writing this, Bitcoin has bounced back. China might have developed her own indigenous alternative to Google and Facebook. Like all state approved monopolies, China’s clunky social media giants might not find it as necessary to innovate.
China has a long history of keeping innovation out. Whatever effect this might have had on the outside world, it ensured China fell behind. I suspect we are seeing the start of something similar today.
From the late 1970s until about 2015, China seemed to have escaped her authoritarian trap. Under Deng Xiaoping, Chinese rulers placed limits on their own authority. The politburo stopped trying to run everything, turning a blind eye when farmers gradually abandoned collectivized farming. China began to grow.
For three fleeting decades, maritime provinces were given more autonomy and special economic zones allowed to decide their own rules. After 1997, with Hong Kong once again Chinese, there were even two distinctive legal systems. Chinese output soared.
But under President Xi many of these reforms have been reversed. Hong Kong’s autonomy has been treated as an affront and eradicated. Deng’s term limits have been cast aside. Officials in Beijing have become increasingly interventionist and authoritarian.
This same mindset has now been applied to cryptocurrencies. Rather than let crypto develop, the Chinese state seems determined to nationalize the innovation, introducing a state digital ledger, and banning the non-state alternatives.
In the manner of a Medieval monarch, China’s government is becoming increasingly hostile towards its own entrepreneurs, as Jack Ma and co have discovered. As often happens when you attack the wealth creators, you begin to get less wealth creation.
For as long as anyone can remember, we have been told that China is the coming power. China would, it was often said, eclipse America and the West. I doubt it.
China seems to me to be in a trap of her own making. Far from being the Chinese century, I suspect future historians writing about the early twenty first century will note how China under Xi cut herself off from outside innovation and fell behind.
China might not be the rising power we once imagined. I am not sure that that makes her any less dangerous. Wannabe great powers that aren’t quite as powerful as they would like to be are often far more threatening to the international order than those that actually are.