This book has two unique features. First, nationalism can be a strong sentiment, but I conceptualize it from the perspective of economics as a status good in people’s consumption bundle, which enables its investigation based on rational choice theory. Second, I use behavioral economics and game theory to analyze numerous historical events and contemporary international conflicts, which can substantially improve the understanding of Chinese nationalism and related historical and contemporary events.

Research on Chinese nationalism often makes reference to humiliations that China has suffered, either in its ancient or more recent history. In explaining the causes of these humiliations, most of the literature argues that the rulers of China were incompetent, corrupt, or even stupid. However, this approach is intellectually unsatisfactory. A convenient analogue is the explanation of the recent event of the Taliban surging back into power almost immediately after the withdrawal of US troops from Afghanistan in 2021. A research article that explained the rapid defeat of pro-US government troops simply as reflecting the incompetence and corruption of former President Ashraf Ghani and his generals would hardly enlighten its readers.

The most fundamental axiom of economics, which guides this book, is that every individual is rational and intelligent. In her Nobel Prize-winning contribution, Ostrom (1990, p. 25) describes the approach of social economics as follows:

An enormous body of literature in economics and other social sciences investigates social behavior based on this fundamental axiom of individual rationality.¹ For example, in 2005, Thomas Schelling received the Nobel Prize in Economics for “having enhanced our understanding of conflict and cooperation through game-theory analysis.”² Schelling (1960, 1966) made pioneering contributions to the field of the economics of conflict, which analyzes the role of conflict in the allocation of resources when property rights are not perfectly and costlessly enforced. In the past few decades, there has been substantial research on the economics of conflict, in which international conflicts are investigated based on economic theory and particularly game theory.³

However, most of this literature focuses on the analysis of conflict in a general and abstract sense, and economic theories are rarely applied to explain important historical and contemporary episodes of international conflict.⁴ In particular, the frontier of economics needs expansion to provide useful insights on the issue of nationalism. This book posits that the starting point for the socioeconomic analysis of nationalism is acknowledging that people obtain happiness from national pride and unhappiness from national humiliation. As demonstrated in Chapter 2, this argument is a natural extension of the literature on the pursuit of social status, which is one of the most important aspects of human motivation.

There is substantial research on social status in many social science disciplines. However, one dimension of social status that receives relatively little attention in the literature is national status. The feeling of national pride and national humiliation, which is referred to as nationalism or patriotism in this book, is widely observed. For example, it is well illustrated by people’s enthusiasm toward their national teams in the European Cup or Olympic Games. As Greenfeld (1992, pp. 487–488) emphasizes,

The assumption that a representative individual obtains utility from national status may be sensitive in the domain of academic research, within which scholars from countries involved in international conflicts often interact. This may be a chief reason for the scant examination of Chinese nationalism based on this assumption. For example, it is reported that some Germans refrained from expressing their full joy after Germany won the World Cup of football because of the psychological liability of Nazi Germany. However, there is no denying that the sentiments of national pride and humiliation are empirically important all over the world. This book helps fill a gap in the literature by conceptualizing nationalism as a “status good” in people’s consumption from the angle of economics and investigating how people have engaged in trade-offs between national sentiment and material benefit in tackling international and inter-ethnic conflicts in historical and contemporary China. The rest of this chapter summarizes some of the theories developed in this book and illustrates its novelty.

First, from 1644 to 1912, China was ruled by an ethnic minority, the Manchus, in the Qing dynasty. Chapters 5 and 6 demonstrate that this was by the choice of the ancient Chinese, as the Manchu rulers built a high-quality government in China. Based on the theory of “subgame perfect equilibrium,” these chapters show that in a unified China in ancient times, only a minority ruler would credibly announce and implement benevolent policies such as low tax rates. Indeed, the rulers of the Qing dynasty were very restrained in their rent-seeking activities, in contrast with the rulers of previous Chinese dynasties. If nationalism is considered a good, it is a luxury good that people will not choose to consume when their incomes are low. Thus, the Manchu rulers received popular support from most Chinese people. In fact, only three decades after the establishment of the Qing dynasty, a major Chinese revolt thoroughly defeated the Manchu segment of the Qing army. On that occasion, the Chinese troops of the Qing army chose to be loyal to the Manchu rulers and quelled the revolt. This example illustrates that when an economy is underdeveloped, most people are far more concerned about their food consumption and material living standards than “nationalism.”

Second, Yuanming Yuan, or the Old Summer Palace, was once known as the “Versailles of the East.” Unfortunately, during the Second Opium War in 1860, British and French troops invaded Beijing, looted the treasures of Yuanming Yuan, and then burned down the palace. In Chinese history textbooks, this event is often used as a symbol of the “hundred years of national humiliation” that China is said to have experienced from 1845 to 1945. However, Chapters 8 and 9 argue that this outcome might have been a necessary sacrifice of the Qing dynasty, in relation to a much more important dispute with Russia.

In the 1850s, the Qing dynasty faced a major civil war with the Taiping Rebellion, which ranks as one of the bloodiest wars in human history. In 1858, under threat by Russian troops, the local general in Manchuria, Yishan, signed the Treaty of Aigun with a Russian general, which ceded the vast territory of Outer Manchuria to Russia. In 1860, the Qing army started to take the upper hand against the Taiping rebels. The Qing army had also begun to import advanced equipment from Western countries and accumulated valuable experience in battles with the Taiping forces. At this point, the Qing dynasty might have wanted to revoke the Treaty of Aigun. There was still room for the Qing government to do so; the Qing emperor could simply blame Yishan for signing the treaty without the agreement of the central government.

However, revoking the Treaty of Aigun would surely have resulted in a major war with Russia. Thus, an important question for the Qing emperor was this: how strong was the Qing army compared to the Russian army? If China were thoroughly defeated by Russia, then much more territory would be lost. The Qing government might have come up with a well-calculated strategy to obtain this information with relatively little cost: it decided to fight a major war against Anglo-French troops who were approaching Beijing. If the Qing army could demonstrate that they could defeat the joint British-French forces, or even just impose heavy casualties on the enemy, this would reveal to both the Qing government and the whole world that the Qing army could compete against Western powers, including Russia. If that happened, the Qing government would not cede the territory of Outer Manchuria to Russia, or would at least take back a large fraction of Outer Manchuria. For example, although the Treaty of Aigun ceded all of the land north of the Amur to Russia, it declared the area east of the Ussuri River and south of the Amur (northern Primorye) to be a Russo-Chinese condominium until further negotiations took place. If the Qing army could defeat the British-French forces, then it could take back the area east of the Ussuri River and south of the Amur; if the Qing army was defeated by the joint British-French forces, the cost would be relatively small. In contrast, if the Qing army went to fight against the Russian army and were defeated, the Qing government would have to cede much more of northeastern China to Russia.

At the Battle of Palikao, the fiercest battle in the Second Opium War, an elite Qing force was annihilated by the British-French army. Given that the combat power of the Russian army, particularly its ground force, was at about the same level as that of the Britain-French army, the Battle of Palikao might have convinced the Qing court that if Russia chose to use force to take Outer Manchuria, there was no chance of the Chinese army stopping the military offensive. As a result, the Qing government ceded Outer Manchuria to Russia to avoid a major war that would have led to worse outcomes.

The devastating defeat of the Qing army in the Battle of Palikao led to a series of national humiliations for China. For example, the Qing emperor, Xianfeng, fled the capital, the city of Beijing surrendered, and the Old Summer Palace was burned down by the French and British troops. However, this might have been a sacrifice for the Qing government to obtain accurate information on the relative strength of the Chinese army in its effort to take back the large territory of Outer Manchuria. The Qing army engaged in the Battle of Palikao with Britain and France because it correctly judged that these countries had little interest in taking Chinese territory, which was the greatest concern for China.

Chapter 10 analyzes the Boxer Rebellion and the consequent invasion of an “Eight Nation Alliance” of American, Austro-Hungarian, British, French, German, Italian, Japanese, and Russian troops into China. The Boxer movement resulted from nationalist passions rather than a desire to rebel against the Qing government. Accordingly, the movement was tolerated by the Qing government at first. However, the anti-foreign, anti-Christian, and anti-imperialist sentiments of the Boxers led to widespread violence against Christian missionaries and Chinese Christians. Worse, many of the Boxers might have intended to extract material or emotional rewards by bullying Chinese Christian converts and Chinese working for foreigners and often obtaining their money and possessions, which exacerbated the violence.

Such bullying and robbery of weak members of Chinese society would normally have been condemned by society and punished by the rule of law of the Qing government. However, there was a serious erosion of social norms at the end of the Qing dynasty due to a rise of nationalism. To make sense of this in terms of the theory of rational choice, the recent rise of hate crimes against Asian Americans may provide insight. An increase in anti-Asian crimes has occurred in the US in relation to COVID-19 because ex-President Donald Trump and a portion of the US public associated COVID-19 with China and Asian American populations. It is often noted that people who attack Asians are usually not the most loyal supporters of Trump. In fact, they may not hate China or Asians at all. These attackers take advantage of the nationalist sentiments against China for personal satisfaction—the joy of bullying, insulting, and beating those who are physically weaker than they are. The Boxer uprising might have followed a similar logic, as there was a strong sentiment of hatred toward foreigners in Chinese society. Therefore, some people, particularly those who were poor and had little to lose from engaging in risky activities, might have chosen to take this opportunity to act for personal gain. Some picked on those Chinese who often went to church, bullying them to enhance their own social status and self-worth; some chose to steal from shops that sold goods imported from Western countries.

Many foreign countries regarded the Boxers’ violence toward their citizens in China as completely intolerable. In addition, as the rebel forces became increasingly larger and more self-organized, the Qing government felt increasingly threatened. In fact, if they had formed a unified army, they could have and most likely would have overthrown the Qing government. However, having just experienced a major defeat to Japan, the Qing army was too weak to quell the rebellion. Thus, the Qing government might have wanted to utilize the foreign forces to annihilate the rebels.

Its exact strategy was to declare wars against a large number of foreign countries, which ensured that Chinese territories were not ceded to foreign countries after the Boxer War. On occasions when China declared war against one country, after being defeated, it was usually required to cede territory to that country. However, if China lost to eight countries at once, it would be much harder for the victors to negotiate the division of Chinese territory. In economic terms, the “transaction cost” of dividing Chinese territories between the eight countries would be too high. In addition, as some of the eight countries were far away from China and small in population, they might not have been very interested in taking Chinese territories. Thus, if Russia and Japan were to demand large pieces of Chinese territory, there would be inequity between the eight nations. The consequent “inequity aversion” would prevent Chinese territories from being ceded to any of the foreign countries.

Chapter 16 investigates the causes of the Sino-Vietnam War, which took place between February 17, 1979 and March 16, 1979. After three weeks of fierce battles, Chinese troops captured a number of cities and key strategic sites in northern Vietnam. On March 6, 1979, China declared that the gate to Hanoi was open, which meant that the Chinese army would be able to capture the capital city of Vietnam easily. China then suddenly announced that its army had achieved its “punitive” mission and that it would withdraw its troops from Vietnam.

The 1979 Sino-Vietnamese War may be the strangest war of the past century. No other country in this time has made significant sacrifices to capture a foreign territory and then withdrawn its troops within a month. In addition, no other country has invaded another country with heavy casualties incurred for both solely for the purpose of “punishing” the other country. As discussed in Chapter 16, existing explanations for the cause of the war are not convincing.

Chapter 16 puts forward two new explanations. First, the war was a result of a conflict of national pride between the two countries. Second, and perhaps more importantly, China might have wanted to use this war to signal the strength of its army to Britain in the bargaining over the handover of Hong Kong, which occurred in 1997.

Hong Kong Island and Kowloon were ceded to the UK in perpetuity after the two Opium Wars. Therefore, Britain had no legal obligation to return Hong Kong Island and Kowloon to China. However, China’s leader, Deng Xiaoping, insisted that the entirety of Hong Kong be handed over to China in 1997 and that this was not negotiable. The British government agreed without protest. How to make sense of this outcome?

As in any other international conflict, the bargaining and negotiations between Britain and China were conducted in the shadows. After the chaos of the Cultural Revolution, the outside world was unclear about the capacity of the Chinese army and the determination of the Chinese government. In the 1979 Sino-Vietnamese War, the Chinese army generally had the upper hand (Zhang, 2005). This outcome is remarkable given that the Vietnamese army was well equipped and Vietnamese soldiers were highly experienced and had high morale and confidence from their victory over the US in the Vietnam War. Thus, China’s brief war with Vietnam demonstrated to Britain that the Chinese army was a strong force. In addition, China suffered high casualties in the Sino-Vietnamese War, which signaled China’s willingness to absorb heavy losse...