CHINAwatch

US-China conflict portends reset of world order

Radio interview with Radio Sputnik of Moscow on 28 September 2018

China's 36,000-character White Paper on US trade war omits reference to an all-out New Cold War

The substantial White Paper, released on 24 September, expounds on the nature of China's trade relations with the US. Entitled "Facts about the China-US Trade Dispute and China's Stance", it tries to show that the two nations are at different stages of development with very different political-economic models. Yet, trade and investments between the two countries have grown by leaps and bounds, benefitting businesses and peoples in both countries as well as the world at large. Supporting this benign relationship is mutual economic complementarity and a multilateral rule-based order supported by the United States.

However, in recent months, the United States seems to want to upend this mutual relationship and global order by resorting to mercantilist bullying and economic nationalism under the banners of "national security" and "America First". While a trade war will hurt both countries, China will not sacrifice its national interests, which it is prepared to defend to the bitter end. China remains fully committed to economic reforms and opening up and continues to support a multilateral world order. It is not enthusiastic about a trade war and always keeps the door open for negotiations on the bases of mutual respect, mutual trust and win-win relationships.

Download The.Facts.and.Chinas.Position.on.China-US.Trade.Friction

The Paper contains a swathe of trade and economic data in support of the benign trading relations between the two countries, showing how much the US economy and American businesses and people have benefitted. It tries to showcase China's progress in foreign intellectual property protection and opening up of various sectors of China's economy. It explains that even the United States practises various trade discriminatory policies and subsidizes a host of industries including agricultural and high-end strategic businesses. Indeed, China's "Made in China 2025", which seems to alarm US policy makers in recent months, was inspired by the United States' "Strategy for American Innovation" (2011) and "National Strategic Plan for Advanced Manufacturing" (2012). 

What the Paper hasn't touched on, however, is the realization that the trade war is but a manifestation of an all-out bipartisan strategic pushback against China as a rapidly rising challenger to US global economic and geopolitical dominance. Click here Despite well-intentioned rhetoric of helping to bring China into the world's multilateral trading system (WTO), the reality has dawned on US strategists that instead of getting mainly the crumbs from the table (China makes only $8.46 from an i-phone), China is fast advancing to capabilities of eating America's lunch, at least in some areas. This is happening not only in trade, but in military projection  and geopolitics in theatres such as the South China Sea and China's Belt and Road Initiative extending to four corners of the globe.

These strategic worries do not bode well for early ending of the trade war, nor, for that matter, for early return to a more benign relationship between the world's sitting superpower and its perceived rising challenger. A Thucydides Trap has sprung in the form of All Measures Short of War. Welcome to a new US-China Cold War of the 21st century. 

Chinese media in US required to register as foreign agents

Live TV interview with RT on 20 September, 2018 

Is China losing a new Cold War?

Minxin Pei, professor of government at Claremont McKenna College and the author of China’s Crony Capitalism, opined on 5 September in Project Syndicate that China is losing a new Cold War with the United States. He argues that "like the (former) Soviet Union, ..... they are paying through the nose for a few friends, gaining only limited benefits while becoming increasingly entrenched in an unsustainable arms race with the US." Much play is made of China's "unsustainable" economic model driven by inefficient state-owned-enterprises and the country's "imperial overreach" in the form of the Belt and Road Initiative, which is beginning to hit the rocks across the globe. 

While much of the good professor's warnings are not without merits, jumping to the conclusion that China is beginning to lose a barely-started new Cold War with the United States seems somewhat premature. 

First, while China's military spending has risen by leaps and bounds in recent years, it is broadly in line with the dramatic growth of its economy. According to the Stockholm International Peace Research Institute (SIPRI) , it is estimated at 1.9% of its 2017 GDP, still behind corresponding percentages of India (2.5%), France (2.3%), South Korea (2.6%), Turkey (2.2%) and Australia (2.0%), let alone Russia (4.3%) and Saudi Arabia (10%). Even allowing margins of under-estimation, the true picture is not as unstainable as depicted. 

Second, unlike the past, military rivalry does not depend on quantity or even technological dominance. It's enough to possess a survivable nuclear second strike as in the form of nuclear-armed hypersonic weaponry and sufficient deterrence in the form of Anti-Access/Area Denial (A2/AD) capabilities in areas where they matter to China. 

Third, the Belt and Road Initiative no doubt faces teething problems. But it meets a massive need for infrastructure and regional connectivity to fulfill capacity-building and economic transformation of many host countries. Moreover, in response to legitimate concerns, more projects are jointly managed with international institutions including the United Nations, paying due regard to governance and the environment. In Asia at least, many are co-financed with the Asian Infrastructure Investment Bank (AIIB) comprising 86 Member States across the globe, including major Western allies. See Swiss Re Third Quarter 2018 Update on B&R projects. 

Fourth, while slowing, China's economy is now showing real signs of transformation, according to Martin Wolf of the Financial Times of 4 April, 2018. By the end of 2017, thanks to China's largest and fastest urbanization in human history, private consumption is contributing 59% to GDP growth, significantly higher than investment, while the contribution of net exports dwindles to single digits. Interestingly, by some estimates, by 2015 the share of household disposable income and labour compensation were already higher than in Japan and South Korea. Deleveraging is continuing while overall indebtedness seems to have peaked. Unlike the US looming debt crisis, which will deepen as interest rates are on an upward cycle, China has very little national debt. Much of its debt is owed by state-owned-enterprises, which are backed by their massive assets and China's gigantic foreign currency reserves. While reform of state-owned enterprises seems to have stalled, they are becoming much less inefficient and are being more held to account. In any case, China is not convinced that one-size-fits-all privatization is the key to China's development model. Partially-privatized state-owned enterprises (as listed companies) may continue to serve China's national interests better as national champions. 

Nevertheless, as the world has become much more inter-connected and inter-dependent, a prolonged Cold War is mutually destructive. What is more, it could make avoiding the Thucydides Trap that much more difficult. 

HMS Albion exercised Freedom of Navigation at the Paracels

My live radio interview with Radio Sputnik of Moscow on 6 September. 

2018 Forum for China-Africa Cooperation (FOCAC) Beijing Summit, 3-4 September

My live TV interview with TRT WORLD (Turkish Radio and Television Corporation World Channel) on 3 September, summarizing some of the challenges and opportunities of China's engagement with Africa, a continent on the move.