CHINAwatch

Has the US overplayed its hand on trade?

Zhang Jun, dean of School of Economics at Fudan University and director of China Center for Economic Studies, a Shanghai-based think tank, thinks so in an Op-ed in Project Syndicate of 21 June, 2019. According to Zhang, 

"China is too deeply embedded in global supply chains simply to go away. Alienating the world’s leading manufacturer and industrial producer — with its consumer market of 1.4 billion people — will severely disrupt global value chains and cast a shadow over the entire world economy." "... deviations from free-market orthodoxy and abuses of state power could shake America’s own economic foundations and threaten its institutions."

"Beyond retaliating directly, through tariffs on agricultural products and commercial aircraft, it could tighten capital controls, dump its unparalleled holdings of US treasury debt or allow its currency to depreciate. (The wave of competitive devaluations triggered by the latter option would destabilize the U.S. dollar, as well as the international monetary institutions.)"

"But, rather than allow the Trump administration to push it to increase imports unilaterally — an approach that is both naive and reckless — China is insisting on resolving the problem in stages. The world should support this method, with the U.S., in particular, relaxing restrictions on exports to China and welcoming Chinese investment in the U.S."

America Must Prepare for the Coming Chinese Empire

Writing for The National Interest on 17 June, 2019, Robert Kaplan, managing director for global macro at Eurasia Group, warns of "the coming Chinese Empire".

A different class of America competitor multiple degrees more formidable than the former Soviet Union, China's ascendancy is driven by efficient state capitalism supported by robust civilizational culture and its Belt and Road Initiative of global ambitions.

Kaplan proposes that the United States should avoid getting entangled in the Middle East and should focus instead on the Indo-Pacific. While unlikely to become a firm US ally, India's capabilities should be strengthened together with boosting Taiwan's defences, both as counterweight against the spread of China's growing influence in the region.

He concludes by saying that "the last thing American policymakers or strategists should assume is that somehow we are superior to the Chinese, or worse: that somehow we have a destiny that they do not."

Digital Cold War? How Beijing's Striking Back Against US Crackdown on Huawei

Op-ed in Sputnik News of 10 June, 2019.

China connects the world: Creation of a Sino-centric or more inclusive world order?

PowerPoint presentation to the British Business Association of Macao (BBAM) at Hotel St. Regis, Macao on 6th June, 2019.

Download China connects the world - Creation of a Sino-centric or more inclusive world order 

Reality check on China’s push for self-reliance in semi-conductor industry

An article of the South China Morning Post of 4 June gives a thorough reality check of Beijing's call for self-reliance in semi-conductor technologies. After decades of neglect of basic research in favor of applied research, for some 95% of semi-conductor parts, components and technologies, China has had to rely on  markets largely dominated by the US, particularly Operating Systems (OS). Such dominance has not been achieved overnight but through decades of basic research, innovation and entrepreneurship.

The article estimates that even if China mobilizes the resources of the entire nation, it would probably be over a decade before China can attain total self reliance, even without counting the impact of a worsening trade war spreading into technology tariffs, sanctions and restrictions of Chinese access applying to a whole swathe of foreign businesses across the globe. 

State Council White Paper on Facts of US-China trade frictions and China's position

On Sunday 2 June, the State Council released a "White Paper" clarifying facts surrounding the current US-China "trade frictions" (avoiding the "war" word) and China's position on the matter. The Paper confirms speculation that months of painstaking negotiations with substantial agreement reached on multiple fronts finally became derailed because of US insistence on inserting specific provisions infringing on China's sovereignty. It was also felt that the Americans kept on upping ""impossible" demands without giving anything in return, including insistence on retention of tariffs. Click here and here . 

Download 白皮書 (2019.6.1.) (Official Chinese version)

Without sounding too belligerent, the Paper enumerates facts and statistics that bilateral trade between the United States and China has been mutually beneficial. The US has been reaping much gains in services (including royalties for proprietary technology) and in lower prices for high-quality goods for American consumers. It reaffirms that China will not back down on "core interests", including its own development model and rights of economic and technological advancement. It appeals to better judgment that mutual cooperation trumps all-out conflict.

While showing confidence and resolve, the Paper is an attempt to redress the imbalance in rhetoric in the international media. It tries to portray China as a sincere,  reasonable and consistent negotiator while highlighting the American side as "unreasonable", "capricious", and "bullying".

As the US is pushing back against China on multiple fronts including Huawei and the South China Sea, the White Paper serves as a shot across the bow that while preferring to resolve differences through negotiations, China is able and ready to dig in its heels for prolonged conflict and rivalry with the United States.

By adopting a firm, measured and rational approach, China is showing signs of wanting to harness more soft power as the Trump administration seems not bothered about losing America's.

However, knowing that soft power alone is not enough, running out of retaliatory tariffs, China is gearing up for non-tariff weapons starting with implementing China's own list of "unreliable entities" of organizations and individuals considered hostile to China's firms or national security interests on account of non-commercial or underhand behaviour. Separately, China may be reaching for its rare earth gun, according to a Stratfor Worldview article reprinted in The National Interest of 2 June, 2019.

US pushback against China intensifies on more fronts

Live interview with RT on 1 June, 2019

US trade talk takes aim at "Made in China 2025"

Quoting the New York Times, W.H. Lo of Bastillepost.com, an online Chinese newspaper in Hong Kong, outlines in an article of 24 May, 2019 the following Eight Demands of the Unites States in trade talks with China: 

(a) China to reduce $100 billion trade deficit with the US within one year, and another $100 billion the following year;

(b) Stop subsidising the advanced technologies outlined in "Made in China 2025";

(c) Accept US restrictions against "Made in China 2025" potential imports;

(d) Implement direct and verifiable anti-cyberespionage measures against intrusions into US commercial assets;

(e) Reinforce Intellectual Property protection;

(f) Accept US restrictions on investments in "sensitive" technologies and waive any right for retaliatory measures;

(g) Lower average Chinese tariffs of 10% to 3.5% in line with US average tariffs;

(h) Open up the services and agriculture sectors.

Part of US tariffs are to remain subject to quarterly joint assessments of implementation. 

Download 头条新闻

As the article rightly points out, these demands are primarily geared to retarding China's technological advances, with particular reference to "Made in China 2025". The latter is a flagship strategy underpinning the China Dream of becoming a strong world power. These demands coincide with a pletora of US measures in recent weeks targeting Huawei, China's tech giant, other Chinese tech firms, admissions of Chinese students to US elite universities, and even exchanges in academic research. 

As US anti-China coercion mounts across the board, it is not surprising why President Xi balked at signing off something reminiscent of China's past "unequal treaties" during the nation's "Century of Humiliation". It's also instructive that President Xi calls for a New Long March to prepare for a protracted war on all fronts in a fraught trajectory towards realizing the China Dream. 

Further reading and references 

For more on the trade war, please visit Why the US-China trade war broke down and what's behind it all? and Op-ed in the South China Morning Post. 

The Economist (Printed Edition 18 May, 2019) runs a Special Report "China v America: A New Kind of Cold War offering further details and perspectives on this epochal confrontation.

Its subsequent edition (25 May) features a leader Big tech and the trade war highlighting the threat to investors, consumers and American interests. However, it doesn't focus on how the war over 5G may pan out. For this, you may wish to read the collection of references in How the US chooses to lose the race on 5G and the South China Morning Post article of 26 May on the US iron curtain against China's tech advances.

China rebuffs Trump’s claim about impact of US tariffs

Live interview on PressTV of 21 May, 2019

Why the US-China trade war broke down and what's behind it all?

A two-part (30 minutes) TV interview with Hong Kong International Business Channel (HKIBC) (Cable TV) released on 18 May, 2019 on (free) HK Television Channel No.76.

Download HKIBC Cable TV Interview on Trade War (1)

Download HKIBC Cable TV Interview on Trade War (2)