In recent days, two pieces of news related to China have widely caught the eyes in Sri Lanka. Early this month, after U.S. House Speaker Nancy Pelosi’s sneaky visit to China’s TaiwanMore
China’s economic data for the year 2022 has been released in Beijing on Tuesday. The striking part is that China’s GDP growth slowed down to 3 percent.
From an Indian perspective, it may seem momentarily that China’s economy is slowing while India’s expanded by nearly 7 percent (per World Bank predictions.) Can India catch up with China in a medium term scenario?
This is where the devil lies in the fine print. The heart of the matter is that China’s GDP growth of 3 percent translates as a year-on-year expansion of its economy touching a whopping $18 trillion.
To put matters in perspective, China has an economy that is five and a half times the size of India’s economy (GDP: $3.5 trillion). (Emphasis added.)
Yet, this is being regarded as a lacklustre economic performance, attributed to headwinds stemming from a combination of adverse circumstances characteristic of 2022 — ranging from the coronavirus and geopolitical tensions to repeated US interest rate hikes and the waning overseas demand due to the world economy tiptoeing toward recession.
The sporadic outbreaks of Covid in manufacturing bases including Shanghai and South China’s Guangdong Province disrupted production in local factories and logistics, which combined with a property market slump.
To be sure, “Zero-covid” has been a well-documented drag on the Chinese economy over the past year; factories suffered when workers were locked down, and consumers reined in their spending as they lost pay checks and jobs.
Externally, the escalating geopolitical tensions due to the western sanctions against Russia drove up bulk commodity prices, subjecting China to imported inflation pressure. Second, the historical reality is that as the Chinese economy and the US economy grew closer and closer during the decades since 1980, the extent and depth of the Chinese economy affected by the US monetary policy also grew stronger and stronger.
That is to say, the US interest rates and the Chinese economy are inversely related, especially in import, export, and China-US exchange rate. 2022 witnessed extraordinary fluctuations in the US financial market, which was bad news for China.
Nonetheless, China’s 3% GDP growth compares by far favourably with those of the US and Japan — “the peer competitors” — whose GDP grew by less than 2% (per IMF projections.) Analysts expect a much better performance in the year 2023, exceeding 5% in GDP growth. (In comparison, the World Bank estimates that global growth will slow from 2.9 percent in 2022 to 1.7 percent in 2023, and the US’ GDP is expected to increase by just about 0.5 percent in 2023, the weakest forecast in three decades.)
This has geopolitical ramifications, as China is well-placed to make a far more significant contribution to global growth than any other major economic power, which would inevitably translate as increased prestige in the world community and create greater opportunity to leverage foreign policy objectives.
China’s consumer-led rebound to buttress global growth implies that its vast market potential will be seen as a locomotive of growth by other economies, especially in the ASEAN region, Africa and Latin America.
Contrary to doomsday predictions, China’s transition away from the “zero-Covid” policy has been relatively smooth. The new regime aims to cope with the Covid mutants that are highly contagious, but less potent and dangerous. In retrospect, hundreds of thousands of human lives were saved in China, unlike in India or America.
Interestingly, the latest economic data from China also showed that notwithstanding the 3% growth rate last year, the country’s GDP per capita has stayed above the $12,000-mark, which is close to the high-income countries defined by the World Bank.
Equally, the Chinese stock markets remain bullish indicative of the optimism. In political terms, this sets the stage for China’s most important annual political gatherings ahead in March, which are expected to unleash the economy once more.
What Indian analysts in their schadenfreude tend to overlook is that an attitude toward China predicated on that country’s misfortunes and setbacks is a road to nowhere. There are some profound conclusions to be drawn from the data on the Chinese economy.
Clearly, with global economic growth likely to decline sharply and global inflation still hovering at high levels in 2023, the economies of major developed economies are likely to show stagflation. Suffice it to say that the European countries will be inclined to view the Chinese market as holding the key to an early economic recovery. Recasting the global supply chains by decoupling from China is going to be easier said than done.
Second, the US simply cannot compete with China anymore as a manufacturing country. In infrastructure, the gap is so patently wide. Ukraine has shown that the US lacks the capability to fight Russia and needs a coalition. It is no different when it comes to China.
Surely, the economic data on the Chinese economy will be taken very seriously in Washington. The US Treasury Secretary Janet Yellen was due to meet with Chinese Vice Premier (“economic czar”) Liu He in Zurich on Wednesday on the sidelines of the World Economic Forum in Davos with view to “expand communication” between the two largest economies in the world.
According to Politico, Secretary of State Antony Blinken will visit Beijing on Feb. 5-6. Blinken’s talks will show whether the dialogue between President Biden and President Xi Jinping at Bali has led to more productive bilateral relations. A serious rapprochement seems difficult to achieve after the US House of Representatives created a committee on strategic competition with China recently.
However, both powers want to put the deterioration of relations on pause or at least keep it under control. They will try to avoid crises, although that is not guaranteed. Typically, it has been Washington who invariably initiated any deterioration of relations.
Addressing the CSIS in Washington last week, Biden’s advisor on China, Kurt Campbell described the Bali summit meeting as “an effort to build a foundation for a new relationship with China.” He said 2023 will be the year “to build some guardrails,” although the dominant feature of US-China relationship will continue to be competitive.
Campbell messaged that the US wants it to be “a productive, peaceful competition” that can be channelled for the betterment of life of the two peoples.
China’s economy, the second largest in the world, has always been in the spotlight. Recently, the country has deployed its economic work for 2023, opening a new chapter for its economic development and filling us with confidence in China’s economy in the new year.
But where does this confidence come from?
Looking at the bigger picture, the 10 new prevention and control measures ushered in a new stage of China’s COVID-19 response. Although the pandemic has not yet come to an end, the optimized strategy will undoubtedly boost economic activity, and facilitate the flow of economic factors and commodities. Put simply, the optimized strategy has reinvigorated the economy. The roads are busier, the malls have more shoppers, and travel apps have seen an uptick in customers. The optimized COVID-19 strategy and updated economic policy have brought China’s economy into a new development stage.
In terms of specific economic measures, “expanding domestic demand” has become a top priority in achieving the goal of ensuring stable growth in 2023. Predictions for this year depict a bleak global economic outlook with sluggish external demand. In contrast with the Keynesian belief that “demand creates its own supply,” China emphasizes generating effective demand through high-quality supply, which means continuously innovating to create higher-level products. For example, despite the saturated cellphone market, the emergence of smartphones redefined cellphones, creating demand from 7 billion people for the new products. This represents the underlying logic behind China’s efforts to deepen supply-side structural reform.
According to a recent report from the World Bank, China contributed an average of 38.6% to global economic growth from 2013 to 2021, more than the G7 countries combined. Expanding domestic demand means further tapping the huge potential of China’s supersized market of 1.4 billion people. This will translate into a critical driving force to the economies of both China and the world.
In addition, developing the private sector is also a key priority. With private businesses, such as Huawei, Alibaba and ByteDance, accounting for a large proportion of China’s economy, the private sector has now become a major economic player in the country. Statistics show that in the first 11 months of 2022, the import and export volume of China’s private businesses amounted to 19.41 trillion yuan (about $2.82 trillion), or 50.6% of the country’s total. Private businesses have also demonstrated stronger vitality and resilience, especially in terms of the sustainable development of new forms of foreign trade.
Therefore, China is scaling up its support for the private sector, continuously urging equal treatment of private businesses and their state-owned counterparts, and helping micro-, small- and medium-sized enterprises to overcome difficulties posed by the pandemic. These supporting measures aim to promote the sound development of private businesses. Likewise, the thriving of private businesses will in return bolster the economy by creating more jobs, ensuring the continued growth of disposable incomes, and further expanding domestic demand and boosting consumption. As such, we are also confident about the growth of the private sector in 2023.
China’s economy has withstood multiple tests and challenges during the three years since the outbreak of the pandemic, and the year 2023 is bound to be a brand new journey in striving for economic growth. However, with the current policies, innovation capacity and various driving forces, we are confident that China’s economy will grow steadily, continue to act as an engine for the global economy and propel further growth.
U.S. politicians and corporate media often promote the narrative that China lures developing countries into predatory, high-interest loans to build infrastructure projects as part of its Belt and Road Initiative. As the story goes, China anticipates that the borrowing country will default on that loan, so that it can then seize that asset in order to extend its military or geostrategic influence — evidence of China’s so-called colonizing of the Global South.
The concept of Chinese “debt trap diplomacy” finds its origins in a 2017 academic article published by a think tank in Northern India describing China’s financing of Sri Lanka’s Hambantota Port. The concept was then picked up by two Harvard graduate students in 2018, when they published a paper accusing China of “debtbook diplomacy” and “leveraging accumulated debt to achieve its strategic aims.” This paper was then widely cited by media publications, the idea of Chinese “debt traps” seeped into Washington and intelligence circles, and a short time later, by November 2018, a Google search of the phrase “debt trap diplomacy” generated nearly two million results.
By now the “debt trap diplomacy” accusation has become a bipartisan one: Both the Trump and Biden administrations have peddled it, and it’s been further advanced by organizations such as the U.S. International Development Finance Corporation, and corporate media outlets like The New York Times, The Washington Post, and The Hill.
In one egregious instance, BBC News even edited an interview with Deborah Bräutigam — a scholar known for her work challenging the validity of the Chinese “debt trap diplomacy” myth — to only include her explanation of the myth itself, omitting all evidence she cited against it, leading listeners to believe that Bräutigam was in fact claiming the concept was true.
Problems with the ‘debt trap diplomacy’ myth
Generally, there are three problems with this “debt trap diplomacy” myth.
The first problem is that this myth assumes China unilaterally dictates Belt and Road Initiative projects to lure other countries into taking on these predatory loans. In reality, Chinese development financing is largely recipient-driven through bilateral interactions and deals. Infrastructure projects are determined by the recipient country, not China, based on their own economic and political interests.
The second problem with the narrative is that it relies on the assumption that it is Chinese policy to advance predatory loans with onerous terms and conditions to ensnare countries into debt. In reality, China often advances loans at fairly low interest rates, and is often willing to restructure the terms of existing loans to be more favorable to the borrowing country, or even forgive loans altogether. In fact, in August of 2022, the Chinese government announced it was forgiving 23 interest-free loans in 17 African countries. Prior to that, between 2000 and 2019, China had also restructured a total of $15 billion of debt and forgiven $3.4 billion in loans they had given to African countries.
Sri Lanka’s Hambantota Port
Sri Lanka’s Hambantota Port was one of the first instances of so-called Chinese “debt trap diplomacy.” The conventional story goes that Sri Lanka wanted to build a port on their southern coast in the village of Hambantota, as part of BRI. Chinese banks then granted Sri Lanka these predatory loans to build the port with the assumption the government would default, allowing China to seize the port in exchange for debt relief and create a Chinese naval outpost there.
As Chinese development financing is usually recipient-driven, the port was proposed by the Sri Lankan government, not by China, and the port was a plan that the country had for several decades, long before BRI. In fact, the Sri Lankan government had first approached India and the United States to finance the port. After both countries said no, it then approached China. A Chinese construction company, China Harbor Group, won the contract and a Chinese bank agreed to fund it. So not only was the Hambantota Port not a Chinese proposal to begin with, this all occurred in 2007 — six years before BRI was even launched.
Another issue with framing this as Chinese “debt trap diplomacy” is that Sri Lanka’s debt burden was due only in small part to Chinese lending. In 2017, Sri Lanka had over $50 billion in external debt — only 9% of which was owned by China. In fact, Sri Lanka’s debt was primarily incurred through borrowing of western loans — the government owed more to the World Bank and Japan than to China. And due to Sri Lanka falling into debt, the government arranged a bailout through the International Monetary Fund. The Hambantota Port by that time turned out to be a commercial failure, so the Sri Lankan government also decided to lease it out to an experienced company in order to use that money to pay off its debt. The government of Mahinda Rajapaksa, president at that time, first approached Indian and Japanese firms, all of whom rejected the offer. It then negotiated with China Merchants Ports Holdings, a Chinese state-owned enterprise, to lease the port for 99 years in exchange for $1.12 billion dollars, which it used to pay off other debts.
In other words, there was no debt-for-asset swap here, as the story states — what happened to the port was not a “seizure” at all, but rather a fair sale to raise money, allowing Sri Lanka to pay off other debts and deal with other issues.
Lastly, many claim that China seized the Hambantota Port for military purposes. Then-Vice President Mike Pence even expressed fear that the port would “soon become a forward military base for China’s growing blue-water navy.” This never happened. Sri Lankan diplomats and politicians have insisted that China using the port as a naval base was never featured in their talks with Beijing, with Karunasena Kodituwakku, the ambassador of Sri Lanka to China, even bluntly stating in an interview: “China never asked us. We never offered it.” Chinese naval ships are not permitted to use the port — it is for Sri Lanka’s naval command only.
More recently, starting in March of 2022, Sri Lanka saw mass protests as people took to the streets frustrated over fuel shortages and the rising cost of essentials. Once again, western media outlets such as The Washington Post, CNBC, The Associated Press, among many others, took the opportunity to blame Chinese lending for plunging Sri Lanka into economic crisis.
Diverting blame away from the role of the IMF, The Wall Street Journal even called China “Sri Lanka’s largest creditor” and that its lending policies “helped create” the crisis to begin with. But again, this is false. As of 2021, 81% of Sri Lanka’s debt was owned by western financial institutions and western allies like Japan and India. Less than 10% is owned by Beijing. In fact, at that time, the IMF alone had granted loans to Sri Lanka 16 times, continually restructuring them at times of economic crisis to the benefit of its creditors. There is no Chinese “debt trap” here — it is western financial institutions’ lending and attendant forced austerity and neoliberalization of the economy that has created Sri Lanka’s crisis.
Entebbe International Airport in Uganda
In November 2021, Uganda’s national newspaper, the Daily Monitor, ran a story with the headline, “Uganda surrenders key assets for China cash.” The article claimed that unless some provisions in the contract to expand Uganda’s Entebbe International Airport were re-negotiated, the country was at risk of being forced to hand it over if the loan was not repaid. The loan in question was worth $207 million at 2% interest from the Export-Import Bank of China granted to Uganda for expansion of the airport, which is a project under BRI.
The headline went viral, with The Daily Show even airing a segment covering the story as the latest supposed example of China’s “debt trap diplomacy,” and it was also picked up by The Wall Street Journal and India’s Economic Times, with the former claiming that “a clause in an agreement with the African nation has stirred a flap over whether the country signed away financial control of Entebbe International Airport.”
But according to analysis by AidData, who obtained a copy of the contract, the airport was not even a source of collateral that the lender could seize in the first place! What the conditions of the agreement did require was that cash collateral be placed in a separate escrow account which could then be seized in the event of default — a fairly standard clause for international projects financing.
The viral story even led to Vianney M. Luggya, spokesperson for the Uganda Civil Aviation Authority, to deny allegations of Chinese plans to seize the airport.
Despite all evidence to the contrary, that has not stopped media sources from spinning their own narratives.
The real debt trap
It is clear that Chinese “debt trap diplomacy” is a U.S. narrative advanced to obscure its own imperialist policies, to distract from the IMF and World Bank’s own practice of pushing predatory loans with exorbitantly high interest rates onto Global South countries. Chinese loans are granted toward infrastructure projects, which are critical to a country’s development — they are not tied to privatization projects and structural adjustment the way IMF and World Bank loans are.
Indeed, IMF and World Bank loans are granted on conditions of privatizing public sectors, gutting social welfare programs, and trade liberalization to enrich western capitalist interests. The predatory interest rates ensure that these loans can never be paid back, keeping the borrowing countries poor and locking them into a state of underdevelopment, to ensure further plunder and resource extraction at the hands of these same western capitalists. This is the real debt trap.
China is dealing with a number of serious issues. After decades of economic growth its trajectory is stalling. The people are openly rebelling against COVID-19 policies, clampdowns on freedom of speech, the treatment of minorities, and President Xi Jinping’s insistence on serving an unprecedented third term.
Those setbacks are not in question.
Here’s a real question: Do these developments imply that China is going to miss its goal of replacing the United States as the world’s economic superpower?
That certainly is not what I’m hearing from my friends in Latin America. According to an Ecuadorian cabinet minister who asked to remain anonymous
Latin American countries possess many natural resources, but we don’t have the technological or financial capabilities to exploit them. China offers hope. We would rather accept help from China than the States. After all, China has never invaded a Latin country or backed coups and assassinations against our elected officials; the US has a history of doing both.
During my time as an EHM, one of our primary goals was to defeat the Soviet Union for world superpower domination. The US supported brutal dictators like Chile’s Pinochet, Indonesia’s Suharto, and Iran’s Shah if they pledged allegiance to the US and allowed our corporations to exploit their nations’ resources. We justified coups and assassinations under the pretense that we were defending democracy and capitalism – when in fact we were promoting a predatory system that made the rich and powerful richer and more powerful.
Then all that changed. My new book describes what China’s economic hit men have learned from the successes and failures of the US’s EHMs. China has beaten the US to become the largest investor and/or largest trading partner in Africa, Asia, Europe, Latin America, and the Middle East. China took advantage of the US’s mistakes. From the new book:
The US and its allies won the Cold War, the Berlin Wall crumbled, and the Soviet Union collapsed in 1991. Lacking the leverage of an alternative superpower, lower-income country leaders grew more vulnerable to US EHM tactics. Neoliberalism proliferated. Resentment grew as these leaders felt exploited by Washington’s hawkish politics and corporate greed and their impotence to counteract it.
Although the Soviet Union had collapsed, the US EHM strategy continued in full force. In what can only be described as misguided arrogance, the US fumbled. China grabbed the ball. The book continues:
It occurred to me that I and my fellow EHMs had been overly confident that the world wanted us, our corporations, and our military. After the dissolution of the Soviet Union, that high level of confidence became hubris. China’s EHMs were not about to make the same mistakes. They were playing to the pride of other countries and promoting the prosperity that would accompany the interconnected trade routes (touted as China’s New Silk Road).
US media pundits are quick to point out that China has suffered setbacks. Following the pandemic, China’s economy has faltered. Beijing has been heavily criticized for its treatment of minorities and its aggressive actions toward Hong Kong, Tibet, and Taiwan. Many of the projects it has financed and built in other countries have been poorly engineered and constructed. President Xi’s consolidation of power during the 20th Congress in October 2022 has raised serious concerns among many countries that China is becoming an Orwellian, militarized dictatorship. The list goes on and on. However, at the same time, China has quietly continued to establish itself as the globe’s newest economic power center.
The New York Times cited China’s recent diplomatic activities as one example:
China’s foreign minister, Wang Yi, a dapper man in well-pressed suits, keeps up a relentless travel schedule, more than 30 countries so far this year, to places big and small: island nations in the Pacific, Central Asia on China’s western periphery and, often, Africa.
He is the campaigner for the global ambitions of his boss, China’s leader, Xi Jinping, carrying the message that Beijing will not be pushed around, least of all by the United States. . . .
In a not-so-subtle way, Mr. Wang is setting up a fight for Asia, with China in one corner and the United States in the other.
“China’s argument is that Asian problems should be solved by Asians,” said Bilahari Kausikan, former foreign secretary of Singapore, who has been with Mr. Wang in closed-door diplomatic meetings. “The argument also says that the U.S. is an unreliable troublemaker.”
Regardless of whether China or the US wins the war for global hegemony, the fact is both countries are promoting a degenerative Death Economy that is consuming and polluting itself toward destruction. There are no winners on a dead planet. The US and China can compete on many levels and disagree about many issues, but we must stop ravaging our mutual home, Earth.
The seventeenth G20 Heads of State and Government Summit held in Bali, Indonesia, on 15–16 November stands out as a consequential event from many angles. The international politics is at an inflection point and the transition will not leave unaffected any of the institutions inherited from the past that is drifting away forever.
However, the G20 can be an exception in bridging time past with time present and time future. The tidings from Bali leave a sense of mixed feelings of hope and despair. The G20 was conceived against the backdrop of the financial crisis in 2007 — quintessentially, a western attempt to burnish the jaded G7 by bringing on board the emerging powers that stood outside it looking in, especially China, and thereby inject contemporaneity into global discourses.
The leitmotif was harmony. How far the Bali summit lived up to that expectation is the moot point today. Regrettably, the G7 selectively dragged extraneous issues into the deliberations and its alter ego, North Atlantic Treaty Organisation (NATO), made its maiden appearance in the Asia-Pacific. Arguably, the latter must be counted as a fateful happening during the Bali summit.
What happened is a negation of the spirit of the G20. If the G7 refuses to discard its bloc mentality, the cohesion of the G20 gets affected. The G7-NATO joint statement could have been issued from Brussels or Washington or London. Why Bali?
The Chinese President Xi Jinping was spot on saying in a written speech at the APEC CEO Summit in Bangkok on November 17 that “The Asia-Pacific is no one’s backyard and should not become an arena for big power contest. No attempt to wage a new cold war will ever be allowed by the people or by the times.”
Xi warned that “Both geopolitical tensions and the evolving economic dynamics have exerted a negative impact on the development environment and cooperation structure of the Asia-Pacific.” Xi said the Asia-Pacific region was once a ground for big power rivalry, had suffered conflicts and war. “History tells us that bloc confrontation cannot solve any problem and that bias will only lead to disaster.”
The golden rule that security issues do not fall within the purview of G20 has been broken. At the G20 summit, the western countries held the rest of the participants at the Bali summit to ransom: ‘Our way or no way’. Unless the intransigent West was appeased on Ukraine issue, there could be no Bali declaration, so, Russia relented. The sordid drama showed that the DNA of the western world hasn’t changed. Bullying remains its distinguishing trait.
But, ironically, at the end of the day, what stood out was that the Bali Declaration failed to denounce Russia on the Ukraine issue. Countries such as Saudi Arabia and Turkey give reason for hope that G20 can regenerate itself. These countries were never western colonies. They are dedicated to multipolarity, which will ultimately compel the West to concede that unilateralism and hegemony is unsustainable.
This inflection point gave much verve to the meeting between the US President Joe Biden and the Chinese President Xi Jinping at Bali. Washington requested for such a meeting on the sidelines of the G20 summit, and Beijing consented. One striking thing about the meeting has been that Xi was appearing on the world stage after a hugely successful Party Congress.
The resonance of his voice was unmistakable. Xi underscored that the US has lost the plot, when he told Biden: “A statesman should think about and know where to lead his country. He should also think about and know how to get along with other countries and the wider world.” (here and here)
The White House readouts hinted that Biden was inclined to be conciliatory. The US faces an uphill challenge to isolate China. As things stand, circumstances overall work to China’s advantage. (here , here and here)
The majority of countries have refused to take sides on Ukraine. China’s stance amply reflects it. Xi told Biden that China is ‘highly concerned’ about the current situation in Ukraine and support and look forward to a resumption of peace talks between Russia and China. That said, Xi also expressed the hope that the US, NATO and the EU ‘will conduct comprehensive dialogues’ with Russia.
The fault lines that appeared at Bali may take new forms by the time the G20 holds its 18th summit in India next year. There is reason to be cautiously optimistic. First and foremost, it is improbable that Europe will go along with the US strategy of weaponising sanctions against China. They cannot afford a decoupling from China, which is the world’s largest trading nation and the principal driver of growth for the world economy.
Second, much as the battle cries in Ukraine rallied Europe behind the US, a profound rethink is under way. Much agonising is going on about Europe’s commitment to strategic autonomy. The recent visit of German Chancellor Olaf Scholz to China pointed in that direction. It is inevitable that Europe will distance itself from the US’ cold war aspirations. This process is inexorable in a world where the US is not inclined to spend time, money or effort on its European allies.
The point is, in many ways, America’s capacity to provide effective global economic leadership has irreversibly diminished, having lost its pre-eminent status as the world’s largest economy by a wide margin. Besides, the US is no longer willing or capable of investing heavily in shouldering the burden of leadership. Simply put, it still has nothing on offer to match China’s Belt and Road Initiative. This should have had a chastening influence and prompted a change of mindset toward cooperative policy actions, but the American elite are stuck in the old groove.
Fundamentally, therefore, multilateralism has become much harder in the present-day world situation. Nonetheless, the G20 is the only game in town to bring together the G7 and the aspiring developing countries who stands to gain out of a democratised world order. The western alliance system is rooted in the past. The bloc mentality holds little appeal to the developing countries. The gravitation of Turkey, Saudi Arabia and Indonesia toward the BRICS conveys a powerful message that the western strategy in conceiving the G20 — to create a ring of subaltern states around the G7 — has outlived its utility.
The dissonance that was on display in Bali exposed that the US still clings to its entitlement and is willing to play the spoiler. India has a great opportunity to navigate the G20 in a new direction. But it requires profound shifts on India’s part too –away from its US-centric foreign policies, coupled with far-sightedness and a bold vision to forge a cooperative relationship with China, jettisoning past phobias and discarding self-serving narratives, and, indeed, at the very least, avoiding any further descent into beggar-thy-neighbour policies.
At the recent Commonwealth for Independent States (CIS) summit held on October 14 in Astana, Kazakhstan, Tajik President Emomali Rahmon expressed previously inconceivable remarks. His public admonishment of Russian President Vladimir Putin to treat Central Asian states with more respect showed the growing confidence of Central Asian leaders amid Russia’s embroilment in Ukraine and China’s expanding regional influence.
After coming under Russian imperial rule in the 18th and 19th centuries, five Central Asian states—Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan—emerged independent from the Soviet Union in 1991.
While these countries remained heavily dependent on Russia for security, economic, and diplomatic support, China saw an opportunity in their vast resources and potential to facilitate trade across Eurasia. Chinese-backed development and commerce increased after the Soviet collapse and expanded further after the launch of China’s Belt and Road Initiative (BRI) in 2013.
Billions of dollars in investment, access to Chinese goods, and opening up China’s enormous consumer market allowed Beijing to restructure Central Asian economies. Soviet-era gas pipeline networks, for example, traditionally forced much of the region’s natural resources to flow through Russia to access the European market. The Central Asia-China pipeline and Kazakhstan-China oil pipeline are just some of the newer pipelines built to transport resources to the Chinese market instead.
These developments have added to friction between Central Asian states and Russia. Disputes between Turkmenistan and Russia over gas prices and a mysterious pipeline explosion in 2009 saw Russian gas imports from Turkmenistan decline until they halted completely in 2016, upending Turkmenistan’s access to Europe. Turkmenistan redirected much of its supply to China for the next three years, before a rapprochement with Moscow in 2019 saw imports to Russia resume.
Billions of dollars in investment, access to Chinese goods, and opening up China’s enormous consumer market allowed Beijing to restructure Central Asian economies.
This affair demonstrated the economic opportunities China could provide to Central Asian states that were previously dependent on Russia. Competing Chinese and Russian attempts to supply Central Asia with COVID-19 vaccines was another demonstration of Beijing’s multifaceted approach to increasing its regional influence.
Sensing the inevitability of Chinese investment in revolutionizing regional economies, the Kremlin announced the “Greater Eurasian Partnership” in 2015. This partnership attempted to integrate the Russian-led Eurasian Economic Union (EAEU), which Kazakhstan and Kyrgyzstan are members of, with the BRI. Though this partnership has only been partially successful, Putin has sought to use Chinese investment to help develop Russia’s Far East.
Russia’s connections to the remaining Soviet political networks and military power in the region have allowed Moscow to contend with China’s growing economic edge in Central Asia over the last two decades. But the increasing international pressure on Russia following its invasion of Ukraine has suddenly upset the traditional “division of labor” between Russia and China in Central Asia. Though still a vital partner to Central Asian states, Russia risks losing greater economic and security ground to China in the coming years.
After cross-border trade between the EU and Russia and Belarus was reduced following Russia’s invasion of Ukraine, for example, China placed renewed focus on developing the Trans-Caspian International Transport Route (TITR), or “Middle Corridor,” of the BRI. Instead of Chinese trade flowing from Russia into Europe, it is increasingly being transported through Central Asia, the Caucasus, and Turkey. The newly built Baku-Tbilisi-Kars (BTK) railway, as well as other projects like the China-Kazakhstan-Uzbekistan (CKU) railway, will further erode Russia’s importance to the BRI.
On September 14, 2022, Chinese President Xi Jinping traveled to Kazakhstan on his first foreign trip since the pandemic began. His destination was symbolic—the BRI was first announced by Xi in Kazakhstan in 2013, and the country has fashioned itself as the “buckle” of the project.
Alongside signing economic deals during his visit in September, Xi vowed to back Kazakhstan “in the defense of its independence, sovereignty and territorial integrity.” This contrasts with Russian political figures who have questioned the validity of Kazakhstan’s statehood in the past, including Putin. Xi then traveled to Uzbekistan to attend the Shanghai Cooperation Organization (SCO) summit on September 15 and 16 and signed deals worth $16 billion with Uzbekistan, dwarfing the $4.6 billion signed between Uzbekistan and Russia.
China’s auto industry has also increased its manufacturing presence and share of the market in Central Asia in 2022, as sanctions have hindered Russia’s production capabilities.
China’s growing military presence in Central Asia has similarly been a major concern for the Kremlin. Over the last decade, China has rapidly increased its arms exports to the region. And though China has conducted bilateral military exercises in Central Asia since 2002 in coordination with the SCO, in 2016 China held its first antiterrorism exercises with Tajikistan, and held the “Cooperation 2019” exercises with Tajikistan, Kyrgyzstan, and Uzbekistan, “marking the first time their national guard units had trained with China on counterterrorism.”
In 2021, Tajikistan also approved the construction of a Chinese-funded military base in the country near its border with Afghanistan—though China’s focus on Tajikistan is “linked more to Afghanistan than to Central Asia as a whole.” However, the use of Chinese private military and security companies (PMSCs) in Africa and the Middle East has also led to concern in Moscow that China’s PMSCs may expand further across Central Asia.
Moscow’s strained military situation became evident in September, when Tajikistan and Kyrgyzstan, both members of the Russian-led Collective Security Treaty Organization (CSTO) military alliance, engaged in deadly border clashes. While Russia and the CSTO were unable to calm hostilities, the leaders of Tajikistan and Kyrgyzstan met on the sidelines of the SCO summit on September 16 to cool tensions.
Nonetheless, several factors inhibit China from eclipsing Russia’s geopolitical influence in Central Asia. Beijing has typically been hesitant to commit military forces abroad and continues to see the Russian military as an asset against instability in the region. The Russian-led CSTO intervention in Kazakhstan in January 2022 showed the Kremlin was capable of stabilizing vulnerable national governments facing social unrest in the region, as well as cementing their authority and international legitimacy.
Russia also operates a military base in Tajikistan, while Kyrgyzstan hosts a Russian military air base. Kazakhstan’s large ethnic Russian minority, meanwhile, holds local economic and political power, and the Kazakh government remains fearful of a Russian military intervention ostensibly to protect them.
Additionally, Russia retains some economic leverage over Central Asian states. Russia conducts billions of dollars worth of trade with them annually and maintains several Soviet legacy projects that have bound Central Asia to it, such as common gas and oil pipelines, waterways, railway networks, and electricity grids. Central Asian states also have some of the largest annual remittance rates in the world, with the remittances from Russia to Kyrgyzstan and Tajikistan accounting for roughly 30 percent of their gross domestic product in 2021.
The Kremlin also has the ability to shape local perceptions of Russia through its dominant media and social media channels in Central Asia. But positive public opinion toward China across the region steadily declined between 2017 and 2021 for a variety of reasons, especially in Kazakhstan, Kyrgyzstan, and Uzbekistan. Many Central Asians are concerned over China’s “debt-trap diplomacy,” while large numbers of Chinese workers brought in to develop BRI projects in the region have resulted in deadly protests and clashes with locals.
Competition between China and Central Asian states over scarce regional water supplies, as well as China’s treatment of Uyghurs in Xinjiang, a Turkic-speaking, largely Muslim ethnic group, who “see themselves as culturally and ethnically close to Central Asian nations,” have also damaged China’s ties in the region.
Evidently, China’s own obstacles and Russia’s lingering presence in the region have helped sustain the geopolitical balance in Central Asia. But mutual pledges by China and Russia to respect one another’s core interests, most recently repeated in June 2022, have contributed the most to preventing greater agitation in the region. While Beijing and Moscow are destined to compete in Central Asia, careful diplomacy will likely prolong their cautious cooperation.
Ultimately, China remains more concerned with Taiwan, the South China Sea, and the broader Asia Pacific region, while Russia is more preoccupied in its eastern and southern regions, most notably Ukraine.
Russia has so far borne the brunt of U.S.-led efforts to contain their foreign policies. But the launch of the U.S.-China trade war in 2018 under former U.S. President Donald Trump marked a serious turn in the U.S.-Chinese relationship, which has continued under President Joe Biden. The Biden administration (as well as the EU) has criticized and sanctioned China over its policies in Xinjiang, and most recently imposed significant technology export controls on China on October 7.
Heightened tensions with the West will draw China and Russia closer together. While Central Asia is where their interests collide the most, Beijing and Moscow will continue to avoid conflict there to focus on pushing back against Western power elsewhere in the world.
Chinese President Xi Jinping said on Monday here during a meeting with his U.S. counterpart, Joe Biden, that as leaders of two major countries, they need to set the right course for bilateral ties.
From the initial contact and the establishment of diplomatic relations to today, China and the United States have gone through 50-plus eventful years, with gains and losses as well as experience and lessons, Xi said.
Noting that history is the best textbook, the Chinese president said that the two sides should take it as a mirror and let it guide the future.
Currently, the state of China-U.S. relations is not in the fundamental interests of the two countries and their people, Xi said, adding that it is not what the international community expects from the two countries either.
As leaders of two major countries, Xi said, the two presidents need to play the leadership role, set the right course for the China-U.S. relationship and put it on an upward trajectory.
A statesman should think about and know where to lead his country. He should also think about and know how to get along with other countries and the wider world, he added.
Emphasizing that in this time and age, great changes are unfolding in ways like never before, Xi said that humanity is confronted with unprecedented challenges.
“The world has come to a crossroads. Where to go from here? This is a question that is not just on our mind, but also on the mind of all countries,” Xi said, noting that the world expects that China and the United States will properly handle their relationship.
Noting that his meeting with Biden has attracted the world’s attention, Xi said that the two sides should work with all countries to bring more hope to world peace, greater confidence in global stability, and stronger impetus to common development.
Xi said that he stands ready to have a candid and in-depth exchange of views with Biden on issues of strategic importance in China-U.S. relations and on major global and regional issues, adding that he also looks forward to working with Biden to bring China-U.S. relations back to the track of healthy and stable growth to the benefit of our two countries and the world as a whole.
The United States has gambled big in its latest across-the-board sanctions on Chinese companies in the semiconductor industry, believing it can kneecap China and retain its global dominance. From the slogans of globalization and “free trade” of the neoliberal 1990s, Washington has reverted to good old technology denial regimes that the U.S. and its allies followed during the Cold War. While it might work in the short run in slowing down the Chinese advances, the cost to the U.S. semiconductor industry of losing China—its biggest market—will have significant consequences in the long run. In the process, the semiconductor industries of Taiwan and South Korea and equipment manufacturers in Japan and the European Union are likely to become collateral damage. It reminds us again of what former U.S. Secretary of State Henry Kissinger once said: “It may be dangerous to be America’s enemy, but to be America’s friend is fatal.”
The purpose of the U.S. sanctions, the second generation of sanctions after the earlier one in August 2021, is to restrict China’s ability to import advanced computing chips, develop and maintain supercomputers, and manufacture advanced semiconductors. Though the U.S. sanctions are cloaked in military terms—denying China access to technology and products that can help China’s military—in reality, these sanctions target almost all leading semiconductor players in China and, therefore, its civilian sector as well. The fiction of ‘barring military use’ is only to provide the fig leaf of a cover under the World Trade Organization (WTO) exceptions on having to provide market access to all WTO members. Most military applications use older-generation chips and not the latest versions.
The specific sanctions imposed by the United States include:
- Advanced logic chips required for artificial intelligence and high-performance computing
- Equipment for 16nm logic and other advanced chips such as FinFET and Gate-All-Around
- The latest generations of memory chips: NAND with 128 layers or more and DRAM with 18nm half-pitch
Specific equipment bans in the rules go even further, including many older technologies as well. For example, one commentator pointed out that the prohibition of tools is so broad that it includes technologies used by IBM in the late 1990s.
The sanctions also encompass any company that uses U.S. technology or products in its supply chain. This is a provision in the U.S. laws: any company that ‘touches’ the United States while manufacturing its products is automatically brought under the U.S. sanctions regime. It is a unilateral extension of the United States’ national legal jurisdiction and can be used to punish and crush any entity—a company or any other institution—that is directly or indirectly linked to the United States. These sanctions are designed to completely decouple the supply chain of the United States and its allies—the European Union and East Asian countries—from China.
In addition to the latest U.S. sanctions against companies that are already on the list of sanctioned Chinese companies, a further 31 new companies have been added to an “unverified list.” These companies must provide complete information to the U.S. authorities within two months, or else they will be barred as well. Furthermore, no U.S. citizen or anyone domiciled in the United States can work for companies on the sanctioned or unverified lists, not even to maintain or repair equipment supplied earlier.
The global semiconductor industry’s size is currently more than $500 billion and is likely to double its size to $1 trillion by 2030. According to a Semiconductor Industry Association and Boston Consulting Group report of 2020—“Turning the Tide for Semiconductor Manufacturing in the U.S.”—China is expected to account for approximately 40 percent of the semiconductor industry growth by 2030, displacing the United States as the global leader. This is the immediate trigger for the U.S. sanctions and its attempt to halt China’s industry from taking over the lead from the United States and its allies.
While the above measures are intended to isolate China and limit its growth, there is a downside for the United States and its allies in sanctioning China.
The problem for the United States—more so for Taiwan and South Korea—is that China is their biggest trading partner. Imposing such sanctions on equipment and chips also means destroying a good part of their market with no prospect of an immediate replacement. This is true not only for China’s East Asian neighbors but also for equipment manufacturers like the Dutch company ASML, the world’s only supplier of extreme ultraviolet (EUV) lithography machines that produces the latest chips. For Taiwan and South Korea, China is not only the biggest export destination for their semiconductor industry as well as other industries, but also one of their biggest suppliers for a range of products. The forcible separation of China’s supply chain in the semiconductor industry is likely to be accompanied by separation in other sectors as well.
The U.S. companies are also likely to see a big hit to their bottom line—including equipment manufacturers such as Lam Research Corporation, Applied Materials, and KLA Corporation; the electronic design automation (EDA) tools such as Synopsys and Cadence; and advanced chip suppliers like Qualcomm, Nvidia, and AMD. China is the largest destination for all these companies. The problem for the United States is that China is not only the fastest-growing part of the world’s semiconductor industry but also the industry’s biggest market. So the latest sanctions will cripple not only the Chinese companies on the list but also the U.S. semiconductor firms, drying up a significant part of their profits and, therefore, their future research and development (R&D) investments in technology. While some of the resources for investments will come from the U.S. government—for example, the $52.7 billion chip manufacturing subsidy—they do not compare to the losses the U.S. semiconductor industry will suffer as a result of the China sanctions. This is why the semiconductor industry had suggested narrowly targeted sanctions on China’s defense and security industry, not the sweeping sanctions that the United States has now introduced; the scalpel and not the hammer.
The process of separating the sanctions regime and the global supply chain is not a new concept. The United States and its allies had a similar policy during and after the Cold War with the Soviet Union via the Coordinating Committee for Multilateral Export Controls (COCOM) (in 1996, it was replaced by the Wassenaar Arrangement), the Nuclear Suppliers Group, the Missile Control Regime, and other such groups. Their purpose is very similar to what the United States has now introduced for the semiconductor industry. In essence, they were technology denial regimes that applied to any country that the United States considered an “enemy,” with its allies following—then as now—what the United States dictated. The targets on the export ban list were not only the specific products but also the tools that could be used to manufacture them. Not only the socialist bloc countries but also countries such as India were barred from accessing advanced technology, including supercomputers, advanced materials, and precision machine tools. Under this policy, critical equipment required for India’s nuclear and space industries was placed under a complete ban. Though the Wassenaar Arrangement still exists, with countries like even Russia and India within the ambit of this arrangement now, it has no real teeth. The real threat comes from falling out with the U.S. sanctions regime and the U.S. interpretation of its laws superseding international laws, including the WTO rules.
The advantage the United States and its military allies—in the North Atlantic Treaty Organization, the Southeast Asia Treaty Organization, and the Central Treaty Organization—had before was that the United States and its European allies were the biggest manufacturers in the world. The United States also controlled West Asia’s hydrocarbon—oil and gas—a vital resource for all economic activities. The current chip war against China is being waged at a time when China has become the biggest manufacturing hub of the world and the largest trade partner for 70 percent of countries in the world. With the Organization of the Petroleum Exporting Countries no longer obeying the U.S. diktats, Washington has lost control of the global energy market.
So why has the United States started a chip war against China at a time that its ability to win such a war is limited? It can, at best, postpone China’s rise as a global peer military power and the world’s biggest economy. An explanation lies in what some military historians call the “Thucydides trap”: when a rising power rivals a dominant military power, most such cases lead to war. According to Athenian historian Thucydides, Athens’ rise led Sparta, the then-dominant military power, to go to war against it, in the process destroying both city-states; therefore, the trap. While such claims have been disputed by other historians, when a dominant military power confronts a rising one, it does increase the chance of either a physical or economic war. If the Thucydides trap between China and the United States restricts itself to only an economic war—the chip war—we should consider ourselves lucky!
With the new series of sanctions by the United States, one issue has been settled: the neoliberal world of free trade is officially over. The sooner other countries understand it, the better it will be for their people. And self-reliance means not simply the fake self-reliance of supporting local manufacturing, but instead means developing the technology and knowledge to sustain and grow it.
This article was produced in partnership by Newsclick and Globetrotter.
The Communist Party of China (CPC) held its 20th National Congress from October 16 to October 22, 2022. Every five years, the delegates of the CPC’s 96 million members meet to elect its top leaders and to set the future direction for the party. One of the main themes of the congress this year was “rejuvenation” of the country through “a Chinese path to modernization.” In his report to the congress, Xi Jinping, the CPC’s general secretary, sketched out the way forward to build China “into a modern socialist country.”
Most of the Western media commentary about the congress ignored the actual words that were said in Beijing, opting instead to make wild speculations about the deliberations in the party (including about the sudden departure of former Chinese President Hu Jintao from the Great Hall of the People during the closing session of the congress, who left because he was feeling ill). Much could have been gained from listening to what people said during the National Congress instead of putting words in their mouths.
When the Communist Party took power in China in 1949, the country was the 11th poorest country in the world. For the first time since the “century of humiliation” that began with the British wars on China from 1839 onward, China has developed into a major power with the social situation of the Chinese people having greatly improved from their condition in 1949. A short walk away from the Great Hall of the People, where the congress was held, is the Chairman Mao Memorial Hall, which reminds people of the immense achievement of the Chinese Revolution of 1949 and its impact on Chinese society.
Xi Jinping became the general secretary of the CPC at the 18th National Congress in 2012 and was elected president of the People’s Republic of China in March 2013. Since then, the country has gone through significant changes. Economically, China’s GDP has almost doubled to become the world’s second-largest economy, growing from 58.8 trillion yuan in 2013 to 114.37 trillion yuan in 2021, and its GDP expanded at a rate of 6.6 percent per year during the same period. Meanwhile, the country’s per capita GDP almost doubled between 2013 and 2021, with China approaching the high-income country bracket. In terms of the world economy, China’s GDP was 18.5 percent of the global total in 2021, and the country was responsible for 30 percent of world economic growth from 2013 to 2021. China also manufactured 30 percent of the world’s goods in 2021, up from more than 20 percent in 2012. This adds to the decades of historically unprecedented growth rate of 9.8 percent per year from 1978 to 2014 since the launching of economic reform in China in 1978. These economic achievements are historic and did not come without their set of challenges and consequences.
While delivering the report at the opening of this congress, Xi spoke about the situation that the Chinese people faced a decade ago: “Great achievements had been secured in reform, opening up, and socialist modernization… At the same time, however, a number of prominent issues and problems—some of which had been building for years and others which were just emerging—demanded urgent action.” He went on to talk about the “slide toward weak, hollow, and watered-down party leadership,” pointing out that “money worship, hedonism, egocentricity, and historical nihilism” were the deep-seated problems in a development process that was “imbalanced, uncoordinated, and unsustainable.” These are significant self-criticisms made by the man who has led the country for the past decade.
A decade ago, in his speech at the 18th CPC National Congress, outgoing Secretary General Hu Jintao mentioned the word “corruption” several times. “If we fail to handle this issue well,” he warned, “it could prove fatal to the party, and even cause the collapse of the party and the fall of the state.” Xi Jinping’s first task after taking over as general secretary of the CPC was to tackle this issue. In his inaugural speech as the party head in 2013, Xi said he was committed to “the fighting of tigers and flies at the same time,” referring to the corruption that had spread from the high echelons down to the grassroots level within the party and the government. The party launched “eight-point” rules for its members in December 2012, to limit practices such as inconsequential meetings and extravagant receptions for official visits, and advocated “diligence and thrift.”
Meanwhile, a year after the launch of the “mass line campaign” by Xi’s administration in June 2013, official meetings were reduced by 25 percent in comparison to the period before the campaign, 160,000 “phantom staff” were removed from the government payroll, and 2,580 “unnecessary” official building projects were stopped. Over the past decade, from November 2012 to April 2022, nearly 4.4 million cases involving 4.7 million officials were investigated in the fight against corruption. Party members have been investigated. In the first half of this year alone, 24 senior officials were investigated for corruption, and former ministers, provincial governors, and presidents of the biggest state-owned banks have been expelled from the party and given harsh sentences, including life imprisonment.
Hu Jintao’s comments and Xi Jinping’s actions reflected concerns that during the period of high growth after 1978, CPC members grew increasingly detached from the people. During the first months of his presidency, Xi launched the “mass line campaign” to bring the party closer to the grassroots. As part of the “targeted poverty alleviation” campaign launched in 2014, 800,000 party cadres were sent to survey and visit 128,000 villages as part of this project. In 2020, despite the COVID-19 pandemic, China successfully eradicated extreme poverty, contributing to 76 percent of the global reduction in poverty till October 2015.
Beyond the party’s self-correction, Xi’s strong words and actions against the corrupt “flies and tigers” contributed to the Chinese people’s confidence in the government. According to a 2020 research paper by Harvard Kennedy School’s Ash Center for Democratic Governance and Innovation, the overall satisfaction with the government’s performance was 93.1 percent in 2016, seeing the most significant growth in the more underdeveloped regions in the countryside. This rise of confidence in rural areas resulted from increased social services, trust in local officials, and the campaign against poverty.
Right Side of History
At the 20th Congress, Xi Jinping reflected on the history of colonialism—including China’s “century of humiliation”—and the implications this would have for China going forward. “In pursuing modernization,” Xi said, “China will not tread the old path of war, colonization, and plunder taken by some countries. That brutal and blood-stained path of enrichment at the expense of others caused great suffering for the people of developing countries. We will stand firmly on the right side of history and on the side of human progress.”
Chinese officials routinely tell us that their country is not interested in seeking dominance in the world. What China would like to do is to collaborate with other countries to try and solve humanity’s dilemmas. The Belt and Road Initiative, for instance, was launched in 2013 with the purpose of “win-win” cooperation and development and has thus far built much-needed infrastructure with investment and construction contracts totaling $1 trillion in almost 150 countries. China’s interest in tackling the climate catastrophe is evidenced by its planting of a quarter of the world’s new forests over the past decade and in becoming a world leader in renewable energy investment and electric vehicle production. On the public health side, China adopted a COVID-19 policy that prioritizes lives over profit, donated 325 million doses of vaccines, and saved millions of lives as a result of this. As a result of its initiatives in the public health sector, the average life expectancy of Chinese people was 77.93 years in 2020 and reached 78.2 years in 2021, and for the first time, surpassed life expectancy in the United States—77 years in 2020 and 76.1 in 2021—making this drop “the biggest two-year decline in life expectancy since 1921-1923.”
China’s communists do not see these events without putting them in the context of the long process undertaken by the government toward achieving and ensuring their social development. In 27 years, China will celebrate the centenary of its revolution. In 1997, then-President of China Jiang Zemin spoke about the two centenary goals—the 100-year markers following the founding of the Communist Party (1921) and the Chinese Revolution (1949)—that “underwrite all China’s long-term economic planning programs and contemporary macroeconomic policy agendas.” At that time, the focus was on growth rates. In 2017, Xi Jinping shifted the emphasis of these goals to the “three tough battles”: to defuse major financial risks, to eradicate poverty, and to control pollution. This new congress has gone beyond those “tough battles” to protect Chinese sovereignty and to expand the dignity of the Chinese people.
This article was produced by Globetrotter.
Even as Xi Jinping was promising China’s Communist Party’s national congress that China would “resolutely win the battle” in key areas of technology, employees of technology companies in China and elsewhere were being told to down tools. Dozens of the hundreds of executives and engineers with US citizenship or green cards who work in or with China’s semiconductor sector, many of them born in China, have been told by their employers – whether those are foreign or Chinese companies – to stop work while their employers seek clarification of a new US rule that bars US citizens and residents from supporting China’s advanced chip-making industry without a licence.
It is now crystal clear that the US, enabled by a bipartisan consensus in Washington, is determined to stop China upgrading technologically. This has massive implications for Beijing’s ambitions in areas such as artificial intelligence and autonomous driving. The new Chips Act introduced by the Biden administration is accompanied by a 139-page report released by the Department of Commerce’s Bureau of Industry and Security.
The report targets not only US companies’ involvement in selling tech products to China but also US persons (i.e. anyone with a US passport or green card). This puts the many founders of Chinese tech companies who were educated in the US, and acquired a US passport on the way, in a seemingly difficult position. It will also make it much harder for Chinese tech companies to attract talent. Similarly, R&D laboratories set up by some Chinese companies in the US now look vulnerable. Alibaba has research labs in Seattle and Silicon Valley while Tencent also has a research lab in Seattle. And US pressure will be brought to bear to stop Holland’s ASML and Japanese companies from supplying China.
All of the above makes it clear the extent to which China is now treated as “an enemy” of the US. This goes far beyond what used to be called “containment”. It also raises the issue of how long Beijing continues to turn the other cheek since, so far, it has done nothing to make life difficult for American companies operating in China, save for its Covid restrictions, on the view that it wants to keep encouraging foreign direct investment.
The US move on chips also has big implications for TSMC and other Taiwan companies given the amount of semiconductors Taiwan exports to the mainland. Taiwan’s chip (integrated circuits) exports to China totaled $155bn in 2021 and $105bn in the first eight months of 2022, and accounted for 36% and 38%, respectively, of total Chinese chip imports. Indeed, the most interesting aspect of Nancy Pelosi’s Taiwan trip in early August was her meeting with TSMC founder Morris Chang and chairman Mark Liu, most particularly in the context of legislation on semiconductors passed by Congress in late July which will provide $52.7bn in subsidies to encourage chip manufacturers to build factories in America.
TSMC is already building a fab in Arizona. Construction of the factory started in June 2021 and its main facility is now reportedly completed, while production is scheduled to begin in 2024. Under the chips legislation TSMC will be required to transfer its technology to the US.
Unlike previous attempts by the Trump and Biden administrations to target specific Chinese companies from accessing advanced technologies (the ban of Huawei was the classic example), the new rules effectively cover every Chinese entity. They, or their US or foreign suppliers, will have to apply for a licence to gain or provide access to advanced chip technologies.
If the US strategy does prove effective – and the response of a wide range of non-Chinese companies operating in the sector in freezing dealings with China suggests it could be – it would cut China off from the critical building blocks of most 21st century technologies.
Why is the US applying these drastic measures against China’s trade and technology? It’s the fear that China could become not just a manufacturing and import source for US consumers, but a rival in every area to US hegemony over the world economy.
What particularly triggered this new policy on China by the US was the global financial crash and the Great Recession. Under its state-controlled model, China survived and expanded while Western capitalism collapsed. China was fast becoming not just a cheap labour manufacturing and export economy, but a high technology, urbanised society with ambitions to extend its political and economic influence, even beyond East Asia. That was too much for the increasingly weak imperialist economies.
The US and other G7 nations have lost ground to China in manufacturing, and their reliance on Chinese inputs for their own manufacturing has risen, while China’s reliance on G7 inputs has fallen.
According to a recent report by Goldman Sachs, China’s digital economy is already large, accounting for almost 40% of GDP and fast growing, contributing more than 60% of GDP growth in recent years. “And there is ample room for China to further digitalize its traditional sectors”. China’s IT share of GDP climbed from 2.1% in 2011Q1 to 3.8% in 2021Q1. Although China still lags the US, Europe, Japan and South Korea in its IT share of GDP, the gap has been narrowing over time. No wonder, the US and other capitalist powers are intensifying their efforts to contain China’s technological expansion.
China has spent more than $100 bn to fast-track the development of a domestic chip-making industry. It is a critical component of its “Made in China 2025 program,” which set out China’s plans to dominate artificial intelligence, autonomous vehicles, next-gen information technology, telecommunications, advanced robotics and aerospace, among other technology-related sectors by 2049.
So the US strategy changed. If China was not going to play ball with imperialism and open up its economy completely to foreign investment and continue to expand its technology base to compete with the US, then it had to be stopped. The recently deceased Jude Woodward wrote an excellent book describing this strategy of containment that began even before Trump launched his trade tariff war with China on taking the US presidency in 2016. Trump’s policy, at first regarded as reckless by other governments, is now being adopted across the board, after the failure of the imperialist countries to protect lives during the pandemic.
The aim is to weaken China’s economy and destroy its influence and perhaps achieve ‘regime change’. Blocking trade with tariffs; blocking technology access for China and their exports; applying sanctions on Chinese companies; and turning debtors against China; this may all be costly to imperialist economies. But the cost may be worth it, if China can be broken and US hegemony secured.
The CPC congress emphasized China’s response. “We must adhere to science and technology as the number-one productive force, talent as the number-one resource, [and] innovation as the number-one driving force.”. SoBeijing sees the decision to try to freeze Chinese domestic manufacturing above a defined level of technological advancement as deeply provocative. Forcing China to rely on foreign production for the latest and greatest chips plays exactly into Xi’s fear of “technological vassaldom.” So China is moving towards a more self-reliant growth model.
That is the basis of what the Xi leadership calls a ‘dual circulation’ development mode, where trade and investment abroad is combined with production for the huge domestic market.
The dual circulation model was first formally announced at a Politburo meeting in May 2020 and sets out a rebalancing of the Chinese economy away from “international circulation” (the first kind of circulation on which China has relied, namely, reliance on external demand as a stimulus to growth) towards “domestic circulation,” or increasing self-dependence.
The political hot spot for intense conflict between the US and China is Taiwan. Taiwan (Formosa) was taken over by fleeing Nationalist forces in China after the Chinese communists won the civil war and took control in 1949. From the beginning, the Chinese Communist government and the United Nations recognised Taiwan as part of China. But from the beginning, the Nationalists were backed by the US with funds and arms, first with the aim of overthrowing the Communists on the mainland and later, when that became impossible, to maintain the island’s autonomy from China. And since the rise of the Chinese economy, the US and the rest of the imperialist bloc has encouraged moves by the Taiwanese to build and confirm total independence. Taiwan could then become a permanent thorn in China’s side and also the launchpad for military operations against Beijing in the future.
The Russia invasion of Ukraine has given the US and NATO the excuse to intensify the economic, political and military encirclement of China with Taiwan as its hub. By the broadest definition of military intervention, the US has engaged in nearly 400 military interventions between 1776 and 2019, with half of these operations occurring since 1950 and over 25% occurring in the post-Cold War period. these interventions have revolved around economy, territory, social protection, regime change, protection of US citizens and diplomats, policy change, empire, and regime building. The US backed by an extended NATO, no longer confined to the Atlantic seaboard, sees China as the next area for ‘intervention’ down the road.
The Western media helps by continually talking of China’s so-called ‘aggressive behaviour’ and its crimes against human rights. Whatever the truth in those charges, they are easily matched by the crimes of imperialism in the last century alone: the occupation and massacre of millions of Chinese by Japanese imperialism in 1937; the continual gruesome wars post-1945 conducted by imperialism against the Vietnamese people, Latin America and the proxy wars in Africa and Syria, as well as the more recent invasion of Iraq and Afghanistan and the appalling nightmare in Yemen by the disgusting US-backed regime in Saudi Arabia etc. And don’t forget the horrific poverty and inequality that weighs for billions under the imperialist mode of production.
But the economic and political conflict between China and the US is the major geopolitical issue of the 21st century – much larger than the Russia-Ukraine war. US National Security advisor Jake Sullivan summed it up recently. “This is a decisive decade… in which the terms of our competition with the People’s Republic of China will be set.”He continued: “The PRC’s assertiveness at home and abroad is advancing an illiberal vision across economic, political, security, and technological realms in competition with the west,” China must be stopped because “It is the only competitor (to the US) with the intent to reshape the international order and the growing capacity to do it.”
China is at a crossroads in its development. Its capitalist sector has deepening problems with profitability and debt. But the current leadership has pledged to continue with its state-directed economic model and autocratic political control. And it seems determined to resist the new policy of ‘containment’ emanating from the so-called ‘liberal democracies’. The trade, technology and political ‘cold war’ is set to heat up over the rest of this decade, while the planet heats up too.
Views expressed are personal. Click here to read the author’s personal blog, where this piece as a part of a series was originally published