Dr. Colibasanu is a Professor of International Relations at the Romanian National University of Political Studies and Public Administration and an Associate Senior Expert with the New Strategy Center in Bucharest. Prior to joining Geopolitical Futures in 2016 as a Senior Analyst, Dr. Colibasanu spent more than ten years with Stratfor in various positions, including as a partner for Europe and Vice President for International Marketing. She is also a trainer on geopolitics for the European Affairs program at the Romanian European Institute.
Among other academic credentials, she holds a doctorate in International Business and Economics from Bucharest’s Academy of Economic Studies, where her thesis focused on country risk analysis and investment decision-making processes within transnational companies.
In July this year, Antonio Colibasanu, in an article, tried to explain China-NATO tension and NATO’s outright accusation of Beijing supplying weapons to Russia for use in Ukraine.
INTRODUCTION
NATO recently issued a statement directly accusing China for the first time of supplying weapons to Russia. The alliance urged China to withdraw “all material and political support” for Russia’s war effort in Ukraine, including the delivery of dual-use goods that could be used for both civilian and military purposes. This isn’t the first time the West has accused Beijing of abetting Russia in Ukraine. The U.S. has claimed that China supplies some 70 percent of Russia’s machine tools and 90 percent of its microelectronics imports. China has also been accused of pursuing “malicious cyber and hybrid activities, including disinformation” against NATO nations – a threat that became more acute after cybersecurity firm ESET released information pointing to Chinese hackers planting malware on Greek, Dutch, and Norwegian cargo ships. However, over the past few years, NATO has gradually joined the chorus. In 2022, alliance members identified China as a “potential threat” for the first time.
NATO CONDEMNS CHINA AND RUSSIA TO UNDERCUT THE ‘RULES-BASED’ INTERNATIONAL ORDER
Last year, at the NATO summit in Vilnius, the alliance condemned China and Russia for their “mutually reinforcing attempts to undercut the rules-based international order” and criticized Beijing’s “coercive tactics” to divide the alliance. This year’s statement is the harshest language yet used against China, leading many to wonder if it represents a significant diplomatic escalation or if there is more to it than just a war of words. Indeed, during the NATO summit last week in Washington, the alliance announced it would strengthen cooperation with partners in the Pacific (South Korea, Japan, Australia, and New Zealand). Reports suggest NATO is trying not only to enhance military coordination with the region but also to establish a framework for these countries to increase defence industry cooperation with alliance members. South Korea has already proved it can execute defence deals with NATO partners, and Japan, having gradually dismantled its self-imposed ban on selling lethal weapons, announced its decision to allow the transfer to third nations of the next-generation fighter aircraft being built in collaboration with the United Kingdom and Italy.
China has denied NATO’s charges against it, showing through its diplomatic responses that it takes them seriously. On July 12, China’s foreign minister made an unscheduled phone call to his Dutch counterpart to discuss the “groundless accusations” made by NATO, which he said should “refrain from interfering in Asia-Pacific affairs or China’s internal affairs, and from challenging China’s legitimate rights and interests.” It’s no coincidence that the foreign minister sent his message to NATO through the Netherlands; China cannot produce its own advanced semiconductor manufacturing equipment, so it must buy it abroad, and the Netherlands’ ASML is the only company in the world that makes it. Restricted by the U.S. and the EU, ASML stopped selling new technologies to China in 2019, but Beijing still maintains good relations with the company to ensure it can access maintenance services for equipment it already possesses. However, early this year, the U.S. began pressuring the firm to restrict servicing to China. This betrays an economic reality underlying this whole affair.
SIGNIFICANCE OF CHINA’S PLENARY SESSIONS
The third plenary session of the current five-year term is significant since it has traditionally served as a venue for introducing important changes and policy proposals. Media reports suggest that new policy changes are expected to address major issues in China, including the property crisis and local government debt. President Xi Jinping will likely emphasize the need to focus on “new productive forces” and frontier technologies besides manufacturing to advance the economy. China still prides itself on its exports, but its trade surplus has not resulted in higher industrial capability. On the contrary, China’s share of global exports masks its inability to stimulate domestic consumption, which is a function of income expectations and perceptions of stability – sentiments Chinese citizens don’t seem to hold. In fact, Chinese consumers are concerned about an uncertain economic future.
The state may ask them to consume more, but knowing their freedom and liberty of choice is restricted, they prefer to be on the safe side. Such bearish sentiment is perfectly normal. For the past two decades, China depended on real estate to generate fixed-asset investments and, as a result, domestic demand. The recent real estate boom in China has helped to alleviate the country’s massive current account imbalances, which have been in place for years. Yet domestic consumption remains low, approximately 35 percent of gross domestic product. Now, the real estate boom is slowly turning into a bubble due to developers’ dependence on loans and overbuilding. China is facing macroeconomic imbalances that make it unable to address its debt problem. Its total debt (public and private) has surged in recent decades, reaching nearly 300 percent of GDP in 2022, according to data from the Bank for International Settlements. This debt is multifaceted.
Local governments financed ambitious infrastructure projects through borrowing, and state-owned enterprises, a cornerstone of the Chinese economy, accumulated substantial debt. The real estate sector, which has easy access to credit, has also contributed to the problem. This creates a situation in which a slowdown in economic growth could trigger a crisis, as repayment abilities become strained. Economic growth is already a concern. In July this year, China’s State Statistics Administration reported that GDP growth dropped to 4.7 percent in the second quarter.
In addition, the decline in pricing for new structures in China in June was the largest in nine years. As a result, the government announced that the transition to a new development model will be accelerated and that China will strive for “intensive growth.” This involves pressing Chinese companies to increase the quality of manufactured export products and develop technologically intensive sectors, hinting that their quantitative overcapacity isn’t enough to grow the economy to the levels Beijing expects. But external demand remains the only way in the short term for Beijing to tackle internal economic problems. China has thus been exporting even more manufactured goods overall, and it is trying to expand its market worldwide. Globally, opinions differ on whether other economies can absorb China’s overcapacity, even if quality is increased.
US RESISTANCE TO IMPORTING MANUFACTURED GOODS FROM CHINA
The U.S., the most important market for Chinese goods, is increasingly resistant to importing manufactured goods from China. This encouraged Beijing to boost its export share in Europe, especially in niche but growing industries. The influx of Chinese electric vehicles alone has raised concerns, as their share of the EU market has grown to 8 percent from below 1 percent in 2019. While the EU hasn’t fully embraced Washington’s decoupling strategy, it has called for a “derisking” strategy to reduce its reliance on Chinese imports and has launched several investigations into China’s use of subsidies for some of the export industries that are gaining market share in Europe. Beijing’s pursuit of an “intensive growth model” points to the possibility that China could implement additional subsidies and policies meant to grow its market share in what used to be Western competitive sectors.
POSSIBILITY OF INCREASED COMPETITION BETWEEN CHINA AND THE WEST
All of this will likely increase competition between China and the West. Notably, the recent NATO summit occurred amid several international military drills in China. China and the United Arab Emirates launched their second annual Falcon Shield training exercises in Xinjiang to deepen defence relations, despite U.S. objections. More telling is that China and Belarus held their first military drills on July 8 in the southwestern Belarusian city of Brest, just a few miles away from the Polish border.
According to the Belarusian armed forces, the drills were a response to the West’s aggressive foreign policy toward Belarus and to the “Ukrainian provocation.” Meanwhile, Chinese military activity near Taiwan has raised concerns in the West. On July 10, Taiwan’s Defence Ministry reported that the Shandong aircraft carrier passed near the Philippines on its way to exercises in the Pacific. The following day, Taiwan detected a surge in Chinese aircraft, with 66 planes spotted near the island, some crossing south and southeast.
CONCERN EXPRESSED BY JAPAN’S DEFENCE WHITE PAPER
China’s military activities in Taiwan and Japan caused alarm. Taiwan’s update on July 11 warned of potential escalation, while Japan’s annual Defence White Paper, released recently, expressed deep concern about heightened tensions and the possibility of conflict spreading to its territory. The paper also highlighted broader security threats posed by China’s growing nuclear arsenal, as well as Russia and North Korea. The increased military activity in the area is tied to annual Russo-Chinese exercises that take place near Zhanjiang. These drills, which are meant to prove the “resolve and capabilities of the two sides in jointly addressing maritime security threats,” are supposed to end in mid-July, but no precise date has been set.
CHINA IS PROJECTING ITS MILITARY FORCE OUTSIDE ITS NEIGHBOURING REGIONS
For the first time, China is projecting military force outside its neighbouring regions, including near NATO’s border. While its political declarations are still cautiously written, China’s display of military force and participation in international theatres has heightened global tensions. This suggests the South China Sea could be the site of the next Eurasian borderland crisis should the diplomatic escalation become more than a war of words.
The chances of this materialising increase if the Chinese leadership cannot address the country’s economic challenges and if they transform into political problems that jeopardise regime survival. Such a scenario might take shape if Chinese export capabilities decline. It is therefore no surprise that after NATO issued its harsh statement against China, Beijing called one of its key European partners – which could reach out to the United States. China understands the risk of continuing to help Russia militarily. But it needs the Russian market – and any other market – to survive economically. Russia isn’t as important as Western markets, though, as the U.S. and Europe buy about a third of Chinese exports, according to World Bank statistics.
CONCLUSION
If the West decides to turn against China and limit market access, Beijing will not just lose money – it’ll have to aggressively pursue other locations or, worse, figure out a new economic strategy, with which it has had little success so far. The West also functions as a maritime security lynchpin for global trade. This includes deploying naval forces to patrol vital shipping lanes, deter piracy, and ensure freedom of navigation. China, heavily reliant as it is on seaborne imports and exports for economic growth, lacks a comparable global naval presence. Its economic well-being hinges on a maritime security architecture it does not control.
Consequently, Beijing has a vested interest in the continued stability and freedom of international shipping lanes. For all these reasons, China knows there is a limit to its military posturing and support of Russia. NATO’s statement on China is likely to worry Beijing – unless its economic problems are so deep that conflict becomes a solution. While Chinese statistics are opaque, there aren’t indications the gravity of the situation is high. After all, this is why China and the West keep lines of communication open.
