As Covid-19 swirled across the continents since 2020, China has accelerated with its charter of global dominance - from weaponizing the supply chains to fanning geopolitical tensions.
Let us dial back to 2019 and check if our understanding is correct. That would be easy for us to extrapolate into 2025.
Allowing China into WTO – a mistake?
The biggest US mistake was to bring China into the World Trade Organization. It was way back in the spring of 2000 when President Clinton urged the US lawmakers the virtue of China joining the WTO.
As Bob Davis of WSJ wrote in July 2018, “Mr. Clinton’s idealistic rhetoric played well among
most of Washington’s elites, but a trade lawyer often dismissed as a protectionist, Robert Lighthizer, was skeptical. As he had warned in a New York Times op-ed a few years earlier, if admitted to the WTO, mercantilist China would become a “dominant” trading nation.”
This US folly back in 2001 is costing the whole world. There should have been some strict riders on China for joining the WTO; instead, it got a blank cheque.
Once China got one foot into the door, it bulldozed all the way in. The US was naive not to realize there is never any ‘Quid pro quo' when it comes to China and its geopolitical ambitions. So, if we call Trump as the dumbest President, then what the Democrat Presidents viz. Clinton & Obama did just as ludicrous. No wonder Trump came to power singing ‘America first'. China had already joined the WTO; it had acquired the legitimacy of the world trade regime and got the US companies to part with their IP rights just as they were after the Chinese market. The market caps of the US companies were growing, and nobody was complaining.
It was only when the pandemic hit with full force that the world came to know what Chinese checkers was all about.
As countries after countries went under the first, second, third waves, China began unraveling its trade and war games.
In all the world-catching events, Chinese footprints were visible - Global container crisis, semiconductor chip crisis, trade and territorial wars with Australia, India, Japan. It wants to keep alive the South China sea turmoil and rile Taiwan even threatening to invade from time to time.
China feels it is striking distance from throwing the US from its numero uno position. However, there is an underlying difference. China has a hidden agenda to occupy the centre of the World order and legitimize its action.
One has to look back into its history and get the answers - its DNA is command and control and has no qualms of collectivism, its motto: obey or be obliterated. In this interconnected world where Technology has altered how the world behaves - this looks anachronistic.
Dissecting Made in China 2025
We need to analyze the charter behind Chinese belligerence. In 2015, China released Made in China 2025 part of the government’s five-year plan. The objective was to update the manufacturing base by developing ten high-tech industries - mainly included electric cars and other new energy vehicles, next-generation information technology (IT) and telecommunications, and advanced robotics and artificial intelligence. Borrowing or rather copying from Germany’s Industry 4.0 development plan.
Beijing’s main goal was to reduce dependence on foreign Technology and promote Chinese high-tech manufacturers into the global markets. Semiconductors were at the center of these plans, given the nature of the centrality of chips in all electronic goods. China roughly accounts for 60 percent of global demand but produces around 13 percent of the total supply.
If one analyses the recent semiconductor chip shortage, it was due to hoarding by the Chinese suppliers against the backdrop of the Covid-19 crises. The global demand-supply matrix got distorted, with the result all big & small tech product and automobile companies felt the heat.
China’s economic model and China 2025
Since the 1980’s the ruling Chinese Communist Party (CCP) has followed a mixed economy (we In India are quite conversant!) that combines socialist planning with private enterprise.
In recent years China wants to move away from a low wage to a high-tech, high productivity economy.
China is wary of its economy falling into the middle-income trap, which will happen inevitably as the era of high growth falters and wages spirals.
How it wants to achieve
China intends to focus on intense policy centralization and works in tandem with the government, private enterprise, and academia. It blindsides the world by keeping the private sector at the forefront to avoid any retaliation by World Trade Organization (WTO) for any violations. Some of the tactics include:
Provide direct subsidies. The government will increase subsidies through funding and low-interest loans, tax breaks, and other subsidies. While the data is opaque, it is estimated to be in billions of dollars.
International investment and acquisitions: The value of Chinese acquisitions in the US has grown from $45 billion in 2016. The growth has been 30 percent since 2016, and the pace increased during the coronavirus pandemic time
Investment from SOE’s: Much of the International investments come from State-owned-enterprises (SOE’s), funds, or companies backed by the Chinese government. The government supports many of China’s global tech giants like Huawei and ZTE, although privately run.
Transfer Agreements: Foreign companies investing in China have to enter into joint venture agreements with Chinese firms. As part of the deal, they have to share advanced technological know-how and intellectual property.
Many experts have pointed out the misuse of these forced agreements where Chinese firms have used these rules to acquire foreign technologies.
Critique of China 2025 policy
China aims to be a dominant player in the advanced technology space. It has made concerted state-led investments in US firms in facial recognition software, AI, virtual reality systems, and autonomous vehicles. It has been recruiting foreign scientists, using US universities for research giving the grants, and brazenly involved in stealing US intellectual property.
A bigger worry for policymakers across the world is the Chinese ambition to control the entire supply chains. These Chinese moves not only threaten the individual countries but also distort the global innovation system.
In economic terms, it is distorting the global markets by keeping political considerations over economics. Using state subsidies as a weapon to overproduce and then dump cheap products in the overseas markets is gaming the demand-supply equation.
Also, it has created asymmetry in the markets where Chinese companies are acquiring and investing in the US, Europe, and other countries. On the other hand, there are iron-clad restrictions for these companies to operate and invest in China.
Time for countries to respond?
An aggressive approach is the only language China will understand as their DNA is centralized command and control. Countries will have to form Bilateral and Unilateral blocs to stop China from occupying the center of global economic order. The significant danger is that for China, political and territorial ambitions will always take precedence. As we have seen during the Covid 19 crisis, its response is usually screechy and uncivilized. Their wolf warrior diplomats start mouthing expletives and obfuscate with ‘Democracy is bad’ as if they are already a superpower.
Another option would be – more and more countries should join much like Allied powers like Quad plus to push back China in terms of its geopolitical designs and hit where it hurts like Human rights, freedom of speech, etc. The young generations in China who have tasted wealth and have been exposed to western education will eventually ask tough questions.
Epilogue
The probability of China as a society imploding is high - the way they have been treating their corporate czars like Jack Ma of Alibaba, whose IPO of Ant Group was abruptly postponed, incarceration of real-estate executive Ren Zhiqiang who criticized Xi Jinping’s handling of coronavirus in Wuhan province.
Experts such as Dexter Roberts, the author of The Myth of Chinese Capitalism, believe that the economic consequences of Xi’s moves to stifle private business would be enormous. He sees a virtuous cycle of slower growth, weakened innovation, and less competition, leading to economic stagnation. Already, productivity has been affected as the bias towards state-owned firms is increasing. The amount of capital needed to generate one unit of economic growth has doubled since Xi took over. Once the Covid induced growth peters away and a coalition against China start taking shape, China under Xi will feel the heat which would have more extended ramifications for the global world order.
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