‘China will not close its door to the world and will only become more and more open,’ said Chinese president Xi Jingping at a trade fair in Shanghai in late 2018.
‘Protectionism and unilateralism are rising. Multilateralism and the free-trade system are under threat,’ he warned, managing to avoid the name on everybody’s mind.
The speech, a few weeks ahead of a planned meeting between Xi and US president Donald Trump, was designed to be sweet music to the ears of free-traders.
In contrast to a petulant Trump, launching trade wars like a toddler hurling toys out of his playpen, Xi has been sounding like the grown-up in the room – a supporter of the rules-based multilateral system epitomized by the WTO.
At the 2017 World Economic Forum in Davos, Xi had reflected: ‘There was a time when China had doubts about economic globalization and was not sure whether it should join the World Trade Organization. But we came to the conclusion that integration into the global economy is a historical trend. To grow its economy, China must have the courage to swim in the vast ocean of the global market.’
Courage ‘to swim in the vast ocean’ has not been wanting in the Chinese leadership. Take the ‘Belt and Road’ – China’s big plan to link 70 countries by land and sea and the most ambitious geopolitical initiative of our age – for example. ‘It is,’ writes China expert Bruno Maçães, ‘the Chinese plan to build a new world order replacing the US-led international system.’
But when it comes to action on opening up its own market to others, China is more cautious.
‘China wants to be recognized under WTO rules as a market economy but is not behaving like one,’ says Isabel Hilton of the NGO Chinadialogue.
The West accuses China of ‘non-market’ strategies, such as using state subsidies to over-produce steel and aluminium; restricting the import of foreign goods and services, and keeping many sectors closed off to foreign investment.
Trump’s complaints about Chinese trade practices have been the loudest and most undiplomatic – unless you think ‘rape’ is a diplomatic way of describing a trade imbalance. But the underlying complaints are not new. For years European and US chambers of commerce have noted ‘administrative’ and other barriers to those wanting to do business in China.
The Chinese have announced reform, ‘but concrete actions are pretty hard to spot,’ comments Hilton.
Whether Trump’s efforts will succeed where others have failed remains to be seen. China has more to lose in a trade war with the US simply because its exports to the Western power far exceed its imports from it. In a tit-for-tat spat, the US has more firepower.
A trade war also interferes with China’s big plans for the future – such as ‘Made in China 2025’. Unveiled in 2015, this strategic plan aims to lift the country’s industries – from robotics, aerospace and new materials to ‘new energy’ vehicles – up the value chain, replacing imports with local products and building global champions able to take on the Western giants in cutting-edge technologies.
Unsurprisingly, the US, which has long accused China of stealing intellectual property, feels threatened. But, in a sense, the West let it happen. Successive Chinese leaders pressed foreign business to transfer technology and expertise, especially in aeronautics, electronics, cars, high-speed trains and nuclear energy. In exchange, the Western companies got a cheap work force and a developing-world government that was willing to ignore the environmental costs of their activities.
China consequently has managed to develop its own technology companies – Alibaba, Huawei, Tencent, Weibo, WeChat – on its own terms. And the country’s 802 million internet users are mostly inaccessible to the Silicon Valley giants that dominate the rest of the world – Google, Amazon, Facebook and Apple.
‘Bringing China down’
Is China really ready to open up? It may be hard. The more Trump attacks China the more it confirms that the US is just trying to bring China down – a view endorsed by the US-requested arrest of Meng Wanzhou, a top executive of China’s smart phone giant, Huawei, in Canada, for alleged US sanctions busting.
‘Don’t forget this has been the narrative since 1989,’ observes Isabel Hilton. ‘It’s the thing that justifies the continued rule of the party: “China was a great power until foreigners brought China to its knees. The Party has restored China to its former and deserved greatness but the foreigner is always out to get us.” [So] every hostile move that the US makes against China feeds into that story.’
China is much more open to travelling about the world with its Belt and Road initiative – exporting its model of development in Africa, Latin America, Southeast Asia and beyond.
If successful, Belt and Road will result in a huge increase in Chinese power, locking at least a third of the world’s countries into investment with the economic giant. The driver for Belt and Road is excess capacity in China’s core industries following the country’s industrial revolution.
‘The infrastructure companies are maxed out on pouring concrete at home; they need new markets,’ says Hilton. ‘They have a very powerful combination of state, financial and political backing.’
Some on the Left, such as trade expert and veteran negotiator Yash Tandon, have welcomed the arrival of China on the scene in the Global South, pointing out that it is creating a lot more useful infrastructure than the US or Europe ever did in their exploitative quest for raw materials.
But China’s involvement in Africa, Latin America and Asia-Pacific is contentious. Nations of the South have become saddled with debt in exchange for infrastructure, sometimes of doubtful value. There are warnings of a new debt crisis in Africa, which received $60 billion worth of Chinese investment in 2018. The World Bank now rates 18 African countries at ‘high risk of debt distress’, topped by Zambia, Djibouti and Republic of Congo, all heavily indebted to China.
The environmental impacts of Belt and Road are also alarming. China has made admirable progress toward renewables, mass-producing cheap solar and wind technology. But this is not the model being exported to the developing world. Rather, China’s traditional industrial capacity is being used to open up new coal, oil and other climate-wrecking sources.
Meanwhile, China’s trade with and investment in weaker parties increasingly spills over into geopolitical demands: last year Burkina Faso, El Salvador and the Dominican Republic all broke ties with Taiwan. Coercive commercial tactics may be used when dealing with the not-so-weak, as seen when Britain tried and failed to pull out of a Chinese contract to renovate Hinkley Point nuclear power station or when Argentina tried to end a contract for a big dam project.
More than trade
The background fear is that increased hostility between the world’s two biggest powers will lead to military conflict. It would not be the first time in history that a trade dispute ended in this way.
‘I don’t believe anyone wants a war,’ says Hilton. ‘The US military doesn’t and the Chinese certainly don’t.’ Unlike the US, China, she notes, has been good at getting a lot of what it wants without firing a shot.
For the US, a waning economic power, the sight of China’s physical expansion into the South China Sea is alarming. China keeps building new islands on coral reefs for naval instillations, claiming them as Chinese territory, although this is not recognized by any other country.
The US responds with displays of superior naval hardware and nuclear capability dotted around the region. The US is determined not to sell China military technology, but Britain is keen to relax the post-Tiananmen massacre EU embargo on selling weapons to China, and recently sold advanced dual-use radar equipment. A desperate and weakened post-Brexit Britain is likely to ramp up its arms-trading activities.
One spin-off from US hostility is that China is now being more ‘friendly’ in its relations with the EU, Japan and its regional neighbours. It is also busy negotiating regional trade deals, such as the Regional Comprehensive Economic Partnership (RCEP).
The Chinese leadership is ambitious for sure, but it would be a mistake to overstate the country’s economic stability. Even without a trade war there are concerns about the economy. China has a mountain of debt (250 per cent of GDP) following the 2008 financial crisis, when it spent billions (12.5 per cent of GDP) on a fiscal stimulus and big infrastructure projects – essentially bailing out the global economy. It now has a slowing rate of growth and an ageing population. The leadership admits the situation is challenging.
Who knows what the next move will be in the elaborate power game as China pursues great expansion and the US seeks to contain it. But chances are, China will be playing its cards close to its chest.