Chinese challenge

Print edition : April 27, 2018

Chinese President Xi Jinping. China’s emergence as the world’s second largest economy, after decades of stratospheric double-digit growth, spurred deep anxieties in the U.S., which was unaccustomed, after the Soviet collapse, to the emergence of a competitor. Photo: FRED DUFOUR/AFP

Two F/A-18 Super Hornets and two Royal Malaysian Air Force SU-30MKM/Flanker H flying above the aircraft carrier USS Carl Vinson, operating in the South China Sea during a bilateral exercise, on May 10, 2015. The signs of the U.S. attempting to stifle China’s global rise are glaringly visible in the geopolitical domain as well. Photo: AFP

Outside a U.S. apparel store in Beijing on March 23. On April 4, China’s Commerce Ministry listed 106 U.S. products which would be subjected to a 25 per cent tariff. The Chinese move was announced soon after the U.S. listed nearly 1,300 Chinese products worth $50 billion for additional duties. Photo: Ng Han Guan/P

The Chinese leadership seems to have realised that more than a “trade war”, it is about an “exceptionalist” America trying to block China’s rise as an effective global rival.

After breaking ranks with the Soviet Union, China became a de facto partner of the United States and remained so for several decades. The breach with Moscow widened in 1972, during the visit of U.S. President Richard Nixon. In the years to come, the geopolitical compulsion of driving a wedge within the communist camp became the touchstone of Washington’s approach towards Beijing.

The emergence of Deng Xiaoping following the death in 1976 of Mao Zedong, the founder of the People’s Republic of China (PRC), imparted a major, and increasingly prominent, geoeconomic dimension to Sino-U.S. ties.

In the decades that followed, China, spurred by Deng’s reform and opening up, became the workshop of the world, benefiting hugely from the migration of U.S. and Western capital to its coastal provinces. Guangdong province became exceptionally wealthy, riding on the neighbouring presence of Hong Kong as a world-class financial centre. Guangzhou, the capital of Guangdong province, less than two hours by train from Hong Kong, became an international trade and manufacturing hub, benefiting from the wave of globalisation and, later, Beijing’s entry into the World Trade Organisation (WTO).

Shenzhen, close to Guangzhou, evolved into a major international hi-tech centre, spawning titans such as Huawei and DJI, the world leader in drones. Outside Guangdong, Shanghai’s rise was equally, and visibly, spectacular. But China’s emergence as the world’s second largest economy, after decades of stratospheric double digit growth, spurred deep anxieties in the U.S., which was unaccustomed, after the Soviet collapse, to the emergence of a competitor.

“The world’s liberal democracy may have seemed to be the only model to run a country. But then China emerges and becomes a very strange creature, very much different from any single political system in the world; China doesn’t fit into the mindset or patterns set by conventional wisdom in the West,” Yu Jie, the head of China Foresight at the London School of Economic Ideas, told China Global Television Network (CGTN) in an interview.

Unease about China’s rise

The unease about China’s rise became prominent during the Barack Obama years. On a geopolitical plane, the Obama administration became the architect of Washington’s “Pivot to Asia” doctrine of countering China’s rise through an accumulation of forces in the Pacific. U.S. allies in the region—South Korea, Japan, Singapore and Australia—became significant partners of the Pivot, led by the U.S. Pacific Command.

The Obama administration also became the architect of the Trans-Pacific Partnership (TPP), an economic spur of the Pivot, which banded together major countries in the Asia-Pacific, including Vietnam, Japan, Singapore, Australia and Chile. `Despite the friction, the Obama administration did not cross the red line of an open Cold War with China. The pillars of the Chinese economy, which had been fuelling Beijing’s rise, were spared from attack. The previous U.S. government was fully aware that targeting China meant hurting major U.S. corporations across the board. The supply chains of major U.S. companies were routed through China.

But the old rules of the game seem to be changing, with the arrival of Donald Trump in the White House. The rumblings of a new Cold War between China and the U.S. are now louder than ever before. Trump’s “America first” doctrine, to which generating jobs at home is apparently central, has identified China as the visible villain that is hampering the return of prosperity to the U.S.

China’s transformation

In tune with the arrival of Trump, China itself is undergoing a major transformation. Unlike Deng’s “lie-low” approach which was pursued by his successors Jiang Zemin and Hu Jintao, President Xi Jinping has been assertive about the realisation of the “Chinese Dream”. That “Dream” rides on what are called the two centenary goals.

In a defining address at the 19th Congress of the Communist Party of China (CPC) held in October, Xi identified 2021 as the year when China will become a “moderately prosperous society”. By the middle of the century, China would have become an advanced socialist nation, exercising leadership in nearly all spheres of human endeavour.

In an interview with CGTN, China commentator Robert Lawrence Kuhn observed that Xi’s speech recognised the linkage and integration between achieving the goal of a “moderately prosperous society” by 2021—the centenary of the CPC— and the eventual goal of becoming an advanced nation by 2049 when the PRC would celebrate its 100th anniversary. He pointed out that Xi’s address revealed that China would keep developing as a “moderately prosperous society” between 2020 and 2035.

But in the second phase between 2035 and 2050, it will evolve “into an advanced nation and will be a global leader in all categories of human importance—economics, governance, science and technology, and culture”.

Without referring to the U.S. administration under Trump, Xi, at the party Congress, underscored China’s proactive support for globalisation and combating climate change. “No country alone can handle all the challenges that mankind faces and no country can retreat into self-isolation,” the Chinese President said, listing regional and economic instability, the widening wealth gap, terrorism, major epidemics, cyberspace insecurity and climate change as major challenges facing humankind.

China’s doctrinal focus on building a “moderately prosperous society” has multiple indices. It encompasses doubling China’s gross domestic product (GDP) from the 2010 level. Consequently, China has to be free of all mass poverty, meaning that 70 million of the country’s remaining poorest have to be empowered ahead of that timeline. With industrial pollution choking many of the cities, a moderately prosperous society also has the fundamental improvement of the environment and the transformation of social and cultural life as its other major dimensions.

At the core of China’s proposed renaissance is its “Made in China 2025” blueprint. Essentially, it means upgrading China’s overall industry through Internet-based intelligent manufacturing. “Made in China 2025” has been borrowed from Germany’s “Industry 4.0” plan.

China has identified 10 core areas to power its industrial transformation: New advanced information technology; automated machine tools and robotics; aerospace and aeronautical equipment; maritime equipment and hi-tech shipping; modern rail transport equipment; new-energy vehicles and equipment; power equipment; agricultural equipment; new materials; and biopharma and advanced medical products.

China is also undergoing major leadership and administrative restructuring in order to achieve its twin centenary goals. The empowerment of Xi as the custodian, steering China’s next stage of evolution, is at the heart of the overhaul of the state machinery.

Xi’s emergence as the sheet anchor of China’s rise was amplified just ahead of the annual session of the National People’s Congress (NPC) in March. Prior to the session of the NPC, China’s parliament, the state-run Xinhua news agency reported that the tenure of the President would no longer be limited to 10 years or two successive five-year terms. Consequently, the Deng era constitutional amendment of a two-term presidential limit, born in the aftermath of Mao’s excesses during the controversial Cultural Revolution of the 1960s and 1970s, was poised for invalidation. The possibility of Xi’s presidential tenure now lasting indefinitely fuelled a debate that China was returning to an autocratic era, together with an impending revival of a major personality cult, orchestrated by an ever-expanding state media. Others, however, argued that the decision to abolish a two-term limit was taken because of the special circumstances prevailing in China, which was undergoing a major transition that could take years to complete.

Overseas there has been an outpouring of concerns ranging from the ideological—China extinguishing hopes of an on-the-road-to-democracy Western style political reform—to the geopolitical. Would China now amplify its “hegemonic” military assertion in the South China Sea, South Asia and possibly the Indian Ocean not far away?

Three broad themes

There appear to be at least three broad themes, which may explain China’s decision to empower Xi indefinitely. First, China’s transition to one of the most powerful nations in the world is still very much a work in progress. China’s shift from the workshop of the world to a manufacturer of advanced digitally enabled high-end products, leveraging Artificial Intelligence, Internet of Things (IoT) and Big Data, is yet to reach adolescence. The overheated economy has to be deleveraged to prevent a hard landing, even if it means a fairly sharp decline in GDP growth rates.

Besides, Xi’s trademark Belt and Road Initiative (BRI) to reinforce Beijing’s geoeconomic and arguably geopolitical heft, just out of the incubator, is encountering teething troubles. It would therefore take years, perhaps decades, for Xi to complete China’s economic transition, including railing the BRI, which plans to industrialise Eurasia through massive investments in infrastructure and connectivity.

Xi’s half-finished anti-corruption drive may also require continuity in leadership. A new anti-corruption National Supervisory Commission was established during the NPC session. It will hunt corrupt “tigers” and “flies”, not only within the CPC but also in the vastly expanding private sector.

The modernisation of the People’s Liberation Army (PLA) is also at a critical stage. Xi’s firm hand would be required for long to weed corruption out of the PLA.

Within China, the CPC’s decision to abolish a two-term presidential limit has triggered a lively back and forth. On either side of the aisle, Xi’s supporters and detractors are digging into China’s far and near history in order to make their case.

‘Time-tested tradition’

A blogger who goes by the name Chan Kai Yee links the decision of the CPC to liberate Xi of a maximum presidential tenure of 10 years to China’s time-tested tradition. He argues that Xi’s tenure without timelines restores the essence of China’s old Yao-Shun system of succession. Under its template, merit and moral integrity alone were the criteria for exercising power. The blogger cites the Chinese classic The Book of History, which claims that more than 4,000 years ago in Yao and Shun times, China’s Emperor Yao first tested the calibre of Shun, his eventual successor. Shun was first assigned a high official position. Once he had proved his competence, Yao decided that Shun should succeed him. “Shun was chosen as candidate of succession due to his moral integrity but was finally chosen when he had proved competent in performing the official duties assigned to him by Emperor Yao,” says the post. Shun applied the same merit-based principle to choose Yu as his successor for an indefinite tenure.

The decision to consolidate power behind Xi, an individual of proven merit, also echoes the Yao-Shun principle, which was highly praised by Confucius, says the blog. Supporters of the President cite unique considerations, which led the party to empower Xi. They point out that Xi faced the cascading impact of Deng’s political reforms, including setting two five-year term limits to the presidential tenure. Deng wanted to flush out diehard loyalists of Mao from the system, as they did not fit into his reform and opening-up plan. One way of getting rid of them was by setting specific time limits to their stay in office.

But the two-term condition also had some unintended consequences. It led to the exit after two terms, in 2003, of Jiang Zemin, Deng’s chosen successor. This brought Hu Jintao to the helm. Critics of Hu say that it was under him that problems that Xi was later to confront ballooned. A surge in debt-fuelled growth created bubbles in a highly leveraged economy. Corruption skyrocketed, posing an existential threat to the CPC.

Xi, thus, has been engaged in elaborate housecleaning since 2012, which has included the celebrated launch of his massive anti-corruption drive. But the work remains only half done, demanding that the President, in the classical Yao-Shun tradition, remain in office for as long as it takes.

Compared to Yuan Shikai

But critics draw comparison of Xi’s consolidation of power with the career path of Yuan Shikai, an important figure in China’s modern history. Yuan was an ambitious military commander of the early 20th century who, riding on extensive political manoeuvring, rose to become emperor before his fall from grace. “After the 1911 revolution, the Chinese empire was turned into a republic. It was then that Yuan Shikai, who had nodes in the imperial palace, because of his military influence, made a deal with the revolutionaries. Yuan became the President of China indefinitely, in return for forcing the emperor of China to step down,” said the political commentator Roger Woo. But political ambition, including a crisis of legitimacy, was to lead to Yuan’s fall.

NPC legislators also approved a major reform plan of streamlining the central government structure, under the State Council, or China’s Cabinet, by slashing the bureaucracy, improving institutional efficiency and ending turf wars. For instance, two new ministries—the Ministry of Natural Resources and the Ministry of Ecological Environment—have been formed with the purpose of bringing together smaller units dispersed over various agencies. The banking and insurance regulators have also been merged to reduce financial risks. The Chinese government has identified financial risks, resulting from runaway debt-fuelled growth, as one of its three “critical battles”, which include poverty and pollution.

The deputies also approved a plan to establish the State International Development Cooperation Agency (SIDCA), which would push Xi’s signature BRI to industrialise Eurasia. SIDCA would also channel foreign aid, which could be used to leverage China’s influence abroad. Besides, the reforms included setting up a new immigration agency, which would help attract foreign talent to support China’s budding cutting-edge industries. “The latest reform, which is based on scientific design, is no less than an institutional revolution that is of profound significance,” wrote Li He, Politburo member and a part of Xi’s core team, in People’s Daily, the CPC’s official newspaper. Towards the end of the NPC session, Xi’s core leadership team was firmly in place. Xi’s boyhood friend and trusted ally in the anti-corruption campaign, Wang Qishan, was elected Vice President. Of the nearly 3,000 delegates who voted, only one delegate opposed Wang’s new appointment.

By becoming Vice President, Wang staged a powerful comeback, as he had officially “retired” at the 19th party Congress. The resounding support among the deputies for Wang is significant. Eighty delegates had opposed Li Yuanchao, Wang’s predecessor, when he stood for vice presidency in the 2013 NPC session. Prior to that, 28 lawmakers had opposed Xi’s candidacy for Vice President in 2008.

Analysts say that Wang is likely to serve as Xi’s right-hand man in advancing China’s overseas interests, including ties with the U.S. which are facing headwinds during the Trump presidency.

The lawmakers also unanimously elected Li Zhanshu, Xi’s former chief of staff, as the next chairman of the NPC. The post becomes especially relevant as the burden of passing new legislation is expected to mount in tune with Xi’s focus on “rule of law” as the template for China’s governance in the “new era”. Yang Xiaodu was elected director of the National Supervisory Commission, the mega-sized anti-graft body.

In the U.S., after Trump came into office, ideology seemed to override geoeconomic prudence. On March 8, the U.S. imposed tariffs on steel and aluminium products. Though other countries were also affected, the measure, in view of the anti-Beijing rhetoric radiating from Washington, seemed to spark a nascent trade war. China responded energetically, with Wang Hejun, a Commerce Ministry official, issuing a statement which said, “The misuse of the ‘national security exception’ clause by the United States is wanton destruction of the multilateral trade system represented by the WTO and will surely have a serious impact on the normal international trade order. China firmly opposes it.”

On March 22, the U.S. fired its next salvo, announcing its decision to impose a 25 per cent tariff on Chinese products, amounting to nearly $60 billion. Significantly, the new tariffs were targeting Beijing’s critically important Made in China 2025 plan.

The office of United States Trade Representative (USTR) said that the new tariffs were meant to force changes in the Chinese government policies that have resulted in the “uneconomic” transfer of U.S. intellectual property to Chinese companies. The agency’s “Section 301” investigation alleged that China systematically tried to misappropriate U.S. intellectual property through joint-venture requirements, unfair technology licensing rules, purchases of U.S. technology firms with state funding, and outright theft.

But White House Trade Adviser Peter Navarro told Bloomberg Television that Section 301 tariffs would focus on Chinese industries that were benefiting from the Made in China 2025 plan, which would enable China to emerge as an exporter and not a buyer of cutting edge high-end products. “China in my view brazenly has released this China 2025 plan and basically told the rest of the world, ‘We’re going to dominate every single emerging industry of the future and therefore your economies aren’t going to have any future’,” Navarro asserted. “Section 301, which is on intellectual theft and forced transfer, is specifically designed to address those kinds of things,” he observed.

In its riposte against Washington’s first instalment of additional tariffs covering steel and aluminium products alone, China selectively targeted agro-products that would have some impact on Trump’s electoral base among farmers. On April 2, China’s State Council imposed additional tariffs on 128 items imported from the U.S.

China imposed a 15 per cent tariff on 120 products, including wine, pistachios and walnuts, as well as fruits such as oranges, grapes and watermelons. Outside the basket of edibles, seamless steel pipes from the U.S. were also targeted. Last year, U.S. exports to China of these products amounted to $1 billion. The authorities also strapped a 25 per cent tariff on goods worth nearly $2 billion, including pork and aluminium scrap.

“In this back and forth, the Chinese leadership, fresh out of a session of its NPC, does not want to appear weak. It is likely that China will not stop shy of a tit for tat on what, potentially, could be a lead up to a trade war,” a Beijing-based academic who did not wish to be named told Frontline.

After China had stated its intent to impose counter-tariffs, former Chinese Finance Minister Lou Jiwei said that Beijing’s response had been “relatively mild”, but more stringent measures could come that would target U.S. soybeans, cars and planes. In case U.S. soybeans were restricted in the Chinese market, that would hurt farmers who have been big supporters of Trump.

South China Morning Post quoted Gregory Moore, head of international studies at the University of Nottingham in the eastern China city of Ningbo, as saying that the latest action by Beijing was another of the “opening salvoes of a trade war”, and that more were expected from both sides. He added: “There’s going to be a few more exchanges… in this sort of nascent trade war. It’s going to go a little further before things cool down. China will keep pace with everything that the U.S. does.”

But the trade row spiralled on April 4, when China’s Commerce Ministry listed 106 U.S. products which would be subjected to a 25 per cent tariff. The items included soybeans, cars, chemicals and aircraft, triggering fears that the world’s top two economies may be locking horns in a major and escalating trade war.

The Chinese move was announced soon after the U.S. listed nearly 1,300 Chinese products worth $50 billion for additional duties. Analysts said that the U.S tariffs targeted Beijing’s Made in China 2025 plan. “The U.S. list suggests that the government is targeting the Made in China 2025 initiative, while China’s retaliation intends to bring Americans back to the negotiation table,” Bloomberg quoted Zhou Hao, an economist at Commerzbank AG in Singapore, as saying.

Observers said that China’s decision to mount additional tariffs on soybean had been chiselled to hit Trump’s Republican Party base, particularly among farmers in Iowa, Ohio and Michigan—top soybean producing States. The U.S. is the second biggest supplier of soybean to China, the world’s largest consumer of the product.

Reuters reported that Tesla electric cars, Ford’s Lincoln auto models, Gulfstream jets made by General Dynamics, and Brown-Forman Corp’s Jack Daniel’s whiskey are on Beijing’s list. “In attempting to block China’s rise, the Trump administration has launched an attack not only on China but on U.S. companies, workers and farmers. The outcome of the situation will be decided by an interaction of both fronts in this battle,” said John Ross, Senior Fellow at the Chongyang Institute for Financial Studies, in a conversation with Frontline.

In a statement, China’s Finance Ministry said that the U.S. decision “severely infringed on the legitimate rights and interests that China enjoys in accordance with World Trade Organisation rules, and threatened China’s economic interests and security”. The Chinese leadership appeared to have sensed that the Trump administration was not restricting itself to a “trade war”. The objective appeared to be bigger—of an “exceptionalist” America trying to block China’s rise as an effective global rival to the U.S.

In the geopolitical domain

The signs of the U.S. attempting to stifle China’s global rise were glaringly visible in the geopolitical domain as well. In its latest National Security Strategy (NSS) unveiled in December, the Trump administration slammed China for its attempt to “challenge American influence, values, and wealth”, “attempting to erode American security and prosperity”, and using “technology, propaganda, and coercion to shape a world antithetical to” U.S. interests and values.

The NSS asserted: “China seeks to displace the United States in the Indo-Pacific region, expand the reaches of its state-driven economic model, and reorder the region in its favour”. The report accused China of stealing “U.S. intellectual property valued at hundreds of billions of dollars”.

Xi seemed to have sensed that a contradiction between China’s rise and Pax Americana had sharpened to an extreme. His remarks at the NPC closing session revealed an acute awareness of the challenges ahead, which could include a new Cold War.

In the address, which appeared intended to rally the CPC rank and file to counter expected headwinds ahead, Xi evoked Chinese nationalism, including an oblique reference to Mao Zedong’s famous quote—“The east wind will prevail over the west wind.”

“We must ride on the mighty east wind of the new era, charge forward with a full tank and steadily steer the wheel with full power, so that the giant ship of China carrying the great dream of more than 1.3 billion Chinese people will continue to cleave through the waves and sail to victory for a promising tomorrow,” Xi declared at the session’s closing ceremony. But the President reassured those who may be intimidated by China’s rise that his country was not pursuing “hegemony”. “China’s development will not pose a threat to any country. China will never seek hegemony and will never engage in expansion,” he said. “Only those who are accustomed to threatening others will see everyone as a threat,” he observed.

Yet, Xi made it plain that his country’s territorial status was cast in stone. “Any actions and tricks to split China are doomed to failure and will be condemned by the people and punished by history.”

Analysts say that Xi’s comment could be directed at many—including those seeking independence of Taiwan or “self-determination” in Hong Kong, Xinjiang, or countries such as India, Japan or those in South-East Asia, which have territorial disputes with China. “It is not allowed and is absolutely impossible to separate an inch of the country’s territories,” Xi observed.

China’s tough position on its boundaries could also be a message to the U.S., after President Trump’s signature on legislation that encourages frequent exchanges between U.S. and Taiwanese officials. “China is laying out its red lines, as Trump prepares his trade war declaration,” the political commentator Einar Tangen told Frontline. “On the sidelines the rest of the world has to decide between these two competing visions and styles,” he observed.

Xi said that the people of China must be ready to contend with forces that were likely to hinder their country’s growth spiral. “The Chinese people have understood since ancient times that there are no free things to enjoy. To be happy, one must fight for it,” he said.

Yet the President was optimistic that “the great rejuvenation of the Chinese nation” was “closer today than at any other time in history”.

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