China's rise and how the USA got it wrong
By Moshe Mella and Noah Tucker
It is evident already that the rise in US hostility to China which took place under President Trump was not a temporary blip or aberration in United States policy. But the change in the US stance towards the People’s Republic of China – from being main strategic partner and sponsor of its internal reforms, to the ‘new Cold War’, involving intense rivalry, military encirclement and economic sanctions – has been astonishing.
Despite the People’s Republic of China (PRC) conceding under US pressure to a deal which involved increasing its imports from the United States, the economic attack on the PRC gathered steam in 2020. From May to August that year, 68 Chinese companies, universities, and other institutions, including the software giant Qihoo 360 Technology, were blacklisted by being put on the USA’s so called ‘entity list’, adding to the dozens of Chinese organisations already subject to sanctions. Then in September 2020, the US Department of Commerce issued an edict preventing companies from selling goods or services to SMIC, China’s largest producer of semiconductor chips, unless they obtained special permission.
Under Trump, tariffs were slapped on many Chinese imports, alongside increasingly shrill state and media attacks on China, and harassment, for example, the attempt to extradite senior Huawei executive Meng Wanzhou to the USA, for allegedly violating US sanctions on Iran and Cuba. Huawei itself was placed on the ‘entity list’ in May 2019 and the USA banned the sale of semiconductors to the company. It has relentlessly pressurised its allies to cancel contracts with Huawei and even to strip its equipment from existing infrastructure. Huawei, as well as being the world’s biggest manufacturer of smartphones, is the key player in the deployment of 5G. The United States, on the other hand, has no large companies competing in this league. This is not merely about internet speeds. 5G technology is the driving force of developments in artificial intelligence, robotics and the ‘internet of things’. Clearly, the USA does not want to leave the leadership of this technical field in the hands of China.
But the current US hostilities against China did not start with the Trump presidency, nor are they the result merely of nationalist populism fuelled by the impact on US workers of competition from products manufactured in China. Less than a decade after the United States had crowned its patronage of China’s market reforms by backing the PRC’s accession to the World Trade Organisation in 2001, the anti-China realignment began under Obama. This included the adoption of the ‘Air-Sea Battle’ doctrine (the integration of US naval and air force capabilities with a view to potential war with China) and the ‘Pivot to Asia’ strategy, which focused resources on the military encirclement of China.
On the economic side, the Obama administration accused China of currency manipulation and pressurised the PRC to further revalue its currency, despite the Chinese having pegged the Yuan to the US dollar from 1994 to 2005, and then allowed it to appreciate by 19% relative to the dollar. The US campaign against Huawei also began under Obama, with an official investigation concluding (with astounding hypocrisy, given the mass international surveillance by American intelligence services via communications firms) that Huawei posed a danger to national security. From 2012, the US banned companies from using Huawei networking equipment, and a process was instigated to destroy the company via denying it access to world markets.
Nor is the US alone in its turn against China. Speaking in June 2020, NATO General Secretary Jens Stoltenberg warned: “…the rise of China is fundamentally shifting the global balance of power. Heating up the race for economic and technological supremacy. Multiplying the threats to open societies and individual freedoms.” Referring to cooperation between China and Russia as a particular cause for alarm, Stoltenberg urged like-minded countries to join with the NATO military alliance in countering what he called “bullying and coercion”. (1)
“THE GAMBLE HAS FAILED”
If we are to believe former US Secretary of State Mike Pompeo, the reason for this shift in policy by the US and its allies is that China has become ‘more aggressive’: “It’s a different Chinese Communist Party today than it was 10 years ago […] This is a Communist Party that has come to view itself as intent upon the destruction of Western ideas, Western democracies, Western values. It puts Americans at risk.” But Pompeo then undermined that claim by rooting the issue in something which has remained the same over the years – the fundamental ideology of the Chinese Communist Party: “This is deeply embedded in an ideology. This is bigger than any one person. The threat from the Chinese Communist Party emanates from the nature of the Party’s doctrine and ideology.” Pompeo added: “We’re gonna have to be at this for a while.” (2)
This labeling of China as an existential threat has gone unchallenged by the incoming Biden team. Despite its recognition of the need for action on climate change, which Biden’s Climate Envoy John Kerry, has acknowledged requires extensive cooperation with China, the indications are that the administration will continue the anti-China stance, seeking to make it more effective via a multilateral approach which is better at bringing on board US allies.
In a sense the escalating US hostility to China marks a reversion towards the norm in relations between big powers. Irrespective of ideology and their relatively similar economic systems, for many decades the major capitalist and imperialist powers existed in perennial rivalry over resources, markets and colonies, bursting regularly into war with each other until, following World War 2, they were corralled by the USA into a united front against communism. This was an alliance within which the United States was overwhelmingly dominant so as to preclude any challenge.
As we shall see below, the rapprochement between the US and the People’s Republic of China in the 1970s encompassed the temporary entry of China into that alliance with the US against the Soviet Union, hastening the demise of the latter. An article in the Chatham House publication International Affairs summed up the US standpoint on China under presidents Clinton and Bush: “…as one of promoting economic and, ultimately, political freedom, and also, not unimportantly, opening the doors to US capital. The goal then was still to incorporate China into the US-led liberal world order by deepening trade relations and encouraging it to become, in the words of then US Deputy Secretary of State, Robert Zoellick, a ‘responsible stakeholder’ – a phrase that nicely captures both the strategy and the underlying world-view of America’s China policy throughout the post-Cold War period.” (3) A ‘responsible’ stakeholder, of course, would be one which upholds the US-led world order. And ‘political freedom’ as an objective in US policy, as shown by United States backing for coups and dictatorships the world over, has never been much more than a gloss for national political arrangements which facilitate US influence.
Forty years after China began its market reforms in partnership with the USA, The Economist magazine pronounced those US ambitions regarding China dead and buried. Its March 1st 2018 editorial, headlined “Geopolitics: How the West got China wrong”, declared: “It bet that China would head towards democracy and the market economy. The gamble has failed.” (4)
NATIONALISM AND COMMUNISM
The Chinese roots of this major geopolitical setback for the USA and its lesser imperialist allies can be found in the 100 years of struggle by the Chinese communists to transform their country, and in the dynamics of conflict within Chinese society during the more recent of those decades. Growing rapidly from communist groups which sprang up in the largest urban centres in 1920, the Chinese Communist Party (CCP) initially worked in close cooperation with the Chinese Nationalists in the Kuomintang (KMT). The Nationalists sought to end 150 years of humiliation imposed on China by the European colonial powers and Japan. They aimed to replace Imperial China with a modern bourgeois nation state that would fight to free the parts of the country under European and Japanese colonial occupation, and put an end to the reign of the opium warlords in the countryside. The new Chinese republic promised the people a constitutional democracy, land reform and trade union rights. But the increasing popularity of the Chinese labour movement in the industrial hubs of Canton and Shanghai spooked the KMT and their capitalist sponsors. In 1927, Nationalist army chief Chiang Kai-shek suspended the democratic constitution and ordered the murder of all the communists and trade union activists in the big cities. Establishing himself as a military dictator, Chiang Kai-shek was openly endorsed by powerful bankers and industrialists with ties to European colonial powers. The Nationalists were now reneging on all their political pledges to the Chinese people.
Hence, the communists led an armed struggle for 21 years to dismantle the repressive apparatus of the bourgeois nation state created by the Nationalists. From 1930 onwards, every inch of territory liberated by the communist Red Army was turned over to Soviets (elected councils) of workers and peasants, tasked with replacing private ownership with socialist collectivisation. The revolutionaries no longer considered themselves merely as leaders of a Chinese national liberation movement. Instead, they viewed the Chinese Communist Party as an equal partner to the Soviet Communist Party in attempting to replace global imperialism with international socialism. In their long fight to free and unify China, the CCP and its Red Army battled a series of wars against Japanese invasion, the Nationalist army, and the warlords. Some of the warlords were proxies for the British Empire, narco-clients of our good bankers at HSBC, some were proxies for the French colonialists in Indo-China, and some collaborated with the Japanese.
Finally, the PLA People’s Liberation Army (PLA), as the Red Army was renamed after 1945, had to confront the United States. In 1950 the US sent the 7th fleet to protect the Nationalist dictator Chiang Kai-shek, and then proceeded to install military bases on Chinese territory on the island of Taiwan, where the Nationalist forces had fled after being ousted by the revolution. Before leaving the mainland, Chiang Kai-shek stole the entire Chinese treasury. Thereafter, this dictator, guarded by thousands of US troops equipped with fighter bomber aircraft, cruise missiles and nuclear warheads, was recognised by the ‘international community’ as the sole legitimate ruler of China. Until 1971 it occupied China’s seat at the UN Security Council. The USA continues to this day to oppose Taiwan’s restoration to China; just as they are now beginning to dispute Chinese sovereignty over Hong Kong, although the British occupation ended in 1997. Another confrontation took place in Korea. Following the invasion of Korea by US forces in 1950, Chinese troops entered that war in solidarity with the Democratic People’s Republic of Korea, with the Chinese suffering 180,000 deaths at the hands of US forces.
Emerging from the devastation of foreign invasion and many years of civil war, and despite a trade embargo by the United States and its allies, the economy of the new PRC expanded very rapidly with the assistance of the Soviet Union, which provided technology transfers and sent thousands of specialists to assist the development of China’s industries. However, from the late 1950s, disagreements burgeoned into open political conflict between the Chinese Communist Party and the new post-Stalin leadership of the USSR. Unhappy with Nikita Khrushchev’s conciliatory approach to the USA, and Soviet reluctance to provide China with nuclear weapons technology, the more radical factions led by Mao Zedong and Zhou Enlai triumphed in power struggles against the mainstream technocratic communist faction. The Great Leap Forward, initiated in 1958 against Soviet advice, called for development of industrial production in people’s communes in rural areas, attempting to eliminate differences between workers in the cities and the countryside, and eliminating monetary exchange in the communes.
Following sharp disagreement on issues including China’s border dispute with India, in 1960 Khrushchev withdrew technical advisors and drastically reduced trade with China. These clumsy actions not only triggered economic disruption and food shortages, they also had the political effect of unifying all the rival Chinese communist factions in permanent hostility to the Soviet Union. Subjected to both severe sanctions by the Western world, and a breakdown of relations with the USSR, and with its industry still very underdeveloped, China’s growth was henceforth restricted. Despite notable achievements, including in public health, improvements in living standards were slow. The right-wing reformist faction led by Deng Xiaoping claimed that Chinese socialism resembled a monastery run by a religious cult, in charge of rationing rice handouts rather than building communism. Deng argued that the overriding priority was to raise the technical level of the productive forces.
As the pro-Deng reformists got the upper hand during the 1970s, China gradually entered into a grand bargain with the USA. The US agreed to recognise the People’s Republic as the sole legitimate government of China, to lift trade sanctions and to allow China access to Western technology. The essence of the deal was that the Chinese Communist Party promised to stop being revolutionary, and the USA promised to stop being counter-revolutionary in regard to China. In global affairs, the bargain involved China becoming actively counter-revolutionary, assisting the USA in opposing left movements and governments, and thus helping the West win the Cold War. Notable examples included covert joint action by the USA and the PRC in supporting the anti-government military forces in Cambodia and Afghanistan.
RESPONSE TO UNREST
The end of the US-imposed embargo against China allowed a resurgence of rapid economic growth. However, what followed was not a smooth process of lifting Chinese people out of poverty. The Chinese market reforms which accompanied the ending of sanctions involved industrial privatisations, de-collectivisation of farming and removal of price subsidies, resulting in mass unemployment, rising inequality and a few ecological catastrophes. New social antagonisms emerged, in what was previously one of the most equitable societies on Earth.
The first decade of market reforms culminated in the violent suppression of the Tiananmen Square revolt. Contrary to common perceptions, this rebellion was not purely made up of a bunch of idealistic students brandishing pro-democracy placards in Beijing. In June 1989, mass protests erupted in 250 cities across China, involving millions of factory workers, the urban poor, the unemployed who had lost their jobs at state-owned factories that had been shut down, as well as students and liberal intellectuals. The protesters’ demands were contradictory. Their calls included a return to full employment, a price freeze, wage rises and poverty alleviation. A vocal element, inspired by Mikhail Gorbachev’s reforms in the USSR, demanded more free markets and more capitalism.
The Chinese leadership in June 1989 suffered from the same problem as their estranged communist cousins in Poland and the GDR: an inability to ‘own’ the street. Deng and the reformist Communist Party leadership had lost the mass popular support that would have enabled the Party to mobilise counter-demonstrations. But in China, unlike in the Central European socialist countries, the paramount leader Deng Xiaoping ordered an end to dialogue with dissidents and a crackdown. Deng, the promoter of capitalist reforms and the alliance with US imperialism, addressed PLA generals as follows: “Only counter-revolutionary provocateurs remain holed up in Tiananmen Square, their real aim is to topple the socialist system, […] to establish a bourgeois republic entirely dependent on the West...” For its part, the USA quietly kept to its side of the bargain with the Chinese Communist Party, uttering only muted criticism of its leadership.
It has been argued in defence of the actions of China’s leadership that it lacked modern crowd control techniques at the time. In truth, prior to the market reforms, the Chinese revolution survived upheavals without the need for modern crowd control methods, because the vast majority of the Chinese perceived the party cadres to be honest and selfless revolutionaries who suffered equally from the economic blockade, as much as the next worker or farmer. It is widely acknowledged in China today that market reforms led to the overnight enrichment of many leading party cadres and their families as well as widespread corruption by state officials.
In Western accounts of protests in China since 1989, repression by the authorities is usually emphasised. Social conflict has indeed been extensive, involving thousands of wildcat strikes, riots by migrant workers, local uprisings against sales of land to developers, and waves of disputes involving workers for foreign-owned companies. However, the Communist Party’s multi-level response to this unrest shows that the ‘authoritarian’ label, ascribed to it by Western commentators, is one-sided and even misleading. Under the banner of “Mass Line Democracy”, Party cadres were despatched to factories and farms to listen to and extract popular grievances. The Party cadres pledged to represent the working class by defending its social interests against corrupt state officials and the bourgeoning capitalist class, whether in the shape of foreign investors or Chinese business entrepreneurs. The official communist trade unions, in line with the public mood, put forward increasingly assertive demands of their own. Hence, wages have continued to rise in both state-owned and export-oriented private sector companies.
Crucially, to help re-establish and maintain mass popular support, the Communist leadership changed the strategic direction and pace of reforms, resulting in policies and practices which took China away from the path of the neoliberal market dominated economy and society. The privatisation of state-owned firms was slowed down. The Chinese state reasserted a commanding and highly interventionist role in the economy, and the financial services sector was subordinated to the 5 Year Plan, obliging banks to provide credit to state-owned enterprises at preferential rates over the private sector. Foreign-owned and joint venture enterprises were legally obliged to facilitate Communist Party branches at all workplaces. The National People’s Congress decreed that workers should be able to elect representatives to director or supervisory board levels of companies.
Two points need emphasising in respect of the current Western grievances against China’s economic policies. One is that the complaint that China’s state and political involvement and control over industries, finance and investment give it an unfair commercial advantage, refutes the neoliberal claim that giving free rein to the capitalist market is the key to economic growth and efficiency. The other is regarding the outrage against China’s practices of ‘forced technology transfer’, whereby foreign firms establishing factories in China, or entering the Chinese market, are induced to reveal some of their production techniques and knowhow. This exposes a crucial means by which the rich developed countries, and their transnational firms, keep poorer countries underdeveloped. That is, by refusing to pass on the production-related knowledge (or selling it only at unaffordable prices) which would enable those countries to upgrade their own industries and produce higher quality goods.
China, rather than merely accepting its place in the global economic pecking order, has been actively acquiring more advanced production methods, rising up the ‘value chain’ in terms of the sophistication of its products, and learning how to develop its own production technology.
As Laurie Macfarlane, economics editor at Open Democracy, commented: “While the US was happy to encourage China’s economic development when it provided a cheap pool of labour for western supply chains, the goal of achieving technological self-sufficiency has set alarm bells ringing in Washington”. (5)
Another factor in reclaiming mass public support by China’s communist leadership has been its gradual reassertion of an independent foreign policy, at odds (where necessary) with that of the USA and other imperialist powers. While trying to follow Deng Xiaoping’s international policy motto of ‘keep a low profile and never take the lead’, Deng’s successors increasingly found that regional and global developments resulted in diminishing space between humiliation at the hands of the USA and its allies and open challenge to those powers. Notable instances have included the CIA-ordered bombing of the Chinese Embassy in Belgrade in 1999, to which China made an assertive public response; the cementing and deepening of relations between China and Russia; China’s insistence of sovereignty over the Diaoyu Islands, which were seized as war booty by Japan in 1895; and China’s increasingly proactive stance on carbon emissions.
Faced with the USA’s moves to isolate China economically, the People’s Republic has had remarkable successes in trade and investment arrangements with other countries – significantly achieving the creation in November 2020 of the world’s biggest trading bloc, the Regional Comprehensive Economic Partnership (RCEP) with 14 other countries including US allies Japan and Australia.
The PRC has also pushed back against US power in terms of military capability. Following the increasingly confrontational US military posture and deployment of military resources, started under Obama and continued under Trump, China has been strengthening the presence of PLA forces in the in the disputed South China Sea islands. Nevertheless, China’s military spending, although the second highest in the world, is barely more than a quarter of that of the USA. According to the International Institute for Strategic Studies, the US spent $686 billion on ‘defence’ in 2019 compared with $181 billion by China.
Behind that stark contrast in relative military expenditure, there exists the still enormous chasm in global wealth, power, and overall technical development between the US and China. This persists despite China having caught up with the USA on annual GDP as calculated by purchasing power parity (PPP). When relative population size is taken into account, the USA is nearly six times as rich as China by nominal GDP (2020 IMF figures: USA $63,051 per person, China $10,839). When calculated by PPP, China’s annual GDP per person is just below that of Equatorial Guinea and Guyana, and just above that of Turkmenistan, North Macedonia, Grenada and Botswana. Underlying this gap is the huge difference between the USA and its developed country allies on the one hand, and China on the other, in terms of output per worker. Index Mundi lists the annual value added per worker in industry, including in manufacturing, construction, mining, petroleum and public utilities, as $103,366 for the USA (2017) and $23,157 for China (2018) (equivalent to 2010 dollar rates).
Huawei and its technical lead in 5G, although perceived as fearsome to US policymakers, is an outlier. Overall, and particularly in key industrial sectors, US companies use much more advanced production equipment, have staff with greater technical knowhow, own the cutting edge intellectual property, and manufacture more complex and developed products than China.
The global semiconductor industry (effectively US dominated), which produces the silicon chips inside, for example, phones, computers, telecoms equipment and vehicles, is a relevant example. China has been importing rising numbers of these chips, as essential components of the goods it manufactures, and recently has begun producing its own chips. But not all chips are equal. Chad P Bown of the Peterson Institute for International Economics explains: “Over time, China has also become an increasingly important supplier of semiconductors. Like South Korea and Taiwan, China first entered the market through assembly and packaging […] China became a substantial manufacturer (in addition to assembler) of semiconductors, with 20 percent of world semiconductor exports by 2019. What these data do not reveal, however, are key differences between the semiconductors that China imported and the semiconductors it exported. On the import side, device makers in China relied on leading-edge semiconductors as inputs into their assembly of smartphones, telecommunications equipment, and consumer electronics. On the export side, it produced lower-end semiconductors, manufacturing chips that remained at least a generation or two behind the global technology frontier.” (6)
By contrast, despite offshoring, US semiconductor firms still monopolise the intellectual property rights and production of the most advanced chips as well as the equipment needed to manufacture them. The US authorities can, therefore, exercise a potential stranglehold over the production of anything, anywhere, containing state-of-the-art electronic components. Using sanctions on exports to China of advanced electronic chips, even from third countries, the USA hopes to sabotage China’s technological progress. But China has been preparing for this challenge. As Chad P Bown adds: “[US] concerns have turned to whether China’s long-term objective is industry self-sufficiency. Its 2014 National Integrated Circuit Plan, as well as the Made in China 2025 Plan released in 2015, make clear China’s goal of substantially increasing the share of locally produced semiconductors in domestic consumption. Reducing reliance on foreign inputs also appears to be a critical element of the ‘dual-circulation’ strategy at the heart of the five-year plan for 2021–25.”
Can China begin producing the most advanced semiconductors? If so, that would signal that the PRC had managed to amass sufficient resources and momentum in technological development to maintain its economic progress despite the US embargo. Or will it, like the USSR, eventually succumb to the USA’s trade and technology blockades? Even if China manages to surmount the challenges posed by tightening US sanctions, that would by no means show that China can, relatively smoothly, continue to catch up with the USA. The USA shows no willingness to ever give up its predominant economic position – as home to the richest corporations, the controller of the world’s international currency, the top exploiter of the poorer countries and global resources and having the ability to appoint itself as the planet’s policeman. Armed with a military might more powerful than that of the rest of the world combined, the desperation revealed during the Trump period could be merely the foretaste of what is to come.
Faced with the USA's moves to isolate China economically, the People's Republic has had remarkable success in trade and investment arrangements with other countries...