US versus China - who runs the world?
by Frieda Park
The most critical feature of world politics is the USA’s increasing conflict with China. The primary driver for this is the US desire to maintain its position as the world’s only superpower. Whilst China, despite its increased economic, political and military strength, is still far away from any threat of overtaking it, the United States is not going to sit about and wait for that to happen. That is why Biden is as much a China-hater as Trump. It is one thing that the two candidates in the race for the Presidency try to outdo each other on. In office Biden is more likely to pursue a less bellicose strategy, but it will be one which aims to achieve the same results. He equally wants to protect US supremacy. Of course they don’t really care about any of the political expressions of this conflict – liberal democracy, human rights, the rule of law etc. What they care about is who runs the world.
NO TAKEOVER OF CHINA
Whilst the US thought that it could easily co-opt China as it began to encourage the development of capitalism and opened its economy as a low-wage workshop for manufacturing, that has proved not to be the case. Just as, presumably, Britain thought returning Hong Kong would be a back door into China. It has been a back door for capital, but one China has increasingly used for its own ends. In fact, China has a very definite view of itself as a world power and has sought to develop its economic, financial, political and military capabilities to that end. Crucially it has developed world-leading companies in digital communications and banking, the keys to future economic development. The strategic and economic importance of tech industries has been reflected in shifting Chinese economic priorities from the 8th five year plan in 1991, when the priorities for industrial production were: basic machinery, integrated circuits, communication equipment, basic raw materials and light-weight cars, to the 13th five year plan in 2020 whose priorities are: energy storage, integrated circuits, 5G networks, biotech and genomics and new energy vehicles. This ambition is completely unacceptable to the United States.
Despite the huge amount of trade between the two countries, the US seems to be following a strategy of decoupling from China. The US Senate has passed legislation that could ban Chinese companies from listing shares on American stock exchanges. The legislation may also ban Chinese companies from raising funds from American investors. Many Chinese companies, especially in digital industries, are effectively banned from operating in the US.
Other western countries who might have preferred to take a different path have been cowed by the US, with Britain caving in to ban the involvement of Huawei in developing the 5G network. France too will have an effective ban as its cyber security agency will not renew licences for telecoms development if companies use Huawei products after the licences expire, so Huawei’s involvement will be phased out. Germany is also set to impose restrictions, which will effectively squeeze Huawei out.
Now there is a US ban worldwide on anyone selling any micro-chips to Huawei. Some believe that this will make it virtually impossible for the company to operate. China is trying to build capacity to produce such vital components itself but that is not something that it can do overnight. However, it is making progress hence the increased frenzy in the US to try to strangle Huawei now. Yangtze Memory Technologies Co, a joint public/private company, has announced that it can make chips as advanced as the best Samsung produces.
ANT INITIAL PUBLIC OFFERING
Another current example that highlights Chinese strategic development and leadership in this field is the floatation on the stock exchange of the private fintech giant Ant. It will be listed on the Shanghai and Hong Kong stock exchanges and it is expected raise more than $30bn, making it the biggest ever Initial Public Offering (IPO). From being a private company, after the IPO it will be owned by its share-holders. It is thought that it could achieve a market capitalisation of $300bn – bigger than any bank anywhere in the world. There are those in the White House who would like to undermine the IPO, indeed in 2018 the US blocked Ant’s acquisition of MoneyGram which would have given the company global reach in money transfers. It is also significant that Ant is floating in China, whereas its parent company went public in the US.
Ant is a spin off from Alibaba, which started out as an online retailer, developing sophisticated financial tools to facilitate transactions. Alibaba was floated on the New York stock exchange in 2014 and at that time was the biggest ever IPO in the US. The company was founded in 1999 by Jack Ma (Ma Yun). Ma is the second wealthiest person in China with a net worth of $48.2bn and is ranked by Forbes magazine as the 20th richest person in the world. Now retired from Alibaba, and in common with other very wealthy people, he likes to style himself as a philanthropist. For example, he recently pledged to support Prince William’s Royal Foundation Earthshot prize to a tune of £3m. Two years ago the Chinese Communist Party confirmed that Ma was a member, the People’s Daily listing him as one of the leaders in the country’s “opening up and reform” process. Another interesting connection is that a private equity firm owned by a grandson of Jiang Zemin (President of China from 1993-2003) bought an early stake in Ant.
Ant grew out of the need for Alibaba to have an on-line payments system to retail goods but it quickly developed a wide range of financial services accessible easily and quickly on a mobile app. Its system can apparently decide whether to grant loans within three minutes. It is huge, making 25 times more payments last year than PayPal. Its main services are;
- Off-line and on-line payments
- Money transfers
- Giving users access to credit
- Brokering loans
- Enabling users to invest in financial instruments such as money-market funds, stocks and bonds
- Setting up insurance such as life, car and medical insurance
Users can do all that on their mobile phones through this one app. The Economist magazine describes Ant as: “...the world’s purest example of the tremendous potential of digital finance.” Its wide usage – over 1bn active users – and the fact that they use it for so many things also gives Ant an enormous trove of personal data about individuals which can be exploited commercially.
PROBLEMS FOR US STRATEGY
As China’s economy grows, particularly in areas of strategic importance, the US perceives a real threat to its dominance, however there are dangers in its total confrontation approach. It may not succeed in crushing China but rather will make it more self-reliant as it develops its own alternatives to goods and markets barred by the US.
The other problems that the US has with this approach are increasing tensions with its allies who may want to take a different tack with China preferring to engage, contain and undermine it; US tactics may also potentially encourage the development of an opposing power block, or at least a set of alliances, with not only China but also Russia and Iran as key players. In addition, there are many developing countries where China is gaining more influence. As well as technological self-sufficiency, China is trying to build alternatives which might circumvent or negate US sanctions and bullying, such as making the Yuan an international currency and alternative payment and banking systems, as well as being able to provide goods, hi-tech communications and infrastructure.
Through its Belt and Road initiative and other acquisitions and investments, China also controls a lot of infrastructure in other countries and not just in the developing world. For example, it bought the port of Pireaus when the EU demanded the Greek government privatise it. There are a couple of examples here in Britain: the Chinese company CGN is a major financier of Hinkley Point C nuclear power plant development and Petrochina has a 50% share in the Grangemouth oil refinery along with Ineos. Such investments in the west might be vulnerable to the pressure coming from the US, but China has swathes of such interests across the developing world and elsewhere.
(One example of international unhappiness with the US posture of sanctions and bullying, though not in this case about China, was the recent vote at the United Nations Security Council where the US was defeated over a move to extend the arms embargo against Iran. Only the US and the Dominican Republic voted for it. Russia and China voted against and all the others, including Britain, abstained.)
CORONAVIRUS SUCCESS AND FAILURE
Added into this situation is the impact of coronavirus and government responses to it. The United States is at one end of a spectrum of how badly or well it was dealt with, having failed badly; China is at the other end where it has been highly successful. It is a bit varied, but there is some correlation between countries that pursued robust lockdowns, testing and tracking systems, and their economies being predicted to recover more quickly. Whereas those who declared that they wouldn’t shut down the economy and were weak on trying to eradicate the virus will suffer most - ironically protecting neither the economy nor their citizens. However, there are some other factors at work, like previous experiences of SARS epidemics and the structures of economies. The latest prediction from the Organisation for Economic Cooperation and Development is that China will be the only G20 country to record a growth in GDP in 2020 – 1.8%, whereas the United States is predicted to contract by 7.3%.
So the outcome of the coronavirus pandemic might further shift the ground against the US economy and in favour of China. Coronavirus has already undermined capitalism’s faith in the nostrums of neo-liberalism, as advanced capitalist countries have been forced to intervene massively in economies to keep them afloat and stave off potential civil unrest. China’s successful state-supported development of capitalist companies is a further challenge to the west and neo-liberalism.
As China's economy grows, particularly in areas of strategic importance, the US perceives a real threat to its dominance, however there are dangers in its total confrontation approach.