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Why Biden Will Not Get Soft with China

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by Martina Bernardini

President-Elect Joe Biden, then in his capacity of Vice President, walks with Chinese President Xi Jinping, shortly after his arrival at Andrews Air Force Base during a 2015 visit to the United States (Image credit: AP Photo/Carolyn Kaster)

The election of Joe Biden as President of the United States is meaningful for several reasons, but foreign policy stands out as one of the most important. While the wars in Iraq and Afghanistan and the subsequent crisis in Transatlantic relations challenged the resilience of U.S. hegemony, the widespread enthusiasm to Biden’s election demonstrates that the U.S. historic allies still want – and require – an engaged United States on their side. Taking the reins of U.S. foreign policy in this particular moment in the history of the international system, however, is not an easy task. The biggest challenge lies in re-affirming the U.S. position in world affairs, a grand strategy that will contribute to building a strict balance between Washington and Beijing, to show that the absolute decline of U.S. power has not occurred.

During his presidential campaign, outgoing U.S. President Donald J. Trump argued that Biden allowed China to become a threat to the United States by supporting China’s entrance into the World Trade Organization in 2001. Such assumption indicated that for Trump, if Biden became President of the United States, he would get soft with China. The recent history of U.S. foreign policy, however, dismisses this thesis. In 2000, in fact, together with eighty-two U.S. Senators and 237 members of the House of Representatives, Joe Biden did vote in favour of the China Trade Bill, which authorised ‘the extension of nondiscriminatory treatment (normal trade relations treatment) to the People’s Republic of China, and to establish a framework for relations between the United States and the People’s Republic of China.’

The approval of such a bill by the U.S. Congress accompanied U.S. support for China’s accession to the WTO. At the dawn of the 21st century, this move represented – at least to U.S. policymakers – China’s official embrace of a world order based on the American-led ideals of free trade and democracy, a trend that was set in motion by President Richard Nixon and George H.W. Bush. China’s entry into the WTO was indeed positively welcomed both by Democrats and Republicans – by Presidents Clinton as well as George W. Bush – because it was seen as the coronation of a grand strategy aimed at bringing China into a pan-American trade regime. Consequently, Biden’s vote in favour of the China Trade Bill does not mean that, as President of the United States, he will adopt a concessionary China policy. Incidentally, the exact reasons for his support of China’s integration into the global trade system increase the probability that Biden’s foreign policy towards China will not be accommodating.

Biden’s vision of the United States in the world reflects the American exceptionalism that drove the United States towards superpower status by spreading the American soft power and democratic ideals abroad from the Spanish-American war (1898) to Obama’s presidency (2008-2016). For Biden, this means that the U.S. has the duty to lead and inspire the other powers of the international system. In this framework, his administration’s foreign policy plan is to lead the United States to re-establish such a relationship with the international community after four years of isolationism under Trump.

This foreign policy approach will consequently bring Sino-American relations back to the Obama years, when Washington recognised that China represented a challenge for U.S. power that had to be addressed firmly, without undermining the bilateral relationship nor the stability of the international system, of which the United States intends to be the guarantor. In the last phase of his presidential campaign, Biden anticipated how he is likely to approach Beijing. For example, he criticized Trump for not having acted on the issue of human rights in the Xinjiang region, but at the same time, he talked about working with China on climate-related matters and the COVID-19 pandemic. That is to say, that open hostilities are unlikely to break out, but Biden will want the U.S. to take a firm stance against China in the key fields where the U.S. leadership among its allies and its great power status are at stake.

The most delicate grounds for Sino-American relations in the near future are two: trade and technology. Biden will inherit the trade war that Trump launched during his years in office as an attempt to reverse the course of the growing U.S. trade deficit with China. When he was Vice President from 2009 to 2017 under Obama, the United States pursued a multilateral economic strategy to reach the goal of re-balancing the U.S. balance of payments with China. Today, this approach is no longer an option, mainly because Biden will face a bipartisan consensus for toughening the U.S. China policy.

As David Shambaugh explained, the Democrats might not have fully agreed on the utility of tariffs for U.S. national security, but they were not against Trump’s tough China policy overall. A cross-party general indisposition and the willingness to take effective action towards China have risen in U.S. Congress because China challenges the U.S. power on many fronts, and exactly because Biden recognised the need of rebalancing the economic relations with China already during his Vice-Presidency, he is expected to be determined to reach such goal. For now, Phase One of the Economic and Trade Agreement between the U.S. and China that was signed this year remains in place, and Biden declared that he is not intentioned to cancel such agreement, at least not immediately. The first step for the Biden administration’s China policy will thus be to get a sense of where the historical U.S. foreign policy partners stand vis-à-vis their commercial relations with China.

Alliances are likely to be the starting point for a firm stance on the technology front as well. ‘The United States does need to get tough with China. If China has its way, it will keep robbing the United States and American companies of their technology and intellectual property,’ Biden wrote in Foreign Affairs last spring, adding that the best way to confront the Chinese technological challenge is to build a ‘united front’ with allies. Much has been said about the U.S. semiconductor sector as at risk of being exploited by China, which led the U.S. Department of Defense to finally add Semiconductor Manufacturing International Corporation (SMIC) – the largest chipmaker in China – to the U.S. Entity List on December 18, 2020.

The list in question, which is run by the U.S. Bureau of Industry and Security, contains the names of foreign persons, governmental organisations, and companies that are subject to specific license requirements for the import of items from American suppliers. Consequently, any operation held with one of the subjects present in the Entity List is considered at risk by the U.S. government, and will therefore be closely monitored. The move comes as the final act of the most vigorous measures that the outgoing Trump administration implemented towards Beijing before Biden takes office on January 20, 2021, fearful that the incoming administration would soften the line.

This, however, is not likely to happen, because Biden’s vision of the U.S. in the world will merge with the clear bipartisan support of a hard line with China coming from Congress. The incoming Biden administration will thus aim to bring the tensions on the commercial and technological fronts to a higher strategic level especially by working on reinvigorating Transatlantic relations. Biden’s overall approach to foreign policy will be guided by his vision of the U.S. in the world, which, on the one hand, is strictly related to the historical conception of American exceptionalism, but, on the other hand, must resiliently adapt to the shape of the 21st Century’s international system, which demands a cooperative approach on climate change, migration, and global health. This means that the world will not enter a ‘new Cold War’ – a misleading term that is very often overused to describe Sino-American relations – but that Biden’s foreign policy towards Beijing will contribute to a redefinition of the terms of great power competition in a globalised world, which is not necessarily an easier scenario.

Martina is a PhD Candidate at the Department of War Studies at King’s College London. She has been awarded the Leverhulme Scholarship ‘Interrogating Visions of a Post-Western World: Interdisciplinary and Interregional Perspectives on the Future in a Changing International Order.’ Her research focuses on the history of U.S. foreign policy towards China, particularly on the role of China in U.S. President George H.W. Bush’s Grand Strategy for a post-Cold War World Order. She is an alumna of the School of Politics founded by former Italian Prime Minister Enrico Letta, and she holds a first-class honors Master’s degree in International Studies from Roma Tre University, where she also completed her BA in Political Science and International Relations. 

After the US Elections: Chances for a European Strategy on China

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by Gesine Weber

EU: the referee in the great-power competition that is the US-China relationship? (Image credit: ImagineChina)

Over the past four years, the EU’s inability to balance its position between the US and China proved to be extremely challenging. Its member states can neither afford to loosen their ties with their long-standing ally across the Atlantic, nor risk a large-scale decoupling from the giant in the East. The alliance with the US is an essential security guarantee for Europe and perceived as vital, especially by countries in Eastern Europe. Putting this relationship at risk would leave Europe’s eastern flank exposed to the unpredictable aggression from Russia.

At the same time, China holds crucial political weight in international affairs: besides its status as a major trading partner for Europe, Beijing is now heading four out of fifteen UN organisations. Turning completely away from China could therefore be seen as a rejection of global cooperation with an increasingly global player. As such, the EU finds itself in a delicate balancing act. Decision-makers across Europe urgently need to prevent the EU from falling as the first victim of the Thucydides trap between the two powers.

Keeping China on the political agenda

The necessity for the EU to find a common strategy for China is not new. Since the election of American President Donald J. Trump in 2016, the challenge of mitigating US-China competition grew to become an important issue for policy-makers in Europe. Despite transatlantic relations at their lowest point during this time, Trump’s China policy spurred on a European awakening towards China. This shift happened in two ways. Firstly, it put active policy-making vis-à-vis China and the Indo-Pacific high on the political agenda, counter to the region’s relative neglect in the Common Foreign and Security Policy (CFSP) before.

Secondly, however, European reluctance to endorse the US’s maximum pressure strategy towards China underlined the diverging opinions and thereby unveiled the lack of a comprehensive EU strategy on China. Despite the release of documents such as the strategic outlook on China or the 2020 Agenda for Strategic Cooperation, there has, so far, not been a comprehensive guideline or strategy on the EU’s current and future action towards China in the different realms of foreign affairs, ranging from trade to security, to technology, so on and so forth.

Presently, should President-Elect Joe Biden wants to credibly translate his value-based foreign policy discourse into practice, there is a need to cooperate with the Europeans. In this context, finding a common approach towards China might be possible at least in some policy areas. Although President Biden will most likely seek closer cooperation with the US’ European partners, there will be little patience in Washington for intra-EU or EU-NATO power struggles or debates on the wording. This is especially the case for France and Germany: the two most influential EU member states are currently getting lost in semantic quarrels on European strategic autonomy – a term that is highly contested in Germany and a concept strong advocated for by Macron -, although both actually want the same things, to advance European security and defence.

US elections as a potential driving force for EU strategy-making

Over the history of European integration, the functionalist approach of ‘form follows function’ often demonstrated the EU’s ability to overcome challenges. New policies and approaches were first and foremost designed to serve a certain objective, and institutional adaptation could follow at a later stage of this process once the output matched the expectations. In this sense, the US elections could catalyse European strategy-making.

As EU leaders have already declared their willingness to cooperate with Biden on China, it is now important for the latter to define their priorities and identify areas of cooperation. Such a development ought to happen first among the member states and then between the EU and the US. Despite the EU member states’ diverging opinions on some issues, especially on the 17+1 format, there is a growing consensus that the EU requires a common approach to China.

Accordingly, a window of opportunity is opening here for European strategy-making. Such a China strategy, however, is not to be solely focused on the identification of threats. No, this exercise should also concentrate on drafting a positive agenda on China. The potential of global cooperation, with a broad regional and multilateral approach, is to be pursued. If the EU and its member states achieve this objective and manage to present a comprehensive approach on China – ranging from foreign investment to security in the Indo-Pacific to regulation of new technologies and environmental challenges – strategy-making will succeed thanks to geopolitical drivers — and without getting lost in technical debates. Instead of wedged in between China and the US, the EU could emerge as the balancer of both.

Gesine Weber is a first-year PhD Candidate at the Defence Studies Department, King’s College London, and works as a Program Assistant for the Paris Office of the German Marshall Fund of the United States. She holds a master’s degree in European Affairs (cum laude) from SciencesPo Paris and a master’s in Political Science from Freie Universität Berlin. Her research interests include European defence cooperation, which she focuses on in her PhD thesis, the CSDP, geopolitics and questions of global order.

 

Parsing the Safe Passage

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by Matthew Ader

“They can’t fight!” by Frederick Burr Opper, January 1896, originally published in Puck. (Image credit: National Archives)

Scholars and policymakers around the world are turning to history to understand how to navigate the onrushing collision between the ailing United States of America and an increasingly assertive China. The most famous example, expounded upon at length in Graham Allison’s Destined for War, is the clash between Sparta and Athens as documented by Thucydides. However, the most recent hegemonic transition, that of Britain to the United States, deserves significant attention – it is well-sourced, exhaustively documented, and involves national actors still relevant today. That makes it a valuable case study.

However, little work has yet been done to model this period in a way, which would allow the clean transfer of lessons learnt to the modern context. Even Kori Schake’s Safe Passage, written explicitly with the intent of informing Sino-American competition, is an excellent history before it is a work of political science. The relative paucity of overarching models means that policymakers must either fall back on heuristics or delve into intricate historical details.

This article attempts to split the difference by deriving a broader model of hegemonic transition from the circumstances of the Anglo-American case, with the hope that it will ease comparative work between the historical and contemporary situations.

I argue that the transition can be broken down into five distinct phases:

  1. Potential for competition (1756 – 1823) – the United States begins to grow in capability, but Britain is not yet aware of the potential threat.
  2. Recognition (1823) – Britain recognises the United States as a potential threat.
  3. The window of opportunity (1823 – 1914) – Britain conducts policy to (in most cases) conciliate the United States as the two nations move towards parity.
  4. Moment of transition (1916) – the United States surpasses Britain, as a result of British losses and American industrial growth during the First World War.
  5. Settling into a new order (1917 onwards) – the United States becomes the new global rule-setter, and Britain adjusts its position accordingly.

The United States’ growth in power began before the American Revolution, with the Seven Years War and American independence, but a combination of internal weakness and British distraction with eastern conquests and ambitious Corsicans – not to mention America’s poor performance in the War of 1812 – meant that it took until the 1820s for senior British officials to directly recognise the future potential of the United States as a major disruptive influence. Notably, and seemingly uniquely in terms of hegemonic transitions, this was recognised long before the United States even began to approach military parity with Britain. This may be due to traditional British lack of confidence in its own power, and also the naval character of said power – as Lord Palmerston observed in 1858, the simple reality of American geography rendered it invulnerable to British domination even in the absence of a major US force.

Given that Britain recognised the potential for competition relatively early, they had a large window of opportunity to apply policy. Instead of launching a preventive war, which would have been ineffective given the fact that Britain could not achieve lasting dominance over the United States, they pursued a consistent policy of conciliation. During the Oregon boundary dispute (1846), the Trent Affair (1861), and the Venezuelan Debt Crisis (1895), among other crises, Britain de-escalated even when it held the upper hand in coercive force. British bankers and merchants were encouraged to invest in the United States, even as propaganda about a joint Anglo-American destiny, linked by shared Anglo-Saxon heritage, percolated into American culture.

This was sagacious policy and was enabled in large part by the early recognition of the potential threat the United States posed and subsequently extensive window of opportunity. Given 80 years, most diplomatic relationships can be transformed in major ways – this is much less viable over shorter time frames. The result was that at the moment of transition, towards the end of the First World War – as British policymakers acknowledged that American industrial power so outmatched their own that America held the upper hand in any interaction, as was evidenced by the Paris Peace Conference and the 1922 Washington Naval Treaty – the United States looked on Britain not as a weakened rival, but as a culturally, economically, and at least somewhat strategically aligned partner. Debate persists, however, on the specifics of the Anglo-American transition of power, with many scholars placing it in 1945. However, I would argue that the passage happened in 1916 and was already visible at Versailles. Nevertheless, Britain continued to play a global role arguably disproportionate to its means. The USA, in turn, did not emerge as a hegemon until after the Second World War.

Why A Model?

Given that the historical record exists, why would a model of that transition be helpful? Principally because it allows clearer comparative analysis and the codification of lessons learnt.

First, in terms of comparative analysis, we can transfer this model to Sino-American relations relatively clearly. The potential for competition existed throughout the 1990s and 2000s as China grew in power, but the distracted United States only recognised the threat in 2009 with the Pivot/Rebalance to Asia. Others would argue that this recognition came even later, with the American declaration of China as a near-peer competitor. The United States is now in the window of opportunity vis a vis China, as the relative gap between the powers narrows, and must implement policy to forestall or cushion its decline. If current trends continue unabated, there will be a moment of transition, either when China peacefully surpasses American power; or when its aggressive moves run into a mutual red line.

Rather than attempting to draw difficult comparisons based on historical events in the Anglo-American relationship, the existence of the model allows references to history without getting lost in the details. Similarly, the model allows a clearer discussion of lessons learnt. British success stemmed in large part, I would argue, from early recognition of the American potential as a competitor. Others might suggest it was the result of effective policy within the window of opportunity. A model equips us with a common vocabulary to discuss a difficult topic.

This is not, of course, perfect. The model itself is applicable to Anglo-American hegemonic transition, and I believe Sino-American too, but it carries with it the weight of hindsight – assuming as it does that China will at some point fight the United States or move past it in some peaceful yet vital way. Equally plausible is the idea that China may fall short of hegemony, not due to American action within the window of opportunity, but internal socioeconomic weakness. Another possibility not fully incorporated in this model is that the United States and China may reach parity and remain there for a long period, with neither able to act as a hegemon. And, of course, in the general sense, having an avowedly simplifying model often makes things more complex, not less.

Despite that, given the growing importance of hegemonic transition, it is important to ensure rigour and clear communication in debates around it. This model, or something like it, may go some way towards helping in that effort.

Matthew Ader is an undergraduate student in the Department of War Studies at King’s College London with an interest in climate change and grand strategy. He tweets occasionally from @AderMatthew.

 

 

COVID-19 and China-US Relations: An Interview with Jia Qingguo

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by Lin Li

Professor Jia Qingguo, former Dean of the School of International Studies at Peking University and member of the Chinese People’s Political Consultative Conference’s National Committee (Image credit: SCMP)

The global economy, politics, as well as daily life, ground to a halt after the outbreak of the COVID-19 pandemic. Worldwide, infection rates rose to staggering heights; leaving a striking amount of casualties in its wake. Despite this situation, the chronic rivalry between the US and China continued, with further pessimism on the rise and little hope of cooperation anytime soon. As is now usual, Lin Li virtually met with Professor Jia Qingguo for an interview on US-China relations during and after the pandemic. Originally conducted in Chinese, the interview, and its subsequent translation are made by the interviewer.

The failure to cooperate against COVID-19

At the outbreak of the pandemic, the world expected China and the United States to work together in stemming its spread. However, the opposite is true. Instead, the mutual suspicion between the two countries escalated further from an initial trade war to become a war on all but the kinetic front; with little hope of such rivalry diminishing in the near future. The reasons for this situation, Jia Qingguo believes, is because the political environment in the United States sustains a highly emotional consensus on the government’s tough stance towards China. Such sentiment led to the ideological and political differences between these nations to become more pronounced. As a result, the population of each country tends to see the one as the polar opposite of the other.

‘After the outbreak of COVID-19, the US government poorly implemented measures against its spread. Out of domestic political considerations, it tried to pass the buck to China, which led to more negative interactions between the two countries. Moreover, in the heat of the U.S. presidential election, both sides of the campaign intend to play tough on all matters related to China. This situation is not beneficial for the bilateral relationship. Of course, that does not mean there is no room for improvement. Domestically, consensus on China is based on very particular perceptions of the country,’ Professor Jia argued. ‘These perceptions may not be entirely in line with reality. If China does a good job in explaining itself and adjusts some policies, I think it is still possible to change the American public’s position on China.’

Jia Qingguo believes that, globally, the response to the pandemic has been lacking in leadership. With the US finding itself bogged down in the fight against the pandemic, the virus further exacerbated previously existing suspicions against China. In such a situation, it is difficult to find any grounds for effective cooperation. ‘The Chinese government has been expressing its willingness to cooperate and has made great efforts, actively helping other countries to fight the virus. As President Xi Jinping said recently at the Extraordinary G20 Leaders’ Summit, China believes that the best way to fight the global pandemic is through international cooperation.’

China and the US: more alike than one would think

‘I do not think that China and the United States are that different in nature,’ Professor Jia argued. ‘Although the two countries have different ideologies and political systems; both do advocate democracy and freedom, the rule of law, and the market economy. In fact, these three elements are all listed as China’s official core values, although there is still a big difference in how these values are put in practice. Both China and the United States are also beneficiaries of the existing international order. Both countries hope for stability, peace, and international prosperity. They also advocate free trade and the need to jointly address global challenges such as climate change, the proliferation of weapons of mass destruction, international terrorism, and international crime. In fact, one could argue that the two countries are more similar than many may believe. If we can emphasise these common values and interests, without focusing on the ideological and institutional differences, the bilateral relationship could well be stabilised again.’

Professor Jia contends that the United States and many Americans remain doubtful about Chinese intentions, indeed in part because of their perceptions about the country. For example, realists assume that when a great power rises, it will expand and challenge the existing power. This so-called Thucydides Trap assumes that, as China rises, the country will challenge the US; thereby provoking a confrontation. Others believe that the United States is able to change China to its liking. This latter group is very disappointed that China has not made the changes they expected it to make.

The effects of COVID-19 on China-US relations

According to Jia Qingguo, the pandemic has both positive and negative effects on China-US relations. Its negative impact is taken by extremists on both sides as an opportunity to vent their discontent and to speculate on the other side’s culpability. Riddled with undertones of a conspiracy, such assessments feature accusations of intentionally creating or spreading the virus, thereby even advocating war.

At the same time, the virus has become the common enemy of the two countries, the fundamental interests of which require cooperation to fight against this enemy together. This mutual fight requires both China and the US to strengthen their information-sharing processes, to enhance bilateral cooperation in the development of medication, to provide anti-epidemic supplies to each other through donation and trade, and finally, to coordinate international cooperation.

Nevertheless, Jia Qingguo believes that the chance for cooperation has been diminishing as a result of negative interactions between the two sides. In the post-pandemic era, both countries should reflect on what the main reasons and factors are for the deterioration of the relations, as a basis upon which to formulate more reasonable policies.

Obstacles for China-US cooperation in fighting the pandemic

‘The two biggest obstacles in China-US Cooperation in fighting the pandemic are psychological and political. Psychologically speaking, both countries are faced with the problem of how to perceive the other properly. In recent years, the mainstream of American foreign policy has taken an increasingly extreme view of China, always interpreting China’s words and deeds from the worst possible angle. China also has some speculations about the intentions of the United States from the perspective of the ideologues and offensive realists. Such mindsets make it difficult for cooperation to be sustained. Politically, and based on the different interests and value orientations, there are people on both sides who deliberately exaggerate the other side’s negative rhetoric and actions; even inciting confrontation as inevitable. In so doing, the level of distrust between the two countries is growing. It is likely that Chinese people have similar views on the United States.’

Under such circumstances, Jia Qingguo continues, people on both sides should objectively and pragmatically assess the China-US relationship and take positive measures to stabilise and promote cooperation. Both countries are stakeholders in the international order and hope for world stability and prosperity. Peaceful coexistence and cooperation are in their best interests and feature as the foundation of this bilateral relationship. China and the US could strengthen their cooperation, for example, by exchanging anti-pandemic experience, collaborate in developing medication, and coordinate economic policies in order to stabilise the global economy. Only through cooperation can the two sides effectively overcome the pandemic and improve the relationship.

The lowest point in the past four decades?

‘Whether it is the lowest point since the establishment of diplomatic ties forty years ago depends on how you measure it.’ Jia Qingguo argues, ‘I think politically and security-wise it certainly is. But when it comes to the economy and other aspects, I think we still made much progress. Nevertheless, a further deterioration of the relationship is in the books. The Trump administration seems determined to stir up some kind of crisis in the relationship in order to improve the President’s chances for a second term. China also has domestic public opinions, so when the United States closed the Houston Consulate, China felt that it had to close the Chengdu Consulate in response. Indeed, if the United States decides to take certain measures, the Chinese government may find it necessary to respond in kind. As a result, the relationship may end up in a disastrous spiral of escalation. I hope that both sides can calm down and handle bilateral relations in a more pragmatic way. It is complicated, but I think both sides should at least make some efforts.’

‘Recently, many people are talking about the possibility of war between China and the US. I think that is still very unlikely. First, the cost of war between China and the US is too high for both countries to bear. It has become an unwritten law that nuclear powers do not fight wars, since there is no winner in such a conflict. As long as leaders of the two countries are rational, they will try their best to avoid war. It is also very hard to persuade their people to fight such a kind of war. The American political system with its checks and balances means that only when most people say yes, could the government go to war with foreign countries, especially with nuclear states.’

If not nuclear, what kind of war?

‘The war on the scientific and technological fronts has begun and will continue. However, there will also be limits. The blocking of Huawei or other Chinese high-tech companies hurts not only China but also the US, because these Chinese companies are important customers of American companies in the high-tech industry as well. If uncontrolled, the war in science and technology will break the existing ecology of the research and development as well as production chains, with a devastating impact on all countries in the world.’

China and the United States are facing a crisis of trust. America’s distrust of China is particularly prominent in its approach to China’s development of high technology like 5G. Because of the high degree of penetration of technology into people’s life and work, trust is needed more than ever. With this in mind, Huawei has offered to release the source code of some of its software, in an attempt to soften concerns on the safety of personal information and its storage. Jia Qingguo argues: ‘In terms of technology, we should have more communication and take necessary measures to reassure each other. The Americans also have a responsibility to reassure China that Microsoft and Google will not harm China’s national security. Both sides must make a lot of effort to rebuild some trust for the future of our relationship. However, I do not believe the Trump Administration will do so. I hope the next government can.’

‘The possibility of a financial war cannot be ruled out either. But this will bring even more harm to the US. Unless the two countries become extremely confrontational, it will be difficult for the United States to make such a decision.’ Trump’s views on the international economy remain those of the 19th century. For example, the American President thinks that the United States has suffered a great loss in trade with China because it runs a large deficit with the country. In fact, many products exported from China to the United States include parts, services, or patented technologies from other countries, including the US. Trump assumes the goods exported from one country to another are 100 per cent made in this country. It is simply not true.

‘Some people are wondering what happens if the United States refuses to honor the U.S. Treasury bonds purchased by China. I think the chance for that to happen is very low, because such action may trash the credibility of the US. Some people say that the United States will forcibly terminate its financial exchanges with China, which is even less likely, for the same reason that this will cause great harm to the US, and other countries will not agree either.’

Therefore, whether it is to fight a war of science or technology or finance or trade, the costs are likely to be prohibitive. The Trump administration may not rational but in the end, people in the United States may stop it.

In conclusion, Jia Qingguo argues that in the long run, China and the US have to find a way to coexist peacefully and cooperate when needed because their interests and survival demand it. ‘As stakeholders in peace and prosperity, China and the US have many things in common, and that hasn’t changed despite the recent round of conflicts.’

Lin Li is a doctoral researcher at the Department of War Studies, King’s College London and a Senior Editor at Strife. Lin completed her BA in Law at the School of International Studies, Peking University in Beijing; her MA in Geopolitics, Territory and Security at Department of Geography, KCL; and her MA in History of War, War Studies, also KCL. Lin previously worked as Teaching Assistant for the School of International Studies and a Research Assistant for the Institute of International and Strategic Studies of Peking University, as well as Program Manager for Peking University’s Office of International Affairs. Lin is an Observer of the PKU Youth Think Tank since 2018. A Chinese Zheng musician, Lin has published concerto CDs with the Chinese Film Symphony Orchestra and held a series of concerts internationally. 

 

 

 

 

The Rise of China Inc.: Can it Prevail in the US-China Trade War?

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by Guanie Lim & Yat Ming Ooi

Founder and chairman of Geely Automobile Li Shufu (second from the left) pictured during a visit to Volvo Car Gent. Geely bought the Volvo brand in 2010 (Image credit: Belga)

‘The Fortune Global 500 is now more Chinese than American’. The headline piece of Fortune Magazine’s edition of August 2020 revealed much about the nature of global business. With more companies based in Mainland China and Hong Kong (124) than in the US (121), the list sparked intense debate China’s perceived ascendancy in the international economy. Following four decades of rapid growth, this is a clear image of what is conventionally known as China Inc. Searching for market share domestically as well as abroad, these Chinese firms (occasionally termed ‘national champions’) are known for their acquisition of large and well-established firms such as IBM, Club Med, and Volvo. Against the backdrop of an increasingly strained relationship between the US and China and instances of some countries pushing back against Chinese infrastructure deals in the Global South, a dual question can be asked: where is this rivalry headed to? And, what are the implications for the rest of the world?

Chinese Corporate Power

The Global 500 is a prestigious list and offers arguably the best snapshot of the state of global business. In its methodology, firms are ranked based on revenue. This approach is somewhat biased as it tends to favour companies operating highly regulated monopolies/oligopolies in large economies. Many Chinese companies fall into this category. Indeed, an analysis of those 124 Chinese companies in the Global 500 reveals that many are operating de facto monopolies/oligopolies in the domestic market, where non-tariff barriers remain high. Examples include Sinopec Group, State Grid, and China National Petroleum (all located within the top 4). Operating in chemicals, power, and petroleum respectively, these three firms are not only state-owned but also generate much of their revenue in highly-regulated, capital-intensive industries. Further down the pecking order, a similar trend emerges: of the twenty-four Chinese companies in the top 100, almost all operate in industries such as banking, insurance, construction, and mining.

At the same time, there is also a paucity of Chinese manufacturing firms on the list. This odd development has occurred despite Beijing’s push for ‘national champions’ in industries such as automobile production, steelmaking, shipbuilding, and aerospace. However, only two manufacturing firms – Huawei (private; 49th) and SAIC (state-owned; 52nd) – made it into the top 100.

Huawei can be described as a non-traditional firm in the manufacturing industry since a relatively large portion of its revenue is derived from what are essentially service activities (telecommunication installation, consulting, and repair). Even in the manufacturing of its renowned smartphones, core components are still sourced primarily from Western and Japanese business groups. For example, the Huawei P and Mate Series – which come with high-definition cameras – rely on German company Leica for the supply of camera-related components. Despite Huawei’s attempts at expanding into global markets, the firm continues to face difficulties in some markets, due to allegations of undue state support, and cybersecurity concerns. Most recently, its Chief Financial Officer has been under house arrest in Canada. In addition, the US has stepped up pressure on its allies to remove Huawei equipment from their telecoms infrastructures over concerns that the Chinese government could possibly lean on the company to allow it to conduct espionage, closely followed by the UK. Although it is premature to write off Huawei at this stage, it seems to be one of the highest-profile targets ensnared in the trade war between the USA and China.

For SAIC, an automobile player based in Shanghai, the outlook is somewhat better. Since its joint-venture with Volkswagen after the 1978 economic reforms, SAIC has been able to continuously strengthen its position in the domestic economy, emerging as a de facto lead firm. In the Global 500 list for 2020, it is ranked as the seventh-largest automobile company, surpassing brand name rivals such as BMW Group and Nissan Motor. However, like Huawei, there does not seem to be enough incorporation of critical manufacturing technologies, which forces SAIC to rely on more mature foreign companies. SAIC still sells vehicles from a variety of brands licensed from mainly Western automobile companies, in exchange for entry to the Chinese market. As of 2020, only two of its brands, MG and Roewe, have had (limited) success outside China. These two brands were acquired during the mid-2000s from now-defunct British carmaker MG Rover.

For the MG brand, in particular, SAIC’s internationalisation efforts have been bumpy. In 2012, SAIC entered into a joint venture with Thailand’s largest conglomerate, Charoen Pokphand (CP) Group, to produce MG cars in Thailand. With an annual production capacity of fifty thousand vehicles at the outset (which could increase to two-hundred thousand units), the company aspired to capture the Thai as well as the adjacent Southeast Asian markets. However, here again, progress has been slow. SAIC only managed to sell 23,740 MG vehicles in 2018, well below its total production capacity of 200,000 units. By capturing only a 2.3% market share in the Thai market, SAIC has failed to make a dent in the Japanese-dominated automobile market of Thailand (and by extension Southeast Asia).

Chinese Catching-Up in Retrospect

The experiences of Huawei and SAIC are sobering. Although undoubtedly ‘national champions’ in their own right within the large domestic market of China, there is not enough evidence to suggest they have become the sort of ‘global champions’ that successive Chinese politicians and bureaucrats frequently exhort them to be, nor are they necessarily setting the example for other national firms. Perhaps this suggests some underlying problems with China’s technological catching-up that goes unmentioned in both the euphoria surrounding the ‘rise of China Inc.’ and the pessimism engulfing the increasingly tense international economic environment? What we are advocating here is to step back and scrutinise both sets of development. While not denying China’s economic strengths, there is an equal need to unpack the nature of the Chinese economy.

As illustrated in the previous paragraphs, Chinese growth is mainly driven by a large domestic market, which obviates the need to create competitive firms with world-beating indigenous technologies. Chinese technological shortfall can instead be plugged by purchasing production and process expertise from foreign firms (through royalty payments for copyrighted products and mergers and acquisitions, for example), resulting in a dearth of genuine manufacturing ‘national champions’, for which long-term investment in R&D is required. If the fate of Huawei and SAIC is of any relevance, then we must more seriously take manufacturing as a key cog of development. More broadly, while one may like to envision a post-industrial society, no economy – barring small, wealthy offshore financial centres (e.g. Macau and the Cayman Islands) – transitioned straight into the high-income category without a competitive manufacturing sector. Without a strong manufacturing sector (and by extension command of technology), talks about a US-China trade war is overblown as China Inc. might not have the strategic depth to mount a sustained challenge.

The USA: Still No. 1?

Moreover, in the US, the situation is nowhere near as dire as what the popular media seems to suggest. Despite numerical superiority, Chinese companies account for only twenty-five per cent of the total Global 500 revenue against the US’ thirty per cent. Furthermore, two US companies made it into the top 10 – Walmart (first) and Amazon.com (ninth). Walmart, in particular, claimed the top spot for the seventh consecutive year.

In addition, thirty-four US companies made it into the top 100, outweighing the twenty-four hailing from China. Although US companies in the Global 500 participate heavily in service activities, it must be noted that some of the manufacturing behemoths have maintained or even enhanced their positions. In the top 100 roster, USA Inc. is represented by Ford Motor (31st), General Motors (40th), Microsoft (47th), and Dell (81st). Ford Motor and General Motors represent the mature automotive industry, while the latter two represent the more forward-looking information technology industries.

Amid the seemingly meteoric rise of Chinese companies, the US retains three salient points that will determine the outcome of the much-hyped trade wars. The first point that often goes unnoticed is the early mover status of US companies, which allow them to go abroad far more easily than companies originating from latecomer economies such as China and India. The US (and by extension, its cohort of companies) remains popular in many parts of the globe, in turn giving US companies quite simply the benefit of the doubt, a privilege that Chinese firms do not enjoy (at least for now). Take, for example, the ban that prohibited Huawei and ZTE from participating in Australia’s 5G network development. A cue the Australians took from the US.

The second point concerns the innovative capabilities of US companies. Historically, the US and other Western countries are famed for their ability to innovate. By innovating, we mean to create something new, and implementing it in the production process or bringing it to market as a new product. While US companies are moving some production out of China, this is unlikely to affect their ability to innovate as communication technologies have improved companies’ ability to innovate throughout their value chain. It is through the ability of US companies, often with support from the state, to continually renew and reinvent themselves that we see US companies extending their early mover advantage in the long run.

The final point brings our analysis into the behavioural realm. US companies have market-shaping capabilities. In other words, these companies can dictate what customers and consumers need and want in the US and global markets. No one knew we needed an MP3 player until the late Steve Jobs told us it is ‘cool’ to own an iPod. We had no idea we needed boutique takeaway coffee too. That is until Howard Schultz told us we should all be sipping on a barista-made, grande, vanilla latte with low-fat milk from Starbucks. Of course, there was more to the iPod story. Apple was excellent in crafting an ecosystem strategy, which created network and lock-in effects. The ability of US companies to create new demand, tap previously untapped markets, and influence consumer choices, reinforces US Inc.’s position in the global market.

Is China Inc. taking over from US Inc. any time soon? The short answer is no. Chinese companies are performing well in the globalised and connected world we live in today. But (most) open and transparent economies are ‘suspicious’ of Chinese companies’ intentions. Will China Inc. prevail if we have a full-blown trade war between the two largest economies? Maybe. Chinese companies are still learning and expanding. Moreover, they have the Chinese and surrounding Asian markets to fall back on if indeed a full-scale trade war materializes. Regardless, we can conclude that the US can prevail if it continues to do what it does best – extend its early mover advantage through innovation, market-shaping capabilities, and lock-in effects.

Guanie Lim is Research Fellow at the Nanyang Centre for Public Administration, Nanyang Technological University, Singapore. His main research interests are comparative political economy, value chain analysis, and the Belt and Road Initiative in Southeast Asia. Guanie is also interested in broader development issues within Asia, especially those of China, Vietnam, and Malaysia. In the coming years, he will be conducting comparative research on how and why China’s capital exports are reshaping development in key developing regions – Southeast Asia, the Middle East, and North Africa. He can be reached at guanie.lim [at] gmail.com

Yat Ming Ooi is Research Fellow in the Department of Management and International Business, The University of Auckland, New Zealand. He is also Adjunct Lecturer at Swinburne University of Technology, Australia. His main research interests are innovation management, technology and science commercialisation, and business models. Yat Ming is also interested in the role of new research funding policy plays in addressing grand challenges. He can be reached at y.ooi [at] auckland.ac.nz