Chinese Relations in a Fractured World

Chinese relations are at a more complex ebb than perhaps at any other time in recent history and certainly this century. While this principle most definitely applies internationally in light of China’s widely assumed role in the origination and subsequent spread of the Covid-19 virus, relations within China’s own vast domestic territories also remain a topic of significant ongoing concern. This article will aim to examine some of the finer nuances of China’s increasingly adversarial relationship with the US, its apparent strengthening of ties with Russia, and how these developments may serve to impact the composition of key economic alliances internationally going forward.

Figure 1: Modern China serves as a central pivot to the entire Global economy

China-US Relations

Any conflict involving the world’s two largest economies must be of eminent concern to global governing bodies and citizens alike. The USA’s status as the world’s largest economy and military power sits uneasily alongside China’s growing military and economic ambitions and the world’s almost total reliance on Chinese manufacturing and exports. In truth relations between the US and China have long been tempestuous dating back to China’s conversion to Communism and the establishment of The People’s Republic of China under Mao Zedong in October 1949. There have been some respites since, notably the “U.S.-China Relations Act of 2000” signed by then acting US President Bill Clinton in October 2000, which served to normalise trade relations between both powers and paved the way for China’s ascension to the World Trade Organisation the following year (“U.S. Relations with”, 2022), (H.R. 4444 (106th): China Trade bill, 2000).

Such respites have been few and far between however in a relationship marked by mutual competitiveness and key ideological differences. The relations between both economic superpowers reached a major recent flashpoint under the previous US President Donald Trump, who made clear his aggressive stance on Chinese – US trade diplomacy throughout his presidential campaign and the later 4 year incumbency (“Trump accuses China”, 2016). Arguably the key foreign policy directive of Trump’s presidency was the initiation of a Chinese – US Trade War, characterised by the widespread implementation of tariffs (import taxes) on both sides (“A quick guide to”, 2020). In advance of Trump’s inauguration as president, he and his cohorts voiced concern over what were perceived to be “‘unfair trade practices’ such as preferential treatment for state businesses”, alongside widespread accusations of Intellectual Property theft (Silver, 2021). The ongoing trade war has since grown to encompass everything from soy beans to semi-conductors amidst growing fears that the world has entered a new economic cold war.

Figure 2: Chinese US Relations have been a subject of growing concern in recent years

Strategic Adversaries

The collusion between state and industry is nothing new and the preferential treatment provided by the Chinese government to certain companies and industries as a whole is hardly surprising. If anything, the USA’s objections to the Chinese Industrial policy amount to a philosophical divergence between both nations in terms of how an economy should be managed. The Chinese economic model heavily prioritises centralised planning and state management of key industrial sectors in an otherwise relatively free flowing market-based economy. The US economic model by comparison is heavily geared toward openness and success attained through the ongoing innovation of the private sector.

Though Chinese State Intervention is commonplace in many if not all key sectors of the Chinese economy, this is particularly true with regard to the targeted growth and investment made in the Chinese high-technology sphere, the specifics of which have proved a major bone of contention for the US. Having learned from the previous failures of both the Chinese economy itself under Mao Zedong, and the Soviet Union as a whole, “Chinese decision makers and government institutions have prioritized competition and technology upgrading in the context of industrial policy”, with a “focus on promoting competition and fostering benefits, such as technological advancement, when applying industrial policies.” (Lu, 2022). According to the US, these methods have included the outright theft of US intellectual property ranging from “proprietary rice and corn seeds to software for wind turbines to high-end medical devices” (“FBI Director Christopher”, 2020).

Figure 3: The US has accused China of repeated and flagrant theft of its Intellectual Property

While large scale corporations in the US operate relatively freely with particular reference to those operating in the high technology field, the same cannot be said of China where the nature of the political landscape makes it impossible for Chinese private sector companies to operate entirely independently or without explicit Chinese State approval. Though this may arguably be the case in every country in the world given that Governments remain responsible for the regulation of market infrastructures and legal systems as a whole, it is particularly pronounced under Chinese Communist Party rule. Chinese Tech Giant Huawei serves as an excellent recent example of the extremely close and sometimes controversial relationship between Chinese private sector enterprises and the Chinese Government itself.

Amidst accusations of mass surveillance and espionage relating to US technologies (Dou, 2021) (Pompeo, 2020), (Hamilton, 2020), US President Joe Biden last year signed the “Secure Equipment Act of 2021” which formally bans “Chinese tech companies like Huawei and ZTE from getting approval for network equipment licences in the country” (“Joe Biden signs”, 2021). The ban serves as a follow up to a number of executive orders signed by previous President Donald Trump in 2019 and 2020, designed to heavily curtail Chinese technology companies’ involvement in the US economy (Mulligan and Linebaugh, 2021). A UK parliamentary enquiry into Huawei’s activities appears to indicate that such concerns are in fact well founded (Corera, 2020), while the US government’s decision to take formal legislative action across both of its two most recent Government administrations indicates a further escalation of hostilities between both nations.

Figure 4: Closening Russian Chinese relations have served as a major boon to the Russian economy of late

One of the more intriguing outcomes of the economic skirmishing that has taken place between China and the US in recent years has been the impact it has had on US economic policymaking. While the US has long derided China’s policy of heavily aiding domestic industry as unfair, arguing that it distorts fair competition on the international marketplace, the incumbent Biden administration certainly appears eager to apply lessons learned from their economic rival’s recent success. In an approach that echoes many of the central tenets of China’s most recent 5 year development plan, the US government under Biden have announced firmly their intention to invest heavily in “domestic industry, technology, and infrastructure” (“U.S. Relations with”, 2022) under the specific stated objective detailed by current US Secretary of State Antony Blinken “so it can compete with China” (Johnson, 2022).

The complexities of the US system of Governance have meant that to date these policies have proved difficult to implement. This “political paralysis” (Johnson, 2022) has proven a habitual by-product of a bipartisan system which aspires to provide equal representation to all opposing views. China by comparison has been able to routinely bypass such filibusters to future focused economic investment through its centralised command based governing structure. Naturally such a method of operation can have its own extreme downsides if the wrong choices are made, as China itself learned under the tragically mis-aligned policies of Mao Zedong’s newly communist government in the 1950’s and late 1960’s (Cheng, 1971).

Figure 5: The EU has struggled to find its footing in an increasingly complex Geopolitical landscape

An Unwinnable War?

The tariff based strategy implemented by the US in effort to curb imports of Chinese manufactured goods has always been a double edged sword. While the higher prices generated by said tariffs should in theory reduce the quantity of Chinese imports into the US damaging Chinese producers in the process, these higher prices also harm the purchasing ability of US domestic consumers and producers who are reliant on Chinese produced goods and essential manufacturing components such as steel and aluminium. China has adjusted to the resulting fall in US demand by reducing tariffs placed on other major exporting nations such as Canada, Japan and Europe as a whole. This has rendered serious damage to US exporters who rely heavily on the Chinese market for the sale of their wares (Bown, Jung & Zhang, 2019).

The sustainability of such a policy on behalf of the US in particular has been drawn into serious question in recent months amidst rising inflation rates and what is fast amounting to a global cost of living crisis. Whilst price increases have been ongoing for a number of years now – a direct by-product of the inflationary impact of covid relief stimuli administered by governing bodies all over the world in combination with the extensive and ongoing global supply chain disruption caused by the spread of the virus itself – the issue has become particularly pronounced in the now 4 months since the commencement of Russia’s military invasion of Ukraine. With the US economy battling on so many fronts, US President Joe Biden is coming under increasing pressure to cut, or at least significantly reduce the extent of the tariffs currently in operation against China (Franck, 2022). Meanwhile China’s Zero-Covid policy and the extreme containment measures that have accompanied it has served to further raise the cost of goods all over the world in what effectively amounts to a global scale implementation of an artificial scarcity strategy.

Figure 6: Western Economic powers fear the combined strength of a Russian Chinese alliance

The term Artificial Scarcity is used in reference to the “Purposeful limitation of production of particular products (or services) in order to raise prices and / or demand” (“What is Artificial Scarcity”, 2022). Whether this is the intended outcome or an incidental by-product of Chinese economic policymaking is impossible to say at this juncture. Certainly at face value it would seem that China remains adamant that its Zero-Covid strategy is vital for the adequate protection of its citizens from Covid-19. This argument becomes a harder sell however in the face of significantly relaxed covid restrictions throughout the almost entirety of the rest of the world, with North Korea standing out as a notable exception (Mao, 2022).

China, Russia, the EU and the Wider Picture

China’s favourable trade policy adjustments in the aftermath of Russia’s invasion of Ukraine have stood in very clear opposition to the wave of economic sanctions levied upon Russia by the combined western economic forces of the US, Canada, UK and EU (“What sanctions are”, 2022). While China has refused to openly support Russia’s invasion of Ukraine, it has also opted not to strongly condemn Russia’s actions to date. China’s rumoured preparations for a possible military assault on the disputed Chinese island territory of Taiwan adds a further level of intrigue to its position on the Russian-Ukrainian conflict and to its ongoing relationship with Russia as a whole (Wong, 2022).

Figure 7: The disputed island territory of Taiwan appears firmly in China's crosshairs

Further evidence of the strengthening of ties between China and Russia can be found in China’s recent lowering of import restrictions on Russian wheat, at a time when the EU has branded Russia’s blockade of Ukrainian wheat exports a “war crime” (Siebold and Van Campenhout, 2022). China has also continued to supply Russia with vital commodities such as machinery and electronics, base metals, textiles and apparel, vehicles, ships and aircraft during this time (Sutter and Sutherland, 2022). If further proof were needed of the growing rift between dominant eastern and western economic powers, Russia has now become China’s largest supplier of oil with imports having risen 55% year on year for the month of May 2022 alone (Hoskins, 2022). An obvious and extreme counterpoint to the EU’s purported and to date partial ban on Russian energy imports (Cahill, 2022).

Chinese-EU relations have hardly been rosy in recent years either with an EU strategic outlook paper published back in 2019 having branded China a “Systemic rival promoting alternative models of governance” (European Commission, 2019). There has also been the small matter of Covid-19 in the time since, which has served to raise tensions further between both economic superpowers amidst mutual criticism of both parties’ handling of the early stages of the pandemic (Apuzzo, 2021). The EU meanwhile remains sorely aware of its dependence on Chinese produced goods and materials with particular reference to the field of renewable energy. China’s tacit and ongoing economic support of Russia however is unlikely to assist in any thawing of these already frosty relations.

Figure 8: Tense relations between the world's two largest economies look set to continue for the foreseeable future

The Path Ahead

The growing divide between China, Russia and the western economic powers of the US and EU in particular looks increasingly difficult to ignore. Amidst continually worsening Chinese-US relations, an almost total global reliance on Chinese manufacturing, and an as yet unresolved European wide dependence on Russian energy imports, the emerging economic fault lines are deep and obvious. While Russia’s actions in Ukraine and the corresponding western sanctions have been undeniably hostile in nature, China’s have proven significantly more opaque. Whether China’s destabilisation of international markets through its constriction of the supply of goods is a deliberate tactic designed to unsettle rival economies, or an incidental outcome of an earnest attempt to keep its population safe is impossible to state with certainty. As ever, history will be the one to tell the tale, but the fragmentation of global economic alliances looks increasingly unavoidable.

Bibliographical References

“IANS” Joe Biden signs law to ban Huawei, ZTE from doing business in US. Business Standard. Retrieved from https://www.business-standard.com/article/international/joe-biden-signs-law-to-ban-huawei-zte-from-doing-business-in-us-121111200372_1.html

A quick guide to the US-China trade war, (2020). BBC. Retrieved from https://www.bbc.com/news/business-45899310

Apuzzo, M., (2021). Pressured by China, E.U. Softens Report on Covid-19 Disinformation. The New York Times. Retrieved from https://www.nytimes.com/2020/04/24/world/europe/disinformation-china-eu-coronavirus.html

Bown, C. P., Jung, E. & Zhang, E., (2019). Trump Has Gotten China to Lower Its Tariffs. Just Toward Everyone Else. Peterson Institute for International Economics. Retrieved from https://www.piie.com/blogs/trade-and-investment-policy-watch/trump-has-gotten-china-lower-its-tariffs-just-toward

Cahill, B., (2022). European Union Imposes Partial Ban on Russian Oil. Center for Strategic & International Studies. Retrieved from https://www.csis.org/analysis/european-union-imposes-partial-ban-russian-oil

Cheng, C.Y., (1971). The Economy of Communist China, 1949-1969. University of Michigan Press, U of M Center For Chinese Studies via Open Access Publishing in European Networks. Retrieved from https://library.oapen.org/bitstream/handle/20.500.12657/41818/9780472902200.pdf?sequence=1

Corera, G., (2020). Huawei: MPs claim 'clear evidence of collusion' with Chinese Communist Party. BBC. Retrieved from https://www.bbc.com/news/technology-54455112

Dou, E., (2021). Documents link Huawei to China’s surveillance programs. Washington Post. Retrieved from https://www.washingtonpost.com/world/2021/12/14/huawei-surveillance-china/

European Commission and HR/VP contribution to the European Council, (2010). EU-China – A strategic outlook. European Commission. Retrieved from https://ec.europa.eu/info/sites/default/files/communication-eu-china-a-strategic-outlook.pdf

FBI Director Christopher Wray's Opening Remarks: China Initiative Conference, Transcript, (2022). Center for Strategic & International Studies. Retrieved from https://www.csis.org/analysis/fbi-director-christopher-wrays-opening-remarks-china-initiative-conference

Frack, T., (2022). Biden says White House could drop Trump China tariffs to lower consumer prices. CNBC. Retrieved from https://www.cnbc.com/2022/05/10/inflation-biden-says-lowering-prices-is-his-top-economic-priority-.html

H.R. 4444 (106th): China Trade bill, (2000). GovTrack.us. Retrieved from https://www.govtrack.us/congress/bills/106/hr4444/text

Hamilton, I. A., (2020). The US says Huawei has been spying through 'back doors' designed for law enforcement — which is what the US has been pressuring tech companies to do for years. Retrieved from https://www.businessinsider.com/us-accuses-huawei-of-spying-through-law-enforcement-backdoors-2020-2

Hoskins, P., (2022). Ukraine war: Russia becomes China's biggest oil supplier. BBC. Retrieved from https://www.bbc.com/news/business-61861849

Johnson, I., (2022). Biden’s Grand China Strategy: Eloquent but Inadequate. Council on Foreign Relations. Retrieved from https://www.cfr.org/in-brief/biden-china-blinken-speech-policy-grand-strategy

Lu, Y., (2022). Webinar Summary: The Role of Industrial Policy – A Discussion Through its Application in China. Boston University Global Development Policy Center. Retrieved from https://www.bu.edu/gdp/2022/01/31/webinar-summary-the-role-of-industrial-policy-a-discussion-through-its-application-in-china/

Mao, F., (2022). North Korea: 'First' Covid cases prompt strict national lockdown. BBC. https://www.bbc.com/news/world-asia-61416760

Mulligan, S. D., and Linebaugh, C. D., (2021). Huawei and U.S. Law. Congressional Research Service. Retrieved from https://sgp.fas.org/crs/misc/R46693.pdf

Pompeo, M., (2020). The United States Further Restricts Huawei Access to U.S. Technology. US Department of State. Retrieved from https://2017-2021.state.gov/the-united-states-further-restricts-huawei-access-to-u-s-technology/index.html

Siebold, S. and Van Campenhout, C., (2022). EU's top diplomat calls Russia's blockade of Ukrainian grain a war crime. Reuters. Retrieved from https://www.reuters.com/world/europe/russias-blockade-ukrainian-grain-exports-is-war-crime-eus-top-diplomat-2022-06-20/

Silver, K., (2021). China's trade practices come under fire. BBC. Retrieved from https://www.bbc.com/news/business-58991339

Sutter, K. M. and Sutherland, M. D., (2022). China’s Economic and Trade Ties with Russia. Congressional Research Service. Retrieved from https://crsreports.congress.gov/product/pdf/IF/IF12120#:~:text=After%20Russia's%202022%20invasion%20of,and%20aircraft%20(%245.0%20billion).

Trump accuses China of 'raping' US with unfair trade policy, (2016). BBC. Retrieved from https://www.bbc.com/news/election-us-2016-36185012

U.S. Relations With China 1949 – 2022, (2022). Council on Foreign Relations. Retrieved from https://www.cfr.org/timeline/us-relations-china

What is Artificial Scarcity, (2022). IGI Global. Retrieved from https://www.igi-global.com/dictionary/artificial-scarcity/85993

What sanctions are being imposed on Russia over Ukraine invasion?, (2022). BBC. Retrieved from https://www.bbc.com/news/world-europe-60125659

Wong, T., (2022). Taiwan: Are the US and China heading to war over the island? BBC. Retrieved from https://www.bbc.com/news/world-asia-61782370

Image Sources

Cover image: (N.D.), (N.D.). [Hybrid Art]. Foreign Policy. https://foreignpolicy.com/2022/04/14/us-china-biden-strategy-geopolitics/

Figure 1: (N.D.), (N.D.). [Hybrid Art]. Foreign Policy. https://foreignpolicy.com/2022/04/14/us-china-biden-strategy-geopolitics/

Figure 2: Gall, J., The New York Times, (2021). (N.D.). [Hybrid Art]. The New York Times. https://www.nytimes.com/2020/12/18/business/dealbook/us-china-relations-debate.html

Figure 3: Reuters, Sagolj, D., (2017). U.S. President Donald Trump takes part in a welcoming ceremony with China’s President Xi at the Great Hall of the People in Beijing, China, November 9, 2017. [Photograph]. https://www.reuters.com/article/us-china-cyber-usa-ministry-idUSKCN1OK03Y

Figure 4: AFP, (2021). Chinese State Councilor and Foreign Minister Wang Yi (right) meets with Russian Foreign Minister Sergei Lavrov in Guilin, a scenic city in South China's Guangxi Zhuang Autonomous Region on Monday. [Illustration]. Global Times. https://www.globaltimes.cn/page/202103/1219129.shtml

Figure 5: Chalikopoulou, E., (2019). (N.D.). [Illustration]. Financial Times. https://www.ft.com/content/ff92106c-e8e0-11e9-85f4-d00e5018f061

Figure 6: Cushman, C., (2022). [Illustration]. The Economist. https://www.economist.com/china/2022/03/26/china-has-honed-its-justifications-for-taking-russias-side

Figure 7: Bejar, D., (2021). (N.D.). [Illustration]. Foreign Policy. https://www.foreignaffairs.com/articles/china/2021-06-03/china-taiwan-war-temptation

Figure 8: (N.D.), (N.D.). [Illustration]. Radio la Primerisima. https://radiolaprimerisima.com/pensamiento-critico/no-hay-mas-salida-que-la-guerra/