THE FUTURE OF CHINA - US COMPETITION

Foreword

In 2012 the Chinese government set a long-term goal: build China into a fully developed and prosperous country by 2049, 100 years after the founding of the People’s Republic. While Xi Jinping is seeking control of world supply chains, China’s long-term success will depend primarily on addressing its internal challenges such as an aging population, a rural-urban divide, an ongoing innovation, and reliance on carbon-based energy sources.

Meanwhile China is expanding its military capability in space. Last May China placed a rover on Mars becoming the second nation after the US to make the landing. A little more than two years ago, China sent its robotic spacecraft  to a basin on the far side of the moon. Moreover, a Chinese orbital space biology lab is due for completion by 2025.

China is also threatening US primacy in Artificial Intelligence (AI), intending to be the global leader of artificial intelligence by 2030. The country is putting its money where its mouth is and making investments in AI that could threaten the US and erode Washington’s advantages in the technology.

According to the recent NATO Summit Communique (Brussels 14 June 2021) “China's assertive behavior presents systemic challenges to the rules-based international order and to areas relevant to NATO security. China is rapidly expanding its nuclear arsenal, is opaque in implementing its military modernization and is also cooperating militarily with Russia. NATO is concerned with China’s frequent lack of transparency and use of disinformation.....”.

Current situation

The population aging is both a social and an economic issue. Taking care of the elderly will require devoting more resources to health care and assisted living. The COVID-19 pandemic has revealed the capability management of China’s health care system. The pandemic was brought under control with a huge ad hoc mobilization that shifted resources to where they were needed most.

The urban population has been increasing from 20 percent at the beginning of the reform to 60 percent today. This migration has been an important source of dynamism and productivity growth in the economy. But migrants face various constraints. The result is divided families with parents working in cities while grandparents maintain the family farm and raise the children left behind. Economically, there is still an excess supply of workers in rural areas, and easier migration policies would help maintain the urban workforce.

China went from virtual self-sufficiency to being the world’s largest trading nation and, last year, the largest recipient of foreign direct investment.  China is also a member in major economic agreements making overtures and concerning reduction of trade and investment barriers.

Moving away from targeted industrial policy toward more general support of innovation calls for a diversified, competitive financial system that no longer favors state enterprises. Innovation will be the key to eliminating carbon emissions without compromising productivity or living standards.

China and the US

US - China relations will remain rocky for the foreseeable future. China appears to be pursuing three targets: maintaining a non-hostile external environment in order to focus on domestic priorities; reducing dependence on America while increasing the rest of the world’s dependence on China; and expanding the reach of Chinese influence overseas. Given its expanding economic reach and growing strategic weight, China’s actions now directly impact lives in the United States and around the world. Anyway, in the face of confrontational US statements and actions, China is maintaining substantial engagement, making careful public statements, and resorting to calibration and proportionality whenever possible.

Nevertheless Chinese authorities advanced a campaign of repressive policies in Xinjiang, tightened control of Hong Kong, crushed dissent across the country, punished countries and individuals that challenged China’s preferred narratives on sensitive issues, and pointedly criticized the performance of Western democracies.  Xi Jinping feels that America’s power in the international system is declining relative to China’s and many Chinese experts diagnose America’s anxiety about its relative decline as driving its reflexive efforts to undermine China’s rise.

Chinese experts expect the root causes of American antagonism toward China will remain unchanged. Reflecting this view, Yuan Peng, an advisor to China’s top leaders and president of the China Institute of Contemporary International Relations (CICIR), assessed “A divided United States and polarized politics will limit Biden’s room to maneuver and force him to focus more energy on domestic challenges. …Biden’s first priority is to reunite the United States. …The US will be consumed with dealing with its own structural challenges for many years”.

Beijing appears to be preparing for a long-term struggle with a declining but still dangerous US. As for self-reliance President Xi  explained, “Only by being self-reliant and developing the domestic market and smoothing out internal circulation can we achieve vibrant growth and development, regardless of the hostility in the outside world.”

China - US competition

The idea that US and China are entering an era of aggressive great power competition seems to be nearly universal. The US and China have fundamental differences in their views of the power balance in the Asia-Pacific region, the importance of democracy, the governance of the maritime commons, and any number of other issues.

China's future is arguably the most consequential question in global affairs. Having enjoyed unprecedented levels of growth, China is at a critical juncture in the development of its economy, society, polity, national security, and international relations. The direction the nation takes at this turning point will determine whether it stalls or continues to develop and prosper.

Xi's vision of reforming the global governance system and his increased risk tolerance are new phenomena. Could the US have predicted the rise of Xi Jinping and should the US change course in its strategy towards China?

Certainly the global financial crisis was an important inflection point. It was a moment when China decided it didn't necessarily need to use the US as the model and began to talk about moving the world away from the dollars, the World's Reserve Currency and became more assertive in the South China Sea.

As for China grand strategy, it is moving in a new direction in terms of challenging more explicitly the US alliance system in Asia and other aspects of global order. Probably Xi is willing to tolerate a much higher degree of disequilibrium in the system while he just keeps pressing forward. 

The idea of bringing China's greatness back has been there for a very long time. The idea is always there that China would take over Taiwan, would certainly reclaim sovereignty over Hong Kong, the South China Sea and other border disputes. No Chinese leaders previously had the vision of Xi Jinping of leading in the reform of the global governance system with China keeping its own values, policy preferences, and norms that it wants reflected in the international system.

Xi Jinping

When he was on the podium giving his first speech in the press conference in November 2012, he talked about the Chinese Dream, about a People's Liberation Army (PLA) capable of fighting and winning wars, about a robust Chinese Communist Party at the forefront of the political system.

The Russians like Xi. Whatever the Sino-Russian partnership may be called - alliance, alignment, marriage of convenience - it's intensifying. It was initially a marriage of convenience, it became an alignment which moved quickly toward an alliance with Putin and Xi getting along in many respects.

Russia and China for a long time have worked together in the United Nations. Russia didn't criticize China in the South China Sea; similarly, China didn't criticize Russia for Crimea. China's increased its investment in Russia fairly substantially, trade is growing, and both are partnering with Iran and doing military exercises with Iran.

This is why the US is trying to split them, reinvigorate the Quad (Australia, India, Japan, US), strengthen its alliances, oppose the enlarged dimension of China's strategy. Putin has already cast his lot with China at this point while Xi said that Putin is his best friend in the international community.

As long as Putin and Xi are in place, US will get modest gains at best with a wedge strategy and the downside risk is big. China's growing role in the Middle East, not simply economically, with increasing interest in playing potentially a power broker role, is beginning to achieve success also in terms of arms sales.

China’s Rise, World Order, and the Implications for International Business

It is increasingly clear that China’s economic and political power rivals that of the US. This is potentially a serious problem for multinational companies, since China’s rise could lead to more US - China trade conflict and disruption of supply chains, threatening new and ongoing foreign direct investment, and drawing other countries into the jostling for power.

But the US and China both have vested interests in maintaining the open economic order, and these two countries are each providing the global public goods that incentivize economic openness among other countries of the world. The globalization has not declined even as the global distribution of power has shifted: global integration is likely to persist even if disruptive skirmishes between the US and China will occur with some regularity.

Meanwhile China is also growing in global leadership through development of new institutions such as the Asian Infrastructure Investment Bank (AIIB), the recently signed Regional Comprehensive Economic Partnership (RCEP), and its Belt and Road Initiative (BRI): the 21^st century Land and Maritime Silk Roads.

China Expanding Military Capability in Space and Artificial Intelligence

China’s military is examining its decades-old space program for ways to improve data collection and disrupt the satellites of other countries if needed. Drawing a parallel with the former USSR, where military power alone did not ensure survival of that communist state, China recognises that military power is important, but it is not the only factor in being a great power.

Other comprehensive national power factors are political unity, economic power, diplomatic strength, science and technology, and even culture. Space touches every one of these aspects in comprehensive national power, and that is a part of why Chinese see space as so important. The Chinese see future war as revolving around joint operations, which are not just land, air and sea forces. They also include the outer space and electronic warfare domains, which are necessary for information dominance. China, therefore, wishes to deny an adversary like the US the use of space.

China has therefore developed the ability to target hostile space-based assets (from the ground or space) and their all-important data-links. Indeed, jamming and electronic warfare complement anti-satellite weapons (which China has already tested), any of which can achieve effective mission kills against US and allied satellites.

On the non-kinetic side, the People Liberation Army (PLA) has an operational ground-based satellite electronic countermeasures capability designed to disrupt adversary use of satellite communications, navigation, search and rescue, missile early warning and other satellites through use of jamming.

China could become the dominant space power in the 21st century. Beijing is closely watching what US space companies are doing: communism is learning from capitalism by emulating NASA technology and by resorting to vast financial resources. Last April China signed an agreement with Russia to work together to build a Moon Base. China has also begun planning to launch crewed missions to Mars and deploy a massive space-based, commercial-scale solar power plant by 2050.

After reaching the Moon and Mars, China is racing across a number of other fronts in space, from building an orbital space station to maturing anti-satellite capabilities in space to establishing a base on the moon. China is also training European astronauts and teaching them Chinese : some of them may join the China-Russia lunar exploration effort. China is also building a rocket capable of lifting as much as 140 metric tons to low-Earth orbit making it reusable and to take, one day, its taikonauts to Mars.

Besides its space involvement, in a statement broadcast and heard around the world, China is intending to be the global leader of Artificial Intelligence (AI) by 2030 making investments in AI that could threaten the United States and erode Washington’s advantages in the technology. The Chinese Communist Party recognizes the transformational power of AI and Beijing views the technology as a critical component to its future military and industrial power.

There are already areas where Beijing is ahead. These include facial recognition software, small drones, quantum communications, telecommunications, genetic data, cryptocurrency and more. Areas where China is challenging the US’ lead include biotechnology, pharmaceuticals, rocket launches, quantum computing, quantum sensing and super computing.

The risk of conflict in the Taiwan Strait

Since Tsai Ing-Wen, an independently minded politician, was elected Taiwan’s president in 2016, the Chinese Communist Party has ramped up military provocations against the island. Beijing now sends warplanes into Taiwan’s air defense identification zone on a regular basis. And this year, for the first time, the Council on Foreign Relations ranked the potential for a severe crisis involving China and the US over Taiwan.

A military conflict between China and the US in the Taiwan Strait would likely wreak economic havoc on the scale of the 2008 financial crisis, which inflicted a great deal of damage on the European Union. It would disrupt trade and supply chains with Washington placing trade sanctions on Beijing and asking Europe to get behind these.

The consequences of a conflict in the Taiwan Strait would extend well beyond the economic realm, turning the attention of US defense planners decisively toward the Indo-Pacific, cementing the “pivot to Asia” initiated by the Obama administration. The result could be a US that pays much less attention to - and increasingly withdraws from - Europe. Russia’s relative power would likely increase, potentially shifting the balance of power on the continent. European countries - already struggling to increase their NATO defense budgets to 2 percent of GDP - would have to take much more responsibility for their own security.

China and Russia strategic ties

China and Russia are currently in a difficult relationship with the US following the imposition of duties on China and sanctions on Russia. For the first time the two great powers were considered "revisionists, strategic competitors and rivals" in the 2017 and 2018 US Strategy Papers Series.

The 14 June NATO Summit, strongly wanted and maneuvered by Joe Biden, has reiterated such assessment while blaming both countries for creating challenges to the rules-based international order. Consequently, China has accused NATO of a “Cold War mentality” and said that it is “slandering China’s peaceful development and misjudging the international situation and its own role.”

It is worth mentioning that in two separate events Russia and China have publicly heralded a new age of diplomacy between the two countries: with the Vostok 2018 Exercise and the Joint Sea 2019 Exercise, Russia and China signaled to the West that they are working closer together to counterbalance the US “imperialism”.

In particular, Vostok 2018, a massive Russian-Chinese military exercise, involved more than 300,000 troops, 1,000 planes and several warships, while Joint Sea 2019 involved numerous submarines, ships, airplanes, helicopters and marines from both countries.

What binds these powers together is their agreement that the status quo must be revised. China has no intention of contenting itself with a secondary role in global affairs, nor will it accept the current degree of U.S. influence in Asia and the territorial status quo there.

Leaders in both countries also agree that US power is the chief obstacle to achieving their revisionist goals. Their hostility toward Washington and its order is both offensive and defensive. Both China and Russia are signaling they will only deal with the West where and when it suits them. Sanctions no longer worry them. The two powers are showing they are increasingly comfortable working together as close economic and military partners. They have already stepped up their cooperation in areas such as nuclear technology, energy and space.

Considerations

China’s leaders often refer to “profound changes unseen in a century” to describe their evaluation of the current fluidity in the international system. These changes often are presented as a paradox, presenting both risks and opportunities for China. 

Despite expectations of a protracted struggle with the US , a view of China as an ever more central actor in the international system appears to be gaining traction inside China. According to Chen Yixin, Secretary General of the Central Political and Legal Affairs Commission “The rise of China is a major variable in the world today…the rise of the East and decline of the West has become a trend; changes of the international landscape are in our favor.”

Beijing sees itself as progressing along a continuum leading to China’s restoration as a central actor in Asia and a leading power on the world stage, a country with greater ability to shape rules, norms, and institutions toward its preferences. To reach its long-term goals, Beijing recognizes it must first overcome near-term obstacles.

One such potential obstacle is the formation of allied blocs to oppose Chinese initiatives and to obstruct China’s rise. Such concerns have taken on added urgency with Joe Biden’s election as President given Biden’s sustained emphasis on coordinating with allies and partners to push back against Chinese behaviors of concern.

To lower the temperature of tensions with the US, strengthening ties with its neighbors, deepening relations with Russia, and encouraging the European Union’s continued movement toward strategic autonomy: Beijing sees such efforts as critical to breaking what it perceives as Washington’s encirclement strategy of China. China’s leaders also view it as important to keep external problems at bay in order to maintain the primary focus on addressing domestic concerns upon which public perceptions of its performance ultimately will be most heavily based.

Beijing has signaled no willingness to moderate its approach to Xinjiang, Hong Kong, Tibet, human rights, or Taiwan. Beijing’s unwillingness to recalibrate its approach to issues that are most inflaming US - China tensions effectively forecloses any broad improvement in overall relations. At best, US and China will be able to manage tensions and lower the temperature on recent mutual recriminations.

On Russia, China has shown sustained interest in steepening the upward trajectory in overall relations.  Foreign Minister Wang Yi now touts both countries as standing “side by side against power politics,” supporting each other’s core interests, and serving as each other’s “strategic anchor” and “global partner.” Beijing also has been encouraging the European Union to pursue strategic autonomy, including by resisting Washington’s entreaties for Brussels to join a trans-Atlantic front in opposition to China.

Conclusion

Xi Jinping used an address to the Davos World Economic Forum on January 25 to warn of the dangers of attempts to build an alliance of democracies to counter China. Xi warned, “Forming small groups or launching new cold wars on the world stage …would only push the world toward division, if not confrontation.” He stressed, “Repeatedly, history and the reality remind us that, if we walk down the path of confrontation - be it a cold war, a hot war, a trade war or a tech war - all countries are going to suffer in terms of their interests and their people’s well-being.”

In recent years, Chinese authorities have become more proactive in seeking to extend their reach into other countries. Chinese officials and Chinese media outlets have employed an increasingly sharp tongue in responding to perceived slights to China’s international image by explaining that China “cannot submit to the unscrupulous suppression by hostile anti-China forces but naturally fights back”.

China’s stated ambitions and determined efforts to become a world leader in an expanding number of high technology fields have generated unease in many parts of the Western world. In response, London has proposed the establishment of a D-10 of leading powers (G-7+ Australia, South Korea, India) to pool resources and align policies to accelerate development of new technologies in democratic societies.

Already, as the PLA Navy has become more active beyond its immediate periphery, so too has the level of coordination among other powers in response. This trend can be seen in the Indian Ocean, where there have been corresponding increases in Chinese naval activity alongside rising security coordination among like-minded powers (i.e. Quad: Australia, India, Japan, US).

From Mao’s upheavals to Deng’s reform and opening, from the Tienanmen tragedy to double-digit economic growth, from low-profile foreign policy to brash assertiveness on the world stage, China’s path over recent decades has navigated a series of shifts. These shifts have been driven in large measure by a dynamic interaction between China’s strategic goals, its evaluation of its external environment, and its domestic requirements. This dynamic interaction between external and internal forces has not surely ended under Xi Jinping.