Beyond the US-China Thaw, a Deeper GamE
The idea of a thaw in US-China relations has begun to take hold in recent weeks as administration officials and now a group of senators have visited China. Chinese media portray these visits quite differently — as embassies from a major foreign power that is slowly being brought to reason. SIG’s view is that the thaw is not likely to amount to much because the two sides are talking past each other.
Senator Schumer is hopeful about Chinese cooperation in suppressing the production and export of fentanyl. He also suggests that the delegation influenced the Chinese to stiffen their language in criticizing Hamas. And yet these topics barely registered in the Chinese media or official announcements, which are now much the same thing. Instead, they described the senators being instructed that US-China relations should be based on objectivity, accurate perceptions of China, rational management of differences, and an acceptance that China is following its own distinct model of development. Put differently, the Chinese media and official statements about the talks not only stressed that American policy has been unobjective, inaccurate, and irrational, but also claimed that American ideas of economic development are irrelevant. China welcomed future exchanges on this basis. (See the invaluable trackingpeoplesdaily substack for more.)
The senators’ visit coincided with the release of a Chinese government white paper on the 10th anniversary of the Belt and Road Initiative (BRI), President Xi Jinping’s global project to repurpose excess manufacturing capacity, particularly in state-owned smokestack industries, and to undermine Western power in the capitals of less affluent countries by offering affordable infrastructure development projects. The results in cities such as Addis Ababa and Nairobi have been remarkable. As the BRI grew, however, the Chinese economy weakened, the average age rose, and the workforce peaked. BRI borrowing led some foreign governments into debt traps, although the real problem from a Chinese perspective was the government wasting money overseas. The off-loading of excess capacity at BRI prices became steadily less economical. At the same time, overseas Chinese workers crowded out local workers, which in turn undermined China’s diplomatic goal. The BRI turned out to be not much of a win-win.
These developments help to explain why the white paper so glaringly contradicts itself. On one hand, we are told that “many developing countries have benefited little from economic globalization and even lost their capacity for independent development, making it hard for them to access the track of modernization.” A few paragraphs later, we read that “China has not only benefited from economic globalization but also contributed to it” and that “China has been a firm advocate and defender of economic globalization.” It isn’t much of a defense of globalization to argue that it has exacerbated poverty in developing countries.
In a heavily ideological culture like that of the CCP, this kind of clear contradiction is a sign of real political stress. China undoubtedly benefitted from old-school globalization and its prosperity today is unimaginable without it. But that process also created vulnerabilities to shifts in foreign demand and supply. Xi’s Made in China 2025 policy was a companion and counterbalance to BRI, replacing foreign demand and supply with Chinese demand and supply. It was an openly, although not explicitly, anti-globalization policy: a massive hedge against the potential failure of Chinese industrial internationalization.
So now China, like the US, is seeking a way out of its political stress by trying to reshape globalization to suit its new needs. China’s rhetoric has changed and it now insists that countries have unique developmental paths. This sounds welcoming and inclusive and is meant to as China maneuvers to present an alternative to Western leadership in the development sphere. The problem is that it is all too true of China itself, whose own development model would be impossible for anyone else to follow except perhaps India. China arguably benefitted more from the old globalization than any other country, but there were a thousand reasons why. As Chinese officials constantly insist in other contexts, China is unique. The successes of the Asian Tigers were replicable; China’s is not. The emphasis on multiple paths to success in international markets is really another indication that China is increasingly on its own in the global economy. Policies in the US, Europe, Japan, and elsewhere have increased this isolation but are not the basis for it. The basis is in the Party’s desperate need to increase economic growth and maintain tight social control.
Globalization is being transformed as global supply chains heal themselves by working around China. The process will feed the protective isolation that China’s government wants but cannot afford. It might not be a bad thing for developing and mid-level countries, however. They will miss Chinese demand and in some cases Chinese investment, but they can also aspire to take market share from Chinese manufacturing in a way that they cannot from Western economies. Although China did break the spell of the Washington Consensus, the benefits will increasingly be reaped at China’s expense. With the next APEC summit only a month away, these are some of the dynamics that we may want to keep in mind.