Uncertain Sino-US relations in the Biden Era

by Kumar David

A US State Department release said on 12 May 2021: “Strategic competition is the frame through which we view our relationship with the PRC. We will address it from a position of strength in which we work with our allies to defend our interests and values. We will advance our economic interests, counter Beijing’s aggressive and coercive actions, sustain key military advantages and vital security partnerships, re-engage robustly in the UN system, and stand up when China violates human and fundamental freedoms. When it is in our interest, we will conduct results-oriented diplomacy with China on shared challenges such as climate change and global public health”; (abbreviated).

So, America will strengthen its economic and strategic position and place emphasis on human rights but also collaborate on common interests such as climate change. It’s different from the Trump Era more in posture and signals than in words. Trade sanctions are off the table or will be used infrequently, belligerence is no longer in vogue and there is a well-articulated shift to concern with human-rights, a term Trump treated with derision. You will hear more about Xinjiang than trade deficits in the Bidden years.

Donald Trump was an aberration, a malignant abnormality and a dangerous one. Dangerous because political conditions in the US are scary, to say the least because the ultra-right, white-supremacists and primeval cultures, in a word the zeitgeist of potentially fascist-like threats consume the country. The information released last month by the Defence and Justice Departments that Trump was on the verge of attempting a coup after his election defeat shows how close America came to civil war. To give readers a rough measure I would stick my neck out and say that a quarter to a third of all Americans are Neanderthal in outlook; but it’s very uneven across states. To best see primitives look in states with the most anti-vaccination populace. The seven Jim Crow states are the pits – Mississippi, Louisiana, Alabama, Arkansas, Tennessee, West Virginia and South Carolina. I needed to sound this warning about America’s rumbustious unevenness as opposed China’s dull uniformity and superficial linearity before moving on.

The remainder of this article will focus on a five-game match; (1) BRI (Belt and Road Initiative) vs B3W (Build Back Better World G7 initiative), (2) Digital Yuan or DY, (3) competing corporate governance models, (4) cyber-espionage and (5) human rights. The BRI vs B3W battle will be a walkover for China. BRI has had a head start of over a decade, has commitments in hard cash and is a state-to-state undertaking between China and about 50 countries. The Americans and G7 partners hope the private sector will join as a big stakeholder to catalyse hundreds of billions of dollars in infrastructure investment in low- and middle-income countries. A senior official gambled: “We believe we will beat the BRI by offering a higher-quality choice and we’ll offer that choice with self-confidence about our model that reflects our shared values.” The shared values the West envisions are free-markets, commitment to democracy and respect for human rights. Wake up Joe from visions of honeymooning with dictators and goons! The Chinese have a better cruder measure of the likes of the (Raja)Paksas; they will win the first-set of the BRI vs B3W match 6-0.

The second set will be harder fought. Beijing makes BRI investments and grants loans to countries that cautious investors will not touch with a bargepole. It is hard to quantify the BRI investment quantum since a part is Central Government loans, much investment by Chinese SOEs and maybe a fifth of the total costs are carried in cash or kind (land, labour) by recipient countries. In the final analysis total BRI investment from all sources may be in the $3 trillion to $4 trillion range. Handouts to bankrupt or brain-dead regimes (Lanka exemplifies both disorders) are used to gain political mileage or acquire assets when non-creditworthy projects go belly-up as with no-ships Hambantota Harbour, no-fly Mattala and no-games Hambantota stadium. I do not need to amplify that many recipient countries are sinking ever deeper into the mire of debt (for no fault of Beijing you may say if you are tough), and crucially, will never escape from debt. They will pawn or give away national assets for 99-years. The criticism of perpetual indebtedness to China is gaining ground, nevertheless China will still win the second-set of the BRI vs. B3W game largely because many third world political leaders are scoundrels.

The internationalisation of the DY, game (2), is unstoppable and desirable. It is important to distinguish between China’s Digital Yuan and bitcoin and other crypto-currencies. China is expanding domestic and international digital transactions through the central bank (People’s Bank of China); DY is supported by block-chain technology making it tamper-proof and it is issued by a central bank as a national currency. As it gains acceptance it will become an international alongside the Dollar, Euro and Yen but with technical differences. The motives for internationalising the Yuan are countering US dollar dominance of global finance and curbing the clout of China’s own “fintech” giants like Ant Group and Tencent. The hegemony of the US dollar is anchored in the petrodollar. In 1971 when stagflation prompted a run on the dollar and it plummeted; other countries wanted to redeem their dollars for gold, but to protect US gold reserves Nixon removed it from the gold standard where it was convertible to gold at a fixed rate of $35 per ounce. Currently the gold price is about $1800 per ounce.

In 1973 when the US provided military aid to Israel for the Yom Kippur War OPEC was outraged and raised oil prices. But in 1979 the US and Saudi Arabia agreed to use dollars for oil contracts and recycle dollars back to America through contracts with US companies. The petrodollar, an arrangement by which oil is globally priced in dollars was born. Everybody including Iran, Russia and China are caught in this trap. The petrodollar is the mechanism by which the US dominates global finance and enforces its foreign policy. Sometime this decade the US economy will fall behind China’s in size. It is not possible for the currency of Number Two to indefinitely remain the global monetary hegemon. It is going to be a complicated and drawn out process and there is no sign of an immediate collapse of dollar global hegemony though DY will join the select club of global currencies.

China is the place with entrepreneurs and computer wizards were “mining” 65% of the world’s new digital currencies (bitcoins for short). The authorities have suddenly imposed a harsh crackdown allegedly for a vast overconsumption of electricity but more likely for two other reasons as well; to impose tighter control on a part of the economy that was running out of view of the central authorities and second to protect the launch of DY by providing it with a more monopoly-like status in the Chinese digital currency domain.

The distinction between the state-directed or guided capitalist sector and free-market capitalism needs no elaboration. Experience supports the view that in developing countries the former has invariably been more successful in encouraging growth and improving mass standards of living. My comment here is about something quite recent – the state is muscling in on private companies. E-marketing and ‘fintech’ (finance-technology) giants like Alibaba, Ant-Group and ride-hailing (Uber like) companies like Didi are being tethered and put under much tighter control. Listing in foreign markets (New York and Hong Kong), tighter scrutiny of corporate data, are desired and illegal collection and use of personal data has been alleged. The truth in my view is that it is a two pronged strategy; the regime’s obsession with political monopoly-control and an enhanced anti-trust policy intervention. At this time when anti-trust policies are falling by the wayside in America the latter this is a good forward step.

Item (4) is a long and ongoing controversy. The US accuses China of state-sponsored cyber hacking led or encouraged by the Ministry of State Security. Direct state espionage is allegedly for military and research secrets and stealing economic know-how. Allegations of encouraging felons to engage in ransomware attacks seems far fetched and military espionage obviously is a thriving two-way game. The world of espionage and counter-espionage is more spooky than an elaborate spy novel. It is shrouded in darkness but gathers everything, spies on everyone, violates every norm of privacy and decency. We can safely assume that the network of agencies that proliferate in both sides are into it to the hilt of their technical abilities.

The game China will lose hands down is game (5), human rights; alleged forced labour and political oppression of the Uyghurs of Xinjiang Province. Humanitarian groups assert that Beijing has transferred Uyghurs elsewhere and forced them to work under harsh conditions in factories across the country. I have travelled a bit in China and believe that Islam is repressed and it is apparent Uyghurs are sullen and angry but I have not seen evidence that they are transported to “labour camps” in other provinces. The Chinese CP is ideologically totalitarian: “Total” in the sense that it will not share space and air with other ideologies (Falun Gong, the Christian Churches, competing political views or ‘heretical’ Marxist interpretations). This is because it is insecure and alarmed by competition in “belief space”. My Hong Kong friends hedge their bets on whether the Uyghurs are more sullen about oppression or more pleased by improving economic conditions.

A more interesting rationale for Western criticism may lie elsewhere. These factories are in the supply chains of many global brands. “We believe these practices are an affront to human dignity and an egregious example of China’s unfair, economic competition” Western critics say. A Uyghur Forced Labour Prevention bill is pending in the U.S. House of Representatives. The legislation requires disclosures from businesses about engagement with Chinese companies engaged in human rights abuses in Xinjiang. The meat of the matter may be more to do with commercial competition than love of human rights. Nevertheless the first few decades of the Twenty-first Century are panning out as the decades of human-rights and the Chinese are engaging in a match that they will eventually lose 0-6.

Tracking the evolution of Sino-American developments is best done along the five dimensions I have selected for this essay plus a few others. However, the context in which medium-term Sino-American can be better appreciated is Biden’s economic strategy which Republicans are attempting to scuttle at any cost because its success on even a modest scale will bury Trump and the GOP for a generation. Biden’s methodology is to repeat FDR’s New Deal strategy mutatis mutandis. Infrastructure building on a multi-trillion dollar scale, large universal cash handouts, enhanced unemployment support and an eviction moratorium for delays in rent payment are intended to ease conditions for the poorer half of society and at the same time create demand to spur the economy. The jury is still out on effectiveness but time is on Biden’s side.