The inauguration of Joe Biden as 46th President of the United States promises a more competent and less contentious approach to foreign affairs than was the case with his predecessor Donald Trump. However, there is one area where Biden’s competence will be severely tested: relations with the People’s Republic of China. While China’s human rights record and its activities in the Asia-Pacific region can and should receive close scrutiny, one must be realistic about the economic power of China – a power that has been demonstrated time and again in recent years. (I should note that while I am a socialist myself, I am not a supporter of the PRC – democratic socialism is my tendency).
Dealing with China is unavoidable, as it is the second-largest economy in the world. Furthermore, it has reached that position due to Western co-operation in general and U.S. co-operation in particular. The genesis of that co-operation lies in the early 1970s during the Cold War, when then-President Richard Nixon and his National Security Advisor Henry Kissinger capitalized on the Sino-Soviet split, which left China at odds with the Soviet Union.
Seeing the strategic opportunity that the split provided, Nixon went to China in February 1972. China eventually came in from the cold and established full diplomatic relations with the U.S. in 1979. Under Deng Xiaoping, who had been inspired by the economic success of Singapore, the PRC decided to embark on a course of action that has brought it to its current position of global economic player. They decided to become an export economy and make consumer products and capital products cheaper and better than the West themselves could.
To get Chinese products into Western markets, the Chinese permitted some private enterprise by Chinese citizens and joint private enterprises by budding Chinese entrepreneurs and foreign businessmen. State-owned enterprises remained dominant but Western businesses were elated by the opportunity to get access to the vast Chinese market – particularly as the Chinese market was growing faster than many Western markets. In addition, many Western companies were also keen to bring their production facilities to China as the labor market there was cheaper than it was in the West. Suffice to say, the PRC was not blind to these requirements and were happy to grant them – provided its own conditions were met, of course.
What were these conditions? First, access to Western technology and second, access to Western markets. As many Western countries were going to be manufacturing in China and were selling products made in China with Chinese partners to Western markets anyway, they were happy to accommodate the Chinese. This mixture of state enterprise and private enterprise, all conducted under government control and focused on exports, allowed China to industrialize rapidly.
However, this export policy did have a weakness: it was reliant on whether or not those export markets could or would buy Chinese goods. This weakness was exposed to China in 2008-09 during the Great Recession, as the West was hit with an economic crisis and consequently could not buy from China at the same rate it had hitherto. The export market collapsed and, to offset this being an ongoing problem, the PRC has begun to develop its home market.
This has led to a rise in wages. Over the past 40 years, Chinese wages have increased significantly, while U.S. wages have remained stagnant in the same amount of time. In addition, China’s rise from one of the world’s poorest countries to the second-largest economy in the world has occurred in the same time period. As China’s economy is growing 6% annually while the U.S. economy is growing 2% annually, many observers believe that it will eventually surpass the U.S. and become the world’s largest economy.
The above may come as a surprise to many who have seen the trade war that Donald Trump unleashed against China in 2018, followed by the Covid-19 pandemic that originated in Wuhan, China. These two events are ongoing and, on the face of it, would seem to be factors that would hinder China’s rise. However, that has proven not to be the case. While the tariffs Trump imposed were not a positive for China, the country retained its competitive advantage in production and its key role in many global supply chains, and this has been enough to offset the negative impact of the tariffs. At the end of 2020, China’s annual trade surplus was a record $535 billion – a 27% increase on 2019. Furthermore, exports were at an all-time high, particularly U.S. imports from China. This underscores the failure of Trump’s trade war.
Despite Trump’s attempt to blame the economic crash on the virus, and blame the virus on the Chinese (a blame game which, it should be noted, the Chinese have responded to by blaming the U.S. for same), China has performed well. This is not due to any ‘bio-engineering’ of the virus in a lab, a ridiculous conspiracy theory that has been debunked by leading scientists who have examined the virus genome and ruled out any such genetic engineering. The truth is that China had initially been wrong-footed by the outbreak, which was likely caused by zoonosis from bats in Wuhan’s wet markets, and exacerbated by incompetent local officials in Wuhan who played down the outbreak for fear of political reprisals.
Once the situation became clear, Beijing acted decisively and continues to do so. Through a strategy of quarantining large communities within the country and having millions tested, China has managed to bring the effects of Covid-19 down to more tolerable levels. Its preparedness by comparison with the West is again nothing to do with any conspiracy theory; the outbreak of SARS in the early-2000s has made East Asia more alert to the dangers of pandemics in recent times and accounts for the success of countries such as China, South Korea, Taiwan and others in handling the pandemic. Indeed, of all the major global economies, China’s is the only one that has returned to steady growth – direct foreign investment in China increased by 4% in 2020, and growth of 2.3% was reported. This is more impressive when you consider that worldwide direct foreign investment fell 42%; from $1.5 trillion in 2019 to $860 billion in 2020.
This success will make it difficult for Biden to handle China in the years ahead. Biden will likely proceed more diplomatically than Trump, and will likely have more success in enlisting other countries in pushing back on China. But it will take time for America to rebuild its credibility after the fiasco that was the Trump administration. China, meanwhile, continues to build its global presence – as confirmed by its recent investment deal with the European Union, which will allow European companies access to Chinese markets. This should not dissuade Biden from holding China to account where it is warranted – but it should reinforce what he is all too aware of: the Chinese will not make things easy for him.
Image credit: Al Leino