china & us geopolitics part 2 - chico decisions · 2018. 10. 27. · china & us the new...

China & US Geopolitics Part 2• Review• US-China Relations

Chronology (cont)• Trump era• Misc Viewpoints

China & USThe New Geopolitical Equation

1. Last 30 yrs China implemented a wide-ranging modernization strategy of economic, military and diplomatic expansion/outreach to the world.

2. China remains authoritarian, & its success encourages other authoritarian regimes to resist pressures to change.

3. China’s pursuit of a larger role in the world coincides with America’s pursuit of a smaller one.

Hundred Years of National Humiliation• Intervention: West powers & Japan

1839-1949• Military defeats: Opium Wars UK; Taiping

Rebellion; Sino-French War; Sino-Japanese Wars; Boxer uprising; British invasion Tibet: 21 Demands by Japan

• Loss of sovereignty to foreign “Spheres of Influence" & Unequal Treaties

• Reparations, open trade ports, lease or cede territory (Hong Kong to UK)

• Anti-West Sentiment, China Xenophobia and Nationalism

https://en.wikipedia.org/wiki/Century_of_humiliation

https://en.wikipedia.org/wiki/Western_worldhttps://en.wikipedia.org/wiki/Imperial_Japanhttps://en.wikipedia.org/wiki/Sphere_of_influencehttps://en.wikipedia.org/wiki/British_Hong_Kong

TAIWAN

• 1979 US established diplomatic relations with PRC.• Carter terminated Sino-American Mutual Defense Treaty• US: One China Policy

• 1979 Taiwan Relations Act • Unofficial relations thru nonprofit corp - American Institute

in Taiwan• No “ROC” - “Taiwan authorities” = de facto diplomatic

relations• "US make available..defense articles & services..to

Taiwan..self-defense" • Nature of defense services TBD by President & Congress.

• “Strategic Ambiguity”

South China Sea

China’s“9 dash line”

Claim

UNCLOS

CHINA’S LAND RECLAMATION PROJECTSGreat Wall of Sand

Hughes Reef

CHINA’S ECONOMIC TRANSFORMATION

https://en.wikipedia.org/wiki/Economy_of_China

• 2016 US trade deficit w China $347 B & was US’s largest bilateral trade deficit.

• “Attributing commercial value to last country of origin perverts true economic of bilateral trade imbalances. This affects political debate & leads to misguided perceptions. Estimates based on true domestic content can cut US China deficit by half, if not more."


• Public sector is bigger share of national economy than burgeoning private sector

• Coastal regions more industrialized while hinterland less developed• “Blue Water” navy South China Sea

• World’s largest exporter; fastest-growing consumer market & 2ndlargest importer; net importer of services products & food

• Pollution, economy must shift to more advanced industrial development w high-tech, low carbon emissions w more resources to innovation & R&D.

• Economic development of Shenzhen is dubbed as next Silicon Valley


Shanghai CooperationOrganization SCO

• 2001 China created as alternative to NATO.

• Eurasian political, economic, & military organization.

• Member: China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, Uzbekistan, Pakistan* India* (*2017)

• Observer: Afghanistan, Belarus, Iran & Mongolia• Dialogue: Armenia,Azerbaijan,Cambodia,Nepal,SriLanka,Turkey• Guest: Turkmenistan, CIS, ASEAN, UN

• Largest geographical regional organization in world (3/5 of Eurasian continent and ½ of human population.

https://en.wikipedia.org/wiki/Shanghai_Cooperation_Organisation

https://en.wikipedia.org/wiki/NATOhttps://en.wikipedia.org/wiki/Eurasiahttps://en.wikipedia.org/wiki/Eurasia

U.S.- CHINA RELATIONS• 2005 PRC Anti-Secession Law. PRC prepared for "non-

peaceful means" if Taiwan declared formal independence.• 2009 US–China Strategic and Economic Dialogue,

• response to economic crisis, find ways to co-op re global warming, proliferation of nuc wpns & humanitarian crises.

• Obama visited China.• 2010 Obama met w Dalai Lama, accused by China of

"formenting unrest in Tibet." • 2010 US arms sale to Taiwan. PRC threat sanctions on

involved Cos

https://en.wikipedia.org/wiki/Anti-Secession_Lawhttps://en.wikipedia.org/wiki/U.S.%E2%80%93China_Strategic_and_Economic_Dialoguehttps://en.wikipedia.org/wiki/14th_Dalai_Lamahttps://en.wikipedia.org/wiki/Tibet_Autonomous_Region

U.S.- CHINA RELATIONS• 2010 “US tilt/rebalance toward Asia” PRC protests “containment.”• 2012 China cut oil imports from Iran. Some co-op w US on Syria &

North Korea. North Korea aid just sufficient to keep from collapse.• 2013 Obama met Xi Jinping

• Agreed to combat climate change.• Mutual interest in curtail North Korea's nuclear program.• Sharply divided over cyber espionage & US arms sales to Taiwan.

Xi dismissive of American complaints about cyber security.• 2013 “One Belt One Road”

https://en.wikipedia.org/wiki/Xi_Jinpinghttps://en.wikipedia.org/wiki/North_Korea


• Goals, Pres Xi Jinping• Global Socio-Cultural Influence (Soft Power)• “Two 100s”

• Economic Well Being (Sticky Power) by 2021 (100 yranniversary - found Chinese Communist Party)

• Security Well Being (Hard Power) by 2049 (100 yranniversary Founding of PRC)


“One Belt, One Road”OBOR BRI

• One Belt Ground Silk Route

• One Road Maritime Silk Rt

• Long term development of Infrastructure.Ports, rds, rail, pipelines

• AIIBAsian InfrastructureInvestment Bank$100B for projects. Future invest $1 T

• Silk Road Fund$40B for businesses

2013

One Belt, One Road: Push forbigger role in global affairs.

• Greater input in global institutions like IMF, World Bank & Asian Development Bank which claims dominated by US, Europe & Japan.

• China in ADB has only 5.47% voting right but Japan & US have 13% ea.• Recalls 1989 Tiananmen Square: US econ sanctions restricted

development bank lending & no IMF credits to PRC.

• 2013 Created Asian Infrastructure Investment Bank and New Development Bank as alternatives to World Bank and International Monetary Fund.

• AIIB capital $100 B = 2⁄3 of capital of Asian Development Bank and 1/2 that of World Bank.

• AIIB 50 founding member states, 37 regional and 20 non-regional Prospective Founding Members (PFM).

https://en.wikipedia.org/wiki/One_Belt,_One_Roadhttps://en.wikipedia.org/wiki/Asian_Infrastructure_Investment_Bankhttps://en.wikipedia.org/wiki/New_Development_Bankhttps://en.wikipedia.org/wiki/World_Bankhttps://en.wikipedia.org/wiki/International_Monetary_Fundhttps://en.wikipedia.org/wiki/Asian_Development_Bankhttps://en.wikipedia.org/wiki/World_Bank

U.S Reaction to AIIB

• US & Japan only developed nations not to join AIIB.• “US agree(s)…pressing need for infrastructure

investment…(but) any new multilateral institution should incorporate high standards of World Bank & regional development banks.

• Concerns if AIIB will meet these high standards, particularly related to governance, & environmental & social safeguards

• International community has stake in seeing AIIB complement existing architecture, & work effectively alongside World Bank & Asian Development Bank.”

One Belt, One Road Challenges

• Problematic financing & debt loads in developing countries• Countries may default on loans• Insufficient revenue flows for planned projects• Inappropriate technology• Substandard construction• Corruption• Local backlash against Chinese intrusion & land acquisition

• Xi told 50 African leaders at Beijing Forum on China-Africa Cooperation (FOCAC) that China's investments on the continent have "no political strings attached.”

• "BRI" in Africa aims to build trade, investment & political ties w a continent overlooked by US & West.

• Africa has opportunities for Chinese business, while African nations happy to accept China's offers that come without demands for safeguards against corruption, waste & environmental damage.

• Media reports brand China’s activities as “exploitive plundering African resources & damaging local environments.”

• Some projects have complaints about debt & other problems. BRI has hundreds of projects, most built by Chinese contractors & financed w Chinese state-owned bank loans.

• Malaysia recently canceled Chinese-financed projects worth $20B, saying they were unnecessary & would create unsustainable debt.

• Sri Lanka unable to pay its $8 billion loan for Hambantota Port.

• 2017 gave up control interest in port to state-owned Chinese company for writing off debt.

• China now has 99-year lease.• Pakistan Gwadar port funded by $16 B loans from Chinese

@ interest over 13%. Apr 2018 Pakistan gave China 40 yrlease & 90% of port’s revenue. If Pakistan defaults on other loans China could take collateral from coal mines to oil pipelines.

• Reports of PLA patrolling in Wakhan Corridor in Afghanistan near border with Xinjiang, & apparent acknowledgement of presence by US

• China’s wish to secure its border with Afghanistan. Xinjiang’s border security increasingly significant as sharp increase in militants returning from Syria

www.atimes.com/is-china-deploying-pla-troops-in-afghanistan/https://asia.nikkei.com/Spotlight/Belt-and-Road/Terrorist-attacks-show-Pakistan-s-need-to-reassure-China-on-security

Aug 21, 2018

Sep 6, 2018

Pakistan Plans 12,000-Strong Security Force to Safeguard Chinese

https://www.scmp.com/news/china/diplomacy-defence/article/2139983/china-saw-16-fold-increase-returning-jihadists-2017

Chinese Autonomous Regions

Up to 1 million people, or 7% of Muslim population in Xinjiang, are incarcerated in expanding network of “political re-education” camps

NingxiaHui34/65%

Chinese Response to “New Colonialism” claim

• Denied engaging in "debt trap" diplomacy, & Xi’s money comes after pledge of another $60 B at previous summit in South Africa 3 years ago. S African Pres Ramaphosa"refutes the view that a new colonialism is taking hold in Africa.”

• China-African trade has contributed 20% of Africa’s economic growth.

• Infrastructure construction & personnel training alleviates poverty & lifts economic & human resources.

* Author: Yanwei Sr. researcher West-Asia & African Studies Chinese Academy of Social Sciences, Time Magazine, Sept. 3/10, 2018.

Update on China-Africa Initiatives

• China is Africa’s largest trading partner for last 9 years.• 2017 Africa is China’s 3rd investment & 2nd largest market

for Chinese contractors. China’s invest in Africa $100 B w 3,500 Chinese Companies operating in Africa.

• South Africa is site of BRIC New Development Bank & Africa Regional Center (ARC.)

• 2017 McKinsey report: 89% of workers in Chinese-owned Cos in Africa were African who received considerable skills training. China’s involvement is “strongly positive.”

China is world’s #1 trade partner

Africa supplies the country that suppliesthe world

Africa isChina’sChina

11 Jan 201611 Jan 2018

• China - world’s largest scrap consumer, 10 fold increase 4.5 million tons 1995 to 45 million tons in 2016

• 1/3 of US recyclables are exported, 40% to China (60% of paper & 70% of non PET plastics)

• US cities went to 1-bin recycling (“single stream”) collection

• Single stream increases contamination • Single stream collection & Material Recovery Facilities

MRFs designed for China market w no restrictions• 2013 China set 5% quality restrictions. Contamination

causes more work. Toxic waste & rising wages make separation more expensive. 10% of US shipments rejected

• 2017 China - more restrictive. No longer import 24 categories of solid waste & max contamination rate of 0.3%, an effective ban

• By 2019 China will “gradually halt importation of solid waste that can be replaced by domestic resources.”

• Huge Impact on US recycling markets and Co’s• Value of recyclables dropped 50-70%, if markets could be found

• Recycling rates fell CA: 2 million add waste tons to landfills this year OR: allow landfilling of previously banned recyclables

• MRFs - warehousing scrap bales & running out of space

15 Lanthanides

ScandiumYttrium

Rare Earth Elements

Rare Earth Element

Cannot be substituted. Difficult to recycle.

• Significant deposits rare earth elements in 14 states.

• Largest deposits: Mountain Pass CA Bokan Mountain AK Bear Lodge Mtns WY

• US has 13 million tons of rare earth elements but it would take years to extract them

(Image: USGS)

https://en.wikipedia.org/wiki/Mountain_Pass_rare_earth_mine

Environmental Impact• US stopped mining in part because of immense pollution to extract• Low concentrations of elements in raw ore requires large volume of

mined ore• Highly toxic separation & refinement techniques such as acid baths

& leaching. Major emissions of HF, H2SO4, SO2, and NH3• However, China increased production as main producer for world • Caused lasting damage to villages surrounding factories• Ironic that clean energy industry requires large amounts of REEs

June 2017 The new owner is MP Mine Operations LLC – a Chinese-led consortium

including rare earths miner Shenghe

Resources.

Regional Comprehensive Economic Partnership RCEP

• China initiated as counter to Trans-Pacific Partnership.• Proposed free trade agreement between 10 members of

Association of Southeast Asian Nations (ASEAN) & 6 states with which ASEAN has existing free trade agreements (Australia, China, India, Japan, S Korea & New Zealand).

• Possible agreement Nov 2018?• Prospective members have population of 3.4B people with GDP of

$49.5 trillion, 39% of world's GDP. • Would be world's largest economic bloc, covering 1/2 of global

economy. GDP of RCEP members likely $250 trillion by 2050, or a quarter of a quadrillion dollars

https://en.wikipedia.org/wiki/Regional_Comprehensive_Economic_Partnership

https://en.wikipedia.org/wiki/Trans-Pacific_Partnershiphttps://en.wikipedia.org/wiki/Free_Trade_Agreementhttps://en.wikipedia.org/wiki/Association_of_Southeast_Asian_Nationshttps://en.wikipedia.org/wiki/Trade_blochttps://en.wikipedia.org/wiki/Quadrillion

U.S.- CHINA RELATIONS

• May 2015 US SecDef Ashton Carter warned China to halt its rapid island-building.

• Mar 2016 Obama Xi Jinping bilateral meeting on margins of Nuclear Security Summit.

• Dec 2016 Pres-elect Trump phone conversation with Tsai Ing-wen, Pres Taiwan, 1st such contact by a US pres-elect or pres since 1979 - provoked PRC diplomatic protest.

• Trump: “…I don't know why we have to be bound by a 'one China' policy unless we make a deal with China having to do with other things, including trade."

• Feb 2017, Trump spoke with Xi Jinping on phone discuss wide range of issues; Trump re-iterated US commitment to the status quo 'one-China' policy.

Current Era

David Lampton2018 Foreign Policy Association Great Decisions

• Last 15 years China implemented a wide-ranging strategy • Economic outreach

• Active in Africa & other developing areas -financing & tech assistance for infrastructure projects.

• Belt & Road Initiative• Asian Infrastructure Investment Bank• Securing energy sources in Mid East & Russia and other

raw material for expanding economy and they are a nuclear power with a space program.

• Expansion of all its national capacities• Including military & diplomatic capacities.

David Lampton 2018 article Foreign Policy Association Great Decisions

• United States has taken a step back from multilateral trade agreements

• Withdrawing from international agreements: TPP, NAFTA, Iran Nuclear, Paris Climate & threatening to withdraw troops from Germany and NATO.

• Initiating a trade war (tariffs) with neighbors, China and the European Union.

• Our present policies of isolating our nation gives the opportunity of an organization like SCO to fill the void.*

* From the Beijing Review author Sun Zhuanzhi; reprint in Time Magazine, 06/16/2018.


• 1990 US could act more unilaterally.

• After protracted world entanglements, less US will for global leadership role.

• Population - per capita GDP• China 1.4 B $ 8,826• US 323 M $59,531

• Wisest path both = negotiate cooperation

• 1st step for US = Get domestic house in order

‘90 ‘14

21%

4%


(PPP)

https://www.newyorker.com/magazine/2018/01/08/making-china-great-again

China’s pursuit of a larger role in the world coincides with America’s pursuit of a smaller one.

• 2018 budget: cut foreign assistance 42%, or $11.5 B, & reduced US funding for development projects, such as those financed by World Bank

• Dec 2017 Trump threatened to cut aid to any country that supports UN resolution condemning his decision to recognize Jerusalem as capital of Israel

• Threaten withdrawal from UNESCO• Reduced US contributions to UN by 40%, & pressured

General Assembly to cut $600 M from peacekeeping budget• Increased Defense budget by $70 B to $700 B.

https://www.newyorker.com/magazine/2018/01/08/making-china-great-again

• State of Play in Washington• Executive Branch decision making

• State of Play in Beijing• Xi’s foreign policy

• 2 issues and approaches• Fostering a balance of economic power• Achieving more reciprocity

• Negotiating cooperation


State of Play in Washington

• Trump - Sees self as “dealmaker” • Bilateral meetings: North Korea, China, Russia

• Withdrew from Trans-Pacific Partnership (TPP)• Tween US & 11 other Pacific Rim nations• China - Regional Comprehensive Economic Partnership RCEP

• Free trade tween ASEAN 10 & 6 states• Withdrew from Paris Climate Agreement, Iran Nuclear treaty• NATO – Why should US pay to defend EUR? Others need to

pay share


Executive Branch Decision Making• White House personnel (esp National Security) in constant flux• Deep divisions on trade policy• Slow nomination/confirmation of senior officials

• Nov 2017 only 469 of 600 positions requiring Senate confirm were nominated. Only 240 confirmed. Agencies w “acting” pers.

• Dept State: 56 of 152 slots filled• Defense: 26 of 54 • Commerce: 10 of 21

• Foreign governs do not know with whom to engage; risks of ill-considered policies; spotty implementation; inaction.

• Trump gave family members notable roles in dealing with Beijing


State of Play in Beijing

• Xi Jinping • Born Beijing 1953• 1963, age 10, father purged from party• 1968, age 15, Cultural Rev, father imprison, mom

denounced, sister killed, sent to countryside, ran away, cave, work camp, production organizer of communal laborers.

• 1974 age 21, joined Communist Party (10 attempts)• 75-79 Chemical Engineering as “Worker-peasant-soldier-student”• 79-82 Secretary to Vice Premier & Sec-Gen of Central Mil Comm• 1985 Agricultural Delegation in American home in Iowa

https://en.wikipedia.org/wiki/Xi_Jinping#Accession_to_top_posts


• Xi Jinping • 98 to 02 Doctor of Law degree, (law, politics,

management & revolutionary history)• 99-02 govern Fujian province, 02-07 Zhejiang

province • 07-12 Politburo Standing Committee, Central

Secretariat, Vice President, Vice Chairman of Central Military Commission.

• 2012 General Secretary Communist Party• 2012 Chairman Central Military Commission • 2013 President of PRC


https://en.wikipedia.org/wiki/Fujianhttps://en.wikipedia.org/wiki/Zhejiang


• Xi Jinping • Strong measures to enforce party discipline &

internal unity. • Anti-corruption campaign - led to downfall of

prominent Communist Party officials.• Nationalist

• Emphasis on individual & national aspirations “Chinese Dream”• Tightened restrictions over civil society & ideological discourse,

advocated internet censorship as "internet sovereignty”• Socialist market economic reforms• More assertive foreign policy



• Oct 2017 19th Party Congress (Every 5 yrs) • Select Leadership

• Xi Jinping - President, General Secretary of Communist Party, Chairman Central Military Commission

• Made possible retain power beyond 2nd 5 yr term –“Core Leader”• Set foreign & domestic policy

• 2 goals• Maintain stable relation with US• Appear tough on US for domestic consumption

• Taiwan, S & E China Seas, N Korea, Economic Interests, National Dignity



• Constraints• Ministries, Provinces, localities, corrupt indiv & interest groups –

not comply w National directives• Anti-corruption campaign - popular support but powerful

enemies• Huge corporate debt, Shadow financial industry• State owned enterprise sector efficiency declining• Excess capacity in key sectors weakens economy & requires

subsidies• Motivates dumping cheap products overseas

• Demographics – Aging population, health & retirement costs• Growing middle class & disaffected intellectuals


www.visualcapitalist.com/chinas-debt-bomb/

China’s Debt Bomb: Hand grenade or nuclear explosion

• China’s debt - Escalating fast

• Official numbers - Dodgy

• Estimates of scale & potential impact on financial system vary

Xi’s Foreign Policy

• Progressively more assertive in national interests & winning more say abroad

• S & E China Seas, India, punish S Korea economically over THAAD Missile deploy, “red line” for Hong Kong dissidents, Pressure on Taiwan, Military Modernization, Co-op w Russia, Belt & Road

• Views US as gridlocked at home & alienated from traditional international friends

• Peoples Daily Washington = “a bizarre soap opera…US foreign policy is in total disarray, & world regard for US has plummeted.”

• Entered a “Post American Era”• The “rest” gaining strength


2018 Looming trade war• Apr Trump - $50 B in tariffs

on Chinese goods 25% on steel, 10% on aluminum

• May, US China trade talks in Beijing

• US demands China cut trade advantage by $200 B by end 2020 & reduce subsidization of industries & policies related to technology transfers

• China retaliates $50 B against imports of US agriculture

• China refuses

2018 Looming trade war• Sep Largest US tariffs yet –

$200 B worth of Chinese goods. 10% tariffs will rise to 25% next year unless countries reach deal.

• Trump threatens add $267 billion in tariffs. 1/2 of China's exports to U.S. are affected by tariffs, making them more expensive to consumers

• 5-10% Chinese tariffs on $60 billion in American products

• Chinese White paper, "Facts about China-US trade dispute”: China "answering US concerns w greatest level of patience & good faith. But, US has been contradicting itself & challenging China”

New Tariffs, US-China trade war• State-owned “China Daily” • Bought 4-page advert in Des

Moines Register targeting Iowa soybean farmers RE China's moves to switch to imports from Brazil & grow more of its own.

• Said these effects are the "fruit of a president's folly.“

• Trump: China’s attempt to influence US midterm elections

https://www.sacbee.com/news/nation-world/world/article218934700.htmlhttps://www.desmoinesregister.com/story/money/agriculture/2018/09/24/china-daily-watch-advertisement-tries-sway-iowa-farm-support-trump-trade-war-tariffs/1412954002/

Sep 24,2018

US-China trade war

• US demands are long-term & fundamental policy changes• China behave like a market economy rather than subsidizing key

state industries, making it difficult for foreign companies to compete

• Forcing foreign companies to transfer technology to Chinese partners & theft of American technology

• Trade war will probably hit global economy. Some companies might shift production out of China, but others will find it difficult to find manufacturers elsewhere able to produce at same scale.

https://www.sacbee.com/news/nation-world/world/article218934700.html

New Tariffs, US-China trade war

• Long term, China will develop own high-tech industries instead of relying on US components

• Policy spelled out "Made in China 2025" plan. Be global leader in high-tech indus - artificial intelligence, robotics & superconductors

• Xi Jinping unwilling to face domestic humiliation by backing down. Xi consolidated power since 2012, & perceived defeat in trade war would be extraordinary setback.

• China imports fewer US goods than it exports – can’t match US tariffs dollar to dollar. US now tariffs on $253 billion, China tariffs on $130 billion in U.S. goods, but it vowed to match through other means. Stepping up inspections on US goods, or creating bureaucratic barriers hampering US companies in China.

https://www.sacbee.com/news/nation-world/world/article218934700.html

• South China Sea, US carries out "Freedom of Navigation" exercises.

• US sanctions on China's military for buying Russian fighter jets & a missile system.

• China reply- an arrangement between two sovereign countries is none of US's business.

https://www.sacbee.com/news/nation-world/world/article218934700.htmlhttps://www.wcpo.com/news/national/china-cancels-us-warship-visit-to-hong-kong-amid-military-sanction-backlash

USS Wasp

Sep 26, 2018

Trade War/Military Tensions

Dec 2016

May 2018SpratleyIslands

Oct 2018

South China Sea

Trump “America First”• Some experts say trade war has less to do w deficits than

appears.• US ran trade deficits for 40 yrs, before China was major

trading nation. Trade deficits largely driven by US low savings rates.

• Real contention might be China threat as a technological leader, specifically in Artificial Intelligence (AI). AI is one of central pillars of “Made in China 2025” plan, & set sights on being global leader in AI by 2030.


• Trade deficits or surpluses aren’t bad or good.

• Natural characteristic of post-barter economies that have achieved division of labor… a sign of success, in other words.

• There are times when trade deficits simply don’t make a difference.

• There are times when they can be devastating.

• It all depends on the current account surplus

• US World Reserve Currency

www.mauldineconomics.com/frontlinethoughts/the-trade-deficit-isnt-the-boogeyman/

Oct 5, 2018

Issues & Approaches

1. Fostering a balance of economic power• US power diminished by

• Missteps• Iraq & Afghanistan• “Pivot to Asia” overemphasized military power – alienated China• US policy against infrastructure in World Bank, Asian Dev Bank & USAID • Opposition to AIIB & TPP - Weaken economic leg

• Global Developments• 2009 global financial crisis - US hit harder than China

• Intelligent moves by others• China’s “Going global” strategy – domestic firms invest abroad• Belt & Road make China central node in Region


Issues & Approaches

• Recommended Approach to Fostering balance of economic power

• US needs more involvement in construction of regional infrastructure

• By US Companies, foreign aid & development agencies, allies & multilateral development agencies

• Balanced connectivity between China & US would help avoid spheres of influence that give rise to conflict


Issues & Approaches

2. Achieving more reciprocity• 2001 joined World Trade Organization WTO

• Its trade & global investment grew enormously• Expanded Foreign Direct Investment FDI - purchased factories, property,

resources, R&D facilities & US treasuries• Analysts - US trade negotiators at 2001 WTO “dropped the ball” in not

pushing for access to China for US service providers • 2014 China’s outward FDI exceeded its inward FDI

• Approach “Fairness” what is remedy? Not easy• Limiting Chinese investment into US lowers domestic US job opportunities• 2017 threatened tariffs imported steel etc led to surge in imports to beat

future higher costs.


• Visa, Mastercard & American Express trying to enter China for years. May have missed their chance.

• 2017 China had 6.7 billion credit cards in circulation. “Tremendous growth, but Visa/MC not allowed.”

• 90 % market dominated by state-owned China UnionPay bank card. Visa/MC can only issue co-branded cards, in partnership w UnionPay & run on UnionPay network.

3 Aug 2018

• 2001 China joined WTO & agreed to remove restrictions on foreign payment processors by 2006. Not done. 2010 US filed WTO case. US won case 2 years later.

• China said would permit foreign companies, but application process still wasn’t set when Trump & Xi Jinping met 2017.

• MC/Visa/Amer Express expect application process = 18 months. • China has delayed so long that V/MC/Am Express can't compete w

UnionPay, Tencent's WeChat Pay & Alibaba's Alipay at this point? • China’s mobile payment transactions = $5.5 trillion last year. 50

times greater than US. • In China's best interest to wait as long as possible. "Once UnionPay

is national champion, then it will let Visa and MC in."

Negotiating cooperation

• US faces policy choices of previously unknown magnitude• Multi-lateral trade arrangements• Bi-lateral arrangements - Trump

• What tools?• Strengthen Export-Import Bank• Increase or decrease US foreign assistance for foreign

infrastructure• Tariffs


Negotiating cooperation

• Security• Strive for balance in Asia• Seek to maintain primacy• Strengthen 5 Asian security alliances (Japan, S korea, Philippines,

Thailand & Australia)• Form security coalition of China’s neighbors (India). Ignite regional

arms race? SCO?• Or work to develop security structures that include both powers• N Korea Use force, pressure or live w it.

• US no longer in position to compel co-op, it must be negotiated.


Thucydides Case Studies

• Lee Kuan Yew, founder of Singapore, premier China watcher & mentor to Chinese leaders since Deng Xiaoping.

• “..how could (China) not aspire to be number one in Asia & in time the world?”

• About accepting its place in an intern’l order designed & led by US, said absolutely not: “China wants to be China & accepted as such—not as an honorary member of the West.”

https://www.theatlantic.com/international/archive/2015/09/united-states-china-war-thucydides-trap/406756/

US POLICY OPTIONSPANDA HUGGING VS DRAGON SLAYING

• “Panda Hugging”. Don’t try to “contain” China -Economically, politically or militarily.

• “Dragon Slaying”. Take a much more assertive posture. China is a threat.

• China’s rise should be welcome as a responsible security partner.

• Incentives for good behavior. Reassurance• Disincentives for bad behavior. Deterrence• Wider engagement with Multi-Players.

Other Views

https://spectator.org/40803_world-market-authoritarianism/

• US & West face serious challenge from China but not by conventional threat definitions.

• China: no interest of military competition w US. Its military development is "just-in-case" capacity. Seeks to leapfrog US with development of high-tech, close-in weapons, which target US reliance on communications & intelligence tech.

• RE Taiwan: China is Taiwan's largest trading partner while Taiwan is one of China's biggest investors, thus economic effects of a war between the two would be catastrophic for both.

China THREATENS AMERICA WITH ITS EXAMPLE? Stefan Halper

• Chinese economic threat is myth. China needs stable US economy & dollar. China bought US debt to sustain the macro-economic engine that China relies on.

• More serious problem: mutual econ dependence weakens US voice on global stage. Blunts US influence on other issues of US-led world liberal order - human rights, rule of law, free speech

• Globalization led societies to bigger economic integration. Helped non-west nations get richer, but did not make them more democratic or close to West.


• Ideas have been West's most important exports.• Success of “state capitalism” vs “liberal capitalism”: China's

illiberal capitalism is development example for non-democratic regimes. How to liberalize economically without surrendering to liberal politics.

• China's rise comes at time when appeal of free market capitalism & West democracy - exemplified by US – has been lost in disdain across globe.

• “Soft power.“ "It's not whose Army wins, it's whose story wins." • Real battle today; ideology & example is the real threat that China

poses to US.


• If China had followed Western model, it could have suffered as much as Russians did after Gorbachev followed Western model."

• Three biggest powers in 2050 will be China, India & US - the future global geopolitical triangle.

• China must keep equally good relations w both. China's peaceful rise to great power is partially due to multilateral order created by US & Eur after 1945. China will continue this policy. It will provide political & intellectual leadership to keep the multilateral order open.

www.news.cn/home.htm

China is not following the Western development model - Kishore Muhbubani, Lee Kuan Yew School of Public Policy

https://www.project-syndicate.org/commentary/why-america-will-lead-the--asian-century?barrier=accesspaylog

• US won’t be replaced as hegemonic power in Asia because they never were a regional hegemon there.

• US has massive military & economic power that can assure her future leadership. Strong bilateral ties w Japan, Australia, South Korea etc that makes her legitimate leader.

• Although US is in decline, it has never been a Hobbesian Leviathan with absolute authority & power.

• US decline is a positive thing. A sense of strategic vulnerability breeds interdependency, which has always been the key to successful US leadership in Asia.

John Lee

www.mauldineconomics.com/frontlinethoughts/chinese-growth-spurt

Trade War - Export Substitutes• Alibaba, China’s e-commerce Amazon.com, buying 10% stake in

Russian internet giant Mail.Ru• Use Russian social networks to build an e-commerce platform.

A new conduit for Chinese exports to Russia.• Long time before Russians buy enough online goods to replace

US exports China might lose in trade war. But China is not at mercy of US trade policy.

• Alibaba, Tencent & Baidu will follow OBOR as will other big Chinese companies.

• Beijing intends to dominate as much of Asian economy as can. Amer & West Eur aren’t world’s growth centers anymore.


Automatic Automation• Chinese manufacturers - automating fast out of necessity:

lack skilled workers, especially young. Competition from low-cost Asian neighbors makes raising wages difficult.

• Companies that once reverse-engineered & copied Western goods build their own advanced products. Govern’s “Made in China 2025” initiative helps with generous loans and subsidies.


Four Artificial Intelligence AI Waves• New Space Race. China pouring in resources. • First Wave: Internet AI. Online “recommendation engines.” China’s

data advantage gives it slight lead over US• Second Wave: Business AI. Computers analyze data to make

judgements once reserved for humans: loan underwriting, cancer diagnoses... US lead but China’s lag may let it leapfrog over legacy tech. Straight from cash to mobile payments bypassing credit cards

• Third Wave: Perception AI. Internet of Things. Devices around us connected. China lead in sensor technology. Stores scan your face to pay the bill

• Fourth Wave: Autonomous AI. Machines that can both make decisions and sense the world around them. Autonomous vehicles


Baidu (2nd-largest search engine)Alibaba (like Amazon)Tencent (tech, internet, gaming)Xiaomi (phones & electronics)

2007 2016

$50 B


“BATX”

Some Thoughts on China & Technology• Some think US should rein in China’s drive for tech

superiority. Can’t be done; China can’t stop progressing. If US & West want to remain tech superior, they need to devote resources.

• No reason China will necessarily surpass West in tech. We had enormous advantage, but have not kept up our drive. “We call our entrepreneurs before congressional hearings to ask how they spend their capital. We regulate one business initiative after another. We worry about monopolies. Cries to break up Amazon are part of that absurdity.”


www.visualcapitalist.com/china-digital-wallets-payments/

“Digital Wallets”

WeChatPay

“China’s weapon of mass propaganda”

Some Thoughts on China & Technology• Chinese co’s & customer data. Westerners complain about

invasion of privacy. Most Chinese purchases are on mobile systems like Alibaba, which uses that data to improve & make more money. Average Chinese doesn’t care but it offends our notions of privacy.

• 40 years ago, most Chinese lived at subsistence level. Now they live in megacities. They didn’t develop our Western privacy sensibilities over centuries as we did. They don’t understand why we would do it differently. Consider the vast cultural differences & leave your Western thinking behind when you try to understand China.


https://www.newsweek.com/us-china-economic-partnership-through-79067

• Germany was in good relationships w Britain until end of 19th century, & US did not consider Japan as rival until 1930 & WW2.

• Is it same today – US & China? • 2007 US & China were so intertwined they'd become one economy. China did

the saving, exporting, lending. US the spending, importing, borrowing. • Relationship is like unhealthy marriage between compulsive saver & chronic

spender. They always finish soon or later.• If Chinese seek divorce they must grow alone until they become global power &

they must build a domestic consumer society to replace Americans. Tectonic plates of geopolitics don't move that fast but the danger signs are there.

historian Niall Ferguson

Sep 2, 2018

Oct 16, 2018

Gordon G. ChangGordon G. Chang is the author of The Coming Collapse of China . Follow him on Twitter @GordonGChang.

https://nationalinterest.org/feature/xi-jinpings-debt-trap-33646?page=0%2C4

Trade War Potential to Shake China’s Export Driven Economy

• Xi has overextended China, which now faces internal & external economic demands that country cannot meet

• Repudiating the very reformist policies that accounted for the country’s astonishing rise

• Returning to closed economic model that has failed China in past

• Recombining already large state enterprises back into dominant market players and, in some cases, formal state monopolies

• Increased state subsidies to favored participants & tightened already strict capital controls, often enforcing unannounced rules



• Returning to closed economic model (cont) • Closing off China’s markets to foreign companies with

discriminatory law enforce, state media-promoted boycotts & legislation, like Cybersecurity & National Security Law, designed to prejudice non-domestic competitors.

• Disregarding obligations under trade agreements & taking hundreds of billions of dollars of foreign intellectual property each year.



• Returning to closed economic model (cont) • Increased state control over equity markets. 2015, shareholders

prohibited from unloading shares, “malicious” sellers were investigated, others were required to buy stock & banks were forced to rollover stock loans

• Pushing partial nationalization of tech sector by encouraging state enterprises to take stakes in startups.

• Inserting Communist Party cells into both private businesses and foreign-owned operations. “The second period of socialist transformation.”



• China is accumulating debt faster than it is growing.• Now incurring one-and-a-half times as much debt as it is producing

nominal GDP if the official GDP figures are accurate. • They’re not. Beijing claimed growth for 12 straight calendar quarters

in the 6.7–6.9 percent range.• Growth, in reality, has been far lower. The country’s figures are not

consistent with underlying indicators. The World Bank estimates 2016 China’s gross domestic product grew 1.1 percent.



• 3 factors that will inhibit growth in the future. 1. Extreme environmental degradation2. Demography will inhibit China’s growth. China’s economy grew

fast in reform era in large part because of the “demographic dividend”

3. China no longer enjoys the support of the US or even EU. • Decades of China’s predatory trade practices have changed

minds in foreign capitals as have Xi’s aggressive geopolitical moves.

• China had progressed fast in large part because successive American administrations wanted it to succeed.



• Trump’s “trade war”—tariffs—has potential for shaking the export-dependent Chinese economy.

• China deeply reliant on American market. Last year, China’s trade surplus from exports to US was 88.9% of its overall surplus. Add to that China’s 2017 surplus ($375.6 B), & Trump holds the high cards.

• Trump, unlike predecessors for last 40 years, has shown willingness to use American power to undermine China. China cannot sustain long-term struggle with its most important customer. Not surprisingly, China’s equity markets & currency fell precipitously as the “trade war” started.



• Many Chinese see Xi’s moves to be “the comprehensive resuscitation of totalitarian politics,” as Tsinghua University law professor Xu Zhangrun said in widely circulated essay. “After 40 years of reform…overnight we’re back to the ancient régime.”

• China banned Peppa Pig. They only heightened the cartoon character’s popularity in society, even creating sympathy for the slackers who made the animal their symbol.

• China’s strength—and the regime’s ultimate weakness—is that the Chinese people are often defiant, mostly irrepressible and always noisy.


“Society people” who have embraced Peppa as their unlikely symbol, are those “who run counter to the mainstream value and are usually poorly educated with no stable job.”

“They are unruly slackers roaming around and the antithesis of the young generation the (ruling Communist) Party tries to cultivate."

https://www.independent.co.uk/news/world/asia/peppa-pig-ban-china-childrens-tv-cartoon-gangster-douyin-a8332846.html

2 May 2018

China & US Geopolitics

2nd largest export economy2016 export $1.32T

import $2.12Tnegative trade balance $791BGDP $18.6T GDP per capita $57.6k.

$122B

$436B

$207B

$179B

$289B $268B

Exports

Imports

China largest export economy 2016 export $2.27T

import $1.23Tpositive trade balance $1.04TGDP $11.2TGDP per capita $15.5k.

$463B

$122B

Exports

Imports

China & US Geopolitics Part 2China & US�The New Geopolitical EquationHundred Years of National HumiliationTAIWANSlide Number 5 CHINA’S LAND RECLAMATION PROJECTS� Great Wall of SandCHINA’S ECONOMIC TRANSFORMATIONSlide Number 10Slide Number 11CHINA’S ECONOMIC TRANSFORMATION Shanghai � Cooperation� Organization SCO U.S.- CHINA RELATIONSU.S.- CHINA RELATIONSCHINA’S ECONOMIC TRANSFORMATION�“One Belt, One Road”�OBOR BRI � One Belt, One Road: Push for� bigger role in global affairs.�U.S Reaction to AIIB � One Belt, One Road Challenges�Slide Number 22Slide Number 23Slide Number 24Slide Number 25Chinese Autonomous RegionsChinese Response to �“New Colonialism” claimUpdate on China-Africa InitiativesChina is world’s #1 trade partnerSlide Number 32Slide Number 33Slide Number 34Slide Number 35Rare Earth ElementsRare Earth ElementSlide Number 39Slide Number 42Slide Number 43Environmental ImpactSlide Number 45Slide Number 46 Regional Comprehensive Economic Partnership RCEPU.S.- CHINA RELATIONSSlide Number 49Current EraDavid Lampton �2018 Foreign Policy Association Great Decisions�Slide Number 52Slide Number 54Slide Number 55Slide Number 56Slide Number 57State of Play in WashingtonExecutive Branch Decision MakingState of Play in BeijingState of Play in BeijingState of Play in BeijingState of Play in BeijingState of Play in BeijingSlide Number 66Xi’s Foreign Policy2018 Looming trade war2018 Looming trade warNew Tariffs, US-China trade war��US-China trade war��New Tariffs, US-China trade war�� Trade War/Military Tensions�Slide Number 76Trump “America First”Slide Number 78Issues & ApproachesIssues & ApproachesIssues & ApproachesSlide Number 82Slide Number 83Negotiating cooperation�Negotiating cooperation�Thucydides Case StudiesUS POLICY OPTIONS�PANDA HUGGING VS DRAGON SLAYINGOther Viewshttps://spectator.org/40803_world-market-authoritarianism/Slide Number 91Slide Number 92China is not following the Western development model - Kishore Muhbubani, Lee Kuan Yew School of Public Policyhttps://www.project-syndicate.org/commentary/why-america-will-lead-the--asian-century?barrier=accesspaylog�Slide Number 95Trade War - Export Substitutes�Automatic AutomationFour Artificial Intelligence AI WavesSlide Number 99Some Thoughts on China & TechnologySlide Number 102Some Thoughts on China & Technologyhttps://www.newsweek.com/us-china-economic-partnership-through-79067Slide Number 119Trade War Potential to Shake China’s Export Driven EconomyTrade War Potential to Shake China’s Export Driven EconomyTrade War Potential to Shake China’s Export Driven EconomyTrade War Potential to Shake China’s Export Driven EconomyTrade War Potential to Shake China’s Export Driven EconomyTrade War Potential to Shake China’s Export Driven EconomyTrade War Potential to Shake China’s Export Driven EconomySlide Number 127China & US GeopoliticsSlide Number 129Slide Number 130

china & us geopolitics part 2 - chico decisions · 2018. 10. 27. · china & us the new...

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