- Created: Tuesday, 16 October 2018 10:51
- Written by Trevor Rayne
The US ruling class now views China as a threat to its global economic and political domination and is determined to contain that threat. China’s rise is challenged by a US trade war and the drumbeat of US military preparations in the Pacific and Indian Oceans and the South China Sea. Unlike the Soviet Union, which was the US’s main rival, China has become a significant part of the world capitalist economy and any rupture in US – China trade relations will have profound consequences. Could China supplant the US as the world’s dominant power? TREVOR RAYNE reports.
Since the early 1980s, China’s economic growth has been spurred by foreign investment in low-cost labour-intensive industry and exports. As China’s economy grew, so its relationship with the US appeared to become one of mutual dependence; China exported goods to the US and used part of its current account surplus (the balance on its trade in goods and services) to buy US Treasury bonds, which the US used to fund government budget deficits. China now owns $1.1 trillion of these bonds; the largest foreign holder. However, China’s products began to compete with those of the US monopolies. China also exported capital, rivalling US investment for markets and resources. In the context of the global capitalist crisis, where competition for adequately profitable outlets for investment increases, a clash between a rising China and the dominant, but relatively declining, US became inevitable.
‘By 2050, two centuries after the opium wars, which plunged the “middle kingdom” into a period of hurt and shame, China is set to regain its might and re-ascend to the top of the world.’ (Xinhua, official news agency of the People’s Republic of China, following the 19th National Congress of the Communist Party of China (CCP) October 2017).
China’s emergence as a world economic power is shown by the following indicators:
- China’s GDP has almost tripled in ten years. According to the International Monetary Fund (IMF), China’s GDP, measured by purchasing power parity, will be double that of the US in 2028.
- China’s manufacturing sector is now almost as large as those of the US, Japan and Germany combined.
- In the past decade China’s share of world manufacturing exports has risen from 12% to 18%.
- In the three years to 2013, China reputedly used more cement than did the US throughout the twentieth century.
- In 2016 China’s banking system overtook that of the Eurozone to become the world’s largest when measured by assets.
- The Export-Import Bank of China and the China Development Bank lend more than the six western-led multilateral banks combined.
- 98 corporations owned by the state-run Assets Supervision and Administration Commission have combined assets worth $26 trillion, making it the largest economic organisation in the world.
- In 2017 China and Hong Kong’s combined stock of foreign direct investment was $3.3 trillion, compared to the UK’s $1.5 trillion and the USA’s $7.8 trillion.
- By 2015 nearly two-thirds of the world’s top 50 container ports had some level of Chinese ownership, up from one-fifth in 2010. These ports handled 67% of world container volumes.
- Two-thirds of the world’s high-speed rail tracks have been laid in China.
- China accounts for 40% of the world’s e-commerce transactions, up from less than 1% a decade ago.
- China has over 800 million internet users and is the world’s biggest market for technology companies.
Any attempt by the US ruling class to curb China’s economic growth risks driving the world economy into recession.
‘Hegemony and militarism are not in the genes of the Chinese’, said China’s President Xi Jinping. However, imperialism is not biologically determined; it derives from capitalism’s economic and political impulses. China has not set up colonies; nor has it imposed or overthrown foreign governments; nor has it waged wars abroad for markets and resources or cheap labour, which are characteristic of imperialism.
Nevertheless, in 2015 China passed a counter-terrorism law which legalises sending troops for combat missions abroad without a United Nations mandate. In 2016, China opened a naval base in Djibouti in East Africa, adjacent to the strategic Bab Al Mandab Strait, its first foreign military base since withdrawing from the Democratic People’s Republic of Korea in 1958. China has claimed territorial rights across much of the South China Sea and developed military bases on islands whose ownership is disputed with the Philippines and Vietnam, among others. These developments do not confirm that China has become an imperialist power, but foreign bases, buffer zones, military intervention abroad and spheres of influence are typical of imperialism.
Under imperialism capital is exported and monopolies partition the globe. Given the uneven economic and political development of capitalism, there is competition between the major powers for markets, spheres of investment for capital and sources of raw materials, and competition for superiority in key areas of scientific and technological progress. Monopoly capitalists seek to reduce the risks to their overseas investments, including political and military risks, and so the tendency is to send armies to protect them. China had over $20bn invested in Libya. In 2011, it was forced to evacuate 36,000 Chinese workers from the country and had to enlist Greek merchant ships for the mission. ‘If this was to happen again,’ said one Chinese official, ‘we would be much better prepared. We could use the Chinese navy and take the evacuees to our own port at Piraeus.’ China bought a controlling stake in Piraeus, near Athens, one of Europe’s largest ports, for $420m in 2015. In Greece, Sri Lanka and Djibouti, Chinese investments in civilian ports have been followed by deployments or visits from the People’s Liberation Army Navy. Commercial ports can be upgraded for military missions.
US threat of trade war
In the final days of the Obama presidency, the US opened a case at the World Trade Organisation (WTO) against what it claimed were illegal subsidies used by the Chinese state for its aluminium industry. The US delivered a ‘draft framework’ for trade talks to China in May 2018. The US demanded that China reduce the trade imbalance by $200bn in two years, remove ‘market-distorting subsidies’, ‘cease the targeting of [US] technology and intellectual property through cyber operations, economic espionage, counterfeiting and piracy’. The US insists that US companies can invest in China, but can stop China investing in the US. This is bullying and a blueprint for all-out trade war.
On 6 July 2018 the US imposed 25% tariffs on Chinese exports to the US worth $34bn. US President Trump said, ‘The US can no longer tolerate losing our technology and intellectual property through unfavourable practices.’ China responded: ‘The US has violated the rules of the WTO and launched the largest trade war in the world’s economic history.’ China retaliated with tariffs on imports of US goods. On 23 August the US imposed 25% tariffs on $16bn more Chinese goods. China retaliated. On 17 September the US imposed 10% tariffs on $200bn worth of imports from China and threatened to raise the tariff to 25% in January 2019 if no trade deal is reached. China retaliated again. In 2017 the US imported goods worth $505.5bn from China and the US sold China $129.9bn of goods. About 18% of China’s exports go to the US and 10% of US exports go to China. Trump said, ‘Trade wars are good and easy to win.’ Given the trade imbalance between them, the US government may think it can inflict more pain on China than China can inflict on the US. China will divert goods to other markets; other countries could follow the US lead with their own trade barriers. The outcome could be disastrous: trade wars between the competing major powers preceded the Second World War.
China’s retaliation has targeted sectors of the US economy to undermine voter and business support for the US government. China has placed tariffs on US agricultural goods, like soya beans grown in the US mid-west, (China imports about half the US crop). China is offering inducements to multinational corporations and to European business in particular. Addressing heads of multinational companies, China’s President said, ‘The great door of China’s opening will not close, it will only get bigger and more open.’
China has lifted ownership limits for foreign investors in insurance and securities’ trading. Many western banks want full control of their operations in China. China could prevent US banks from raising their stakes. European banks are looking to take advantage of their US rivals. Foreign banks have just 2% of the Chinese banking market. British banks HSBC and Standard Chartered, with historical ties to China, are well positioned to benefit from China’s opening.
The Chinese government wants new capital and to counter US aggression by encouraging divisions in the US ruling class and between the US and Europe. China’s Premier Li Keqiang visited Germany in July 2018. Deutsche Bank was licensed to underwrite bonds in Shanghai and BMW may be allowed a controlling stake in a joint venture to make cars in China. China’s banks seek joint ventures with the European Bank for Reconstruction and Development, without restricting which firms can tender for projects. China’s state-owned banks usually specify that Chinese state-owned companies will carry out work in joint ventures.
The drive to lead in artificial intelligence
Russian President Putin said of artificial intelligence (AI), ‘Whoever becomes the leader in this sphere will become ruler of the world.’ AI superiority by 2030 is China’s strategic goal. Around two thirds of global investment in AI now takes place in China. The US ruling class is alarmed by China’s advance in modern technology. Technology has economic and military impacts. The CCP’s 2013 economic reform plan proposed changing China from a low-wage, labour intensive manufacturing power based on exports, to a high-waged economy based on technology-driven productivity growth and an expanding service sector. China launched its Made in China 2025 policy in 2015, setting out ten sectors, including robotics and renewable energy, semi-conductors, scientific and medical research and AI, in which Chinese companies were to become globally competitive. China currently imports more than 95% of its high-end computer chips, used in mobile phones, telecommunications equipment and computers. US governments have barred China from buying US micro-chip companies. In 2016 China spent $227bn importing chips, more than on oil. The US ruling class wants China to remain dependent on it for high technology. China says that Made in China 2025 is now open to foreign capital.
China’s challenge is real. The two biggest Chinese companies are privately owned technology firms: Alibaba and Tencent. Chinese technology companies are buying up firms abroad; Tencent has over 600 investments and Alibaba around 400. ‘Between 2015 and 2017, the five biggest US tech groups (especially Apple and Microsoft) spent $228bn on stock buybacks and dividends…during the same period, the top five Chinese tech companies spent just $10.7bn and ploughed the rest of their excess cash into investments that broaden their footprint and influence… It’s hard to escape the view that the Chinese groups … are using their investments as one way to help fulfil the ancient Chinese definition of the Middle Kingdom – as the centre around which all else revolves’ (Financial Times 18 June 2018). In 2017, Chinese companies ‘Huawei, Oppo and Vivo accounted for 43% of global smartphone sales, eclipsing Apple in the US and Korea’s Samsung’ (Financial Times 25 August 2018). Chinese technology companies operate joint laboratories with government departments and receive state funding. Facebook, Twitter and Google are blocked from China by the ‘Great Firewall’. China leads the world in facial- and voice-recognition technology.
The US government faces confrontation from its own high technology companies if it escalates trade war. Qualcomm sells 65% of its products to China, Microsoft 50%, Broadcom 50% and Intel 23%. China produces 60% of the world’s rare earth minerals, essential for electronic devices. US tariffs on China will raise, for example, Apple’s prices in the US because they use components made in China. The US Chamber of Commerce and Business Roundtable warned that Chinese retaliation would hurt US businesses.
The Belt and Road Initiative
The scale of China’s investment across the world, challenges the US and Europe. Since the 1950s, China has proclaimed the principles of peaceful coexistence and non-intervention in other countries. Will economic interests generate a more interventionist China?
Thus far, 1,814 investment programmes have been undertaken since the Belt and Road Initiative (BRI) was launched in 2013. China is expected to invest $1.3 trillion in it by 2027. The intention is to create an infrastructure network in over 80 countries by installing railways, roads, ports, pipelines, power stations and electricity in Central, South East and South Asia, Europe, the Middle East and Africa. China has bought stakes in or is building over 30 major ports from the Indian Ocean to Africa and Europe. China plans to become the hub of a giant trading web.
In The Grand Chessboard, 1997, former US President Carter’s National Security Advisor, Zbigniew Brzezinski, argued that, after the collapse of the Soviet Union, the US could only maintain global dominance if it controlled Eurasia; China’s BRI challenges that dominance.
China has invested $62bn building the China-Pakistan Economic Corridor linking western China to the Arabian Sea, via road and rail routes and ports at Gwadar and Karachi. China has replaced the US as Pakistan’s main arms supplier. The US urged the IMF not to lend money to Pakistan unless it published details of loans taken from China. China subsequently lent Pakistan $5bn, helping it to avoid the IMF.
With $31bn, Bangladesh is South Asia’s second-biggest recipient of Chinese money. In 2016 Bangladesh cancelled a Chinese plan to build and operate a deep-sea port at Sonadia, after pressure from India, fearing it would be used for military purposes. Sri Lanka transferred ownership of Hambantota port to China in 2017 when it could not afford debt repayments to its Chinese creditors. Hambantota is next to an important commercial and military waterway across the Indian Ocean.
The BRI has been criticised for its labour policies, for national security concerns, for corruption and pushing countries into debt. One study found that 89% of the contractors on China-funded transport projects were Chinese companies. Malaysia has suspended a $20bn East Coast Rail Link and its prime minister accused China of a ‘new colonialism’. Such accusations are intended to wring more favourable terms for Malaysia out of China.
The South Pacific
China has committed $4bn to projects in the South Pacific. It follows Australia as aid donor to the region. However, much of the Chinese money comes as loans. For example, China has lent Tonga $116m, over a quarter of Tonga’s GDP. The Australian government fears that China is imposing a form of ‘debt colonialism’ and that it wants to develop a military presence through this money.
China has overtaken Britain, France and the US as a trading partner with Africa. Last year, China’s trade with Africa was worth $170bn, four-times larger than US-Africa trade. China’s official policy has been that it ‘respects African countries’ choice of political system and development path suited to their own national conditions, does not interfere in internal affairs of African countries, and supports them in their just struggles for safeguarding their independence, sovereignty and territorial integrity’.
China invested $125bn in Africa in the decade to 2016. This September, President Xi pledged $60bn more over the next three years. Such funds are provided often in exchange for access to raw materials. By 2015, Africa provided China with a third of its petroleum needs. In 2008, the Democratic Republic of the Congo (DRC) reached a deal with China: roads, railways, clinics, hospitals, schools and two new universities worth $6bn were to be built. In exchange, China has the right to extract 12m tons of copper and cobalt over 25 years. $6bn was about half the DRC’s GDP. In Zambia, China invested in a copper mine. An explosion at the mine in 2005 killed 51 Zambian workers. The deaths were attributed to poor safety standards. The Chinese management banned union activity at the mine and paid workers less than the minimum wage. When workers protested, six were shot by a Chinese supervisor. A similar incident occurred in 2011 when 11 protesters against poor working conditions were shot and wounded by a Chinese manager. In 2006, China offered Mozambique a $2bn loan to build a dam on the Zambezi River to irrigate land. An agreement was reached allowing 3,000 Chinese settlers to farm the area. Local protests forced the plan to be dropped. About one million Chinese people have moved to Africa.
In 2004, citing concerns about corruption, the IMF demanded that Angola provide transparency in exchange for a loan. The Angolan government was reluctant to accept such terms. A Chinese bank stepped in offering $2bn, with no conditions attached. Angola accepted the Chinese loan in exchange for 40,000 barrels of oil per day. An Angolan minister said, ‘Our relations with China not only allowed us to obtain large loans, but most importantly it forced the West to treat us with more respect and in a less patronising way. For that we are grateful.’
President Xi Jinping called Latin America ‘a natural extension of the Maritime Silk Road’. In 2015 he pledged that China would invest $250bn in Latin America over the coming decade. In 2017 China’s trade with the continent reached $244bn, exceeding that of the US. China has invested in and lent Venezuela an estimated $62bn. Last year Venezuela shipped 330,000 barrels of oil per day to China. Venezuela’s estimated outstanding debt to China is about $20bn. With such debt it is unlikely that Venezuela will receive much income from its oil exports to China. China has invested $42.1bn in Brazil, $18.2bn in Argentina and $17.4bn in Ecuador, which ships half its oil to China.
In the past decade China has invested at least $318bn in Europe, $70bn in Britain. When Britain agreed in 2015 to become a founding member of the China-led Asian Infrastructure Bank, the US government accused Britain of ‘constant accommodation’ of China. In Ukraine, the Xinjiang Production and Construction Corps has leased land equivalent to the size of Belgium, on which it grows corn and sunflowers and rears pigs. China has pledged at least $7bn for Ukrainian infrastructure projects. Ukraine is strategically important for the BRI, giving access to the Black Sea and River Danube. China has established a ‘16 plus 1’ initiative aimed at increasing economic cooperation with 11 central and eastern European Union states and five Balkan countries.
Chinese and Russian hostility to US deployments of anti-missile systems in Asia has resulted in their greater military cooperation, with Russia agreeing to sell China the S-400 missile system and Sukhoi SU-35 fighter jets. The Russian fleet has joined China’s navy for exercises in the South China Sea and Chinese vessels have joined Russia for naval operations in the Baltic Sea. Russia is now China’s biggest oil supplier. Russian supplies do not have to pass through the Strait of Malacca and Gulf of Aden that could be cut off by the US. However, Russia is using its position in the Shanghai Cooperation Organisation (SCO) to try and contain Chinese economic expansion in Central Asia, where it has regional ambitions of its own. The SCO was formed in 2001 and today includes China, Russia, Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan, Pakistan and India as a regional political, economic and security alliance. Russia has stopped China buying a 14% stake in the Russian oil company Rosneft.
Introducing the 2018 US National Defence Strategy, US Defence Secretary, James Mattis, said ‘Great-power competition, not terrorism, is now the primary focus of US national security.’ On 30 May 2018, Mattis announced that the US Pacific Command will henceforth be called the US Indo-Pacific Command. This name change reflects ‘the increasing connectivity between the Indian and Pacific Oceans’. It expresses the US determination to remain dominant in both oceans and to encircle China with military bases and alliances.
China has built artificial islands in parts of the South China Sea whose ownership is contested and equipped them for military use. In 2016 the Permanent Court of Arbitration at The Hague ruled that China’s claims to sovereignty in the South China Sea were invalid. China rejected the decision, contesting that the waters are High Seas; in maritime law meaning they are not part of territorial seas or the internal waters of a state. China and the US have increased naval patrols close to the disputed islands. In June 2018, Mattis announced a ‘steady drumbeat’ of operations around the islands. Britain’s Royal Navy has participated.
Since 1972 the US has maintained a ‘One China policy’, wherein the US formally recognises the People’s Republic but maintains unofficial ties with the government in Taiwan and guarantees its security. In 1996 Taiwan indicated it would declare independence. China responded by firing missiles into the Taiwan Strait. The US sent two aircraft carrier battle groups to patrol the waters. Since then, China’s military budget has increased by roughly 11% per year. Last year, the US spent $610bn on its military, China $228bn. The US government intends to increase its military spending to over $700bn in 2019. In December 2016, the then US President-elect Trump broke precedent by accepting a telephone call from Taiwan President Tsai Ing-won. The US government has opened the American Institute in Taiwan, an embassy in all but name, and passed the Taiwan Travel Act, encouraging more exchanges between US officials and their Taiwanese counterparts. The US government urges US airline companies to ignore Chinese government demands that they use ‘Taiwan, China’ on maps and websites. Delta Airlines, a US company, apologised to China for listing Tibet and Taiwan as countries.
This year, China’s People’s Liberation Army (PLA) has tripled the number of naval and air-training exercises it conducts close to Taiwan-controlled territory, compared to 2017. The PLA recently conducted an exercise wherein it encircled Taiwan. China’s rise is being met by the threat of escalating trade wars and militarism. The US turns to alliances with Japan, India, the Philippines and Australia to confront China, but China offers them investments and better trade deals. If it has to, the US ruling class will resort to military force to prevent China ejecting it from its dominant position in the world.
Fight Racism! Fight Imperialism! 266 October/November 2018