Biden's Anti-China Ambitions
April 26, 2021
Dilip Hiro highlights some key areas where Beijing is poised to become
dominant.
Beijing skyline from 4th Ring Road, 2017. (Picrazy2, CC BY-SA 4.0, Wikimedia
Commons)
By Dilip Hiro
TomDispatch.com
Like his immediate predecessor, Joe Biden is committed to a distinctly
anti-China global strategy and has sworn that China will not "become the
leading country in the world, the wealthiest country in the world, and the
most powerful country in the world. on my watch." In the topsy-turvy
universe created by the Covid-19 pandemic, it was, however, Jamie Dimon, the
CEO and chairman of JP Morgan Chase, a banking giant with assets of $3.4
trillion, who spoke truth to Biden on the subject.
JPMorgan Chase CEO James Dimon in 2013. (World Economic Forum, Flickr, CC
BY-SA 2.0)
While predicting an immediate boom in the U.S. economy "that could easily
run into 2023," Dimon had grimmer news on the future as well. "China's
leaders believe that America is in decline," he wrote in his annual letter
to the company's shareholders.
While the U.S. had faced tough times in the past, he added, today "the
Chinese see an America that is losing ground in technology, infrastructure,
and education - a nation torn and crippled by politics, as well as racial
and income inequality - and a country unable to coordinate government
policies (fiscal, monetary, industrial, regulatory) in any coherent way to
accomplish national goals." He was forthright enough to say, "Unfortunately,
recently, there is a lot of truth to this."
As for China, Dimon could also have added, its government possesses at least
two powerful levers in areas where the United States is likely to prove
vulnerable: dominant control of container ports worldwide and the supplies
of rare earth metals critical not just to the information-technology sector
but also to the production of electric and hybrid cars, jet fighters, and
missile guidance systems. And that's only a partial list of the areas where
China is poised to become dominant in the foreseeable future.
Here's a likely scenario.
The Digital Yuan
Within the broad headline of the globe's "second-largest economy," China has
already either surpassed the United States or is running neck-and-neck with
it in certain specific sectors.
With a global smartphone market share of 20 percent in the second quarter of
2020, China's Huawei Technologies topped the charts, marginally exceeding
South Korea's Samsung, and well ahead of Apple, according to the
International Data Corporation.
This happened despite a concerted drive by President Donald Trump's
administration to damage Huawei that culminated, in May 2020, with
Washington barring companies worldwide from using U.S.-made machinery or
software to design or produce chips for that company or its entities from
that September on. Nonetheless, with a 47 percent share of China's booming
5G smartphone market, Huawei topped the list there while it kept up its
investment in future-oriented, cutting-edge technologies and basic research
to the tune of a striking $3 billion to $5 billion annually.
QR, or quick-response, codes for mobile pay in China. (Harald Groven,
Flickr, CC BY-SA 2.0)
Broadly speaking, China continues to make impressive strides when it comes
to developing its information and communications technology sector. Its
Fintech (Financial Technology) report, published in October 2020, showed
that an estimated 87 percent of Chinese consumers used fintech services.
With a vast mobile-payment system that hit $29 trillion (200 trillion yuan)
worth of payments in 2019, China is shaping up to become the globe's first
"cashless society" and its largest financial-technology ecosystem by the end
of this decade.
Less than 10 percent of Americans use mobile payments, which means a similar
scenario for the United States is nowhere on the horizon. With mobile
transactions in China already accounting for at least four out of every five
payments and more than half the value of all non-cash retail payments, that
country is poised to leave the U.S., a comparative laggard in fintech,
shackled to a cash-dominated system.
In their relentless drive for innovation, the Chinese authorities started
pushing the development of a digital currency in certain regions in August
2020. Their specific goals were to make daily life easier for citizens and
digital payments more secure. While non-bank payment platforms like Alipay
and WeChat Pay required users to link to bank accounts, a digital wallet
with an e-currency deposit could be opened with a unique personal
identification - a driver's license or a mobile phone number - enabling the
un-banked population of China to embrace the digital world.
As a result, the People's Bank of China became the first major central bank
to issue a virtual currency. A broader roll-out is expected for the Winter
Olympics in Beijing in February 2022, which will give the digital yuan
international exposure.
People's Bank of China headquarters in Beijing. (Max12Max, CC BY-SA 4.0,
Wikimedia Commons)
This has alarmed the Biden administration. Officials at the Treasury
Department, the State Department, the Pentagon, and the National Security
Council are frantically trying to comprehend the potential implications of a
virtual yuan system. They are particularly eager to understand how it would
be distributed, and whether it could be used to bypass Washington's
international sanctions as applied to Iran. What distresses some American
officials and experts is the notion that someday China's virtual yuan could
replace the U.S. dollar as the world's dominant reserve currency.
At the Federal Reserve, Chairman Jerome Powell insisted that the central
bank was involved in a large-scale research and development project on a
possible future digital dollar, though pointing out that such a project
could only be launched via a law that would have to be passed by a deeply
divided Congress. In short, irrespective of the future of China's virtual
currency, a digital dollar is not likely, not in the near future anyway.
Building Infrastructure (or Not)
As for recent economic history, even a cursory look at the performances of
the United States and China in combating the 2008 financial meltdown tells a
striking tale.
China made an indelible mark in meeting that financial challenge. Its
government sharply increased its infrastructure spending, resulting in
higher imports that helped counter flagging global demand. While this move
increased Beijing's debt, it also helped build a foundation to further
transform the country's economy into a productivity-led growth model. A
decade after that great recession, according to the World Economic Forum's
Global Competitiveness Report, China's infrastructure ranking jumped from
66th place to 36th place out of 152 countries.
Although infrastructure building on a large scale requires significant
upfront investment, it's guaranteed to yield productivity gains in the long
run. Time and cost savings for commuters, improved market access, healthier
competition, increased exchange of ideas, and enlarged innovation capacity,
all aided by modern infrastructure, are a springboard for economic
development.
During the decade following the 2008 crisis, the number of Chinese cities
with metro services jumped from 10 to 34 and 1.1 million kilometers of
highways were built, raising the total to 4.8 million kilometers. The length
of its high-speed rail system shot up by 52,000 kilometers to 132,000
kilometers. Introduced on the eve of the 2008 Olympics in Beijing, it's now
by far the world's longest system, accounting for two-thirds of the globe's
high-speed rail. Its advances in information-and computer-technology were
equally impressive. On average, mobile-phone subscriptions came to exceed
one per person - about the same as in the United States.
The Maglev train in Shanghai. (Lars Plougmann, Flickr, CC BY-SA 2.0,
Wikimedia Commons)
High-speed rail (of which the United States has none) reduces journey times,
while linking dense urban areas with less crowded cities. In doing so, it
allows for a more balanced distribution of labor and business development
without sacrificing the benefits of an increasingly urbanized economy.
Economies of scale in turn mean that productivity rises as rail usage
increases.
Little wonder, then, that President Barack Obama and his team promoted the
$787 billion American Recovery and Reinvestment Act of 2009 as an
infrastructure-building program in response to the 2008 economic crisis. In
reality, however, only $80 billion, a 10th of the money Congress sanctioned,
would be devoted to actual infrastructure. Of that, about a third was spent
on roads and bridges, improving about 67,600 kilometers of roads and 2,700
bridges. The program also included investment in modern infrastructure like
smart grids and broadband development.
In 2010, Obama announced what was to be the "largest investment in
infrastructure since the Interstate Highway System," the creation of a
high-speed rail network that would rival China's. More than a decade later,
the only visible progress is a much-delayed and still incomplete
275-kilometer Central Valley California line from Bakersfield to Merced. And
in the Trump years, when essentially no government money went into such
projects, "infrastructure week" became a standing joke. President Biden
seems determined to rectify this, but how successful he'll be with his $2
trillion infrastructure proposal in the face of a rigidly divided Congress
remains to be seen.
For its part, the Chinese government combined its program of rapid
infrastructure development with upgrading of the labor force. It did so by
implementing an educational system that stressed science, technology,
engineering, and math, known as STEM. By achieving higher productivity in
this way, the government planned to compensate for a projected shrinkage in
its work force.
To promote STEM, the government issued guidelines in 2016 to create a
national development strategy aimed at advancing China to the forefront of
innovative countries by 2030. In February 2017, the Ministry of Education
officially added STEM education to the primary-school curriculum. Since
then, encouraged by official policies, schools in both the public and
private sectors have implemented such programs.
In 2019, the government allocated 100 percent of its research funding to top
universities to the ones that concentrated on STEM disciplines. By
comparison, South Korea allocated 62 percent of such funding that way. By
contrast, U.S. universities ranked in the top 100 maintained a greater
balance in funding among STEM fields, humanities, and social sciences.
In October 2019, three of China's biggest mobile-phone carriers launched
advanced 5G services, giving it the world's largest 5G mobile network. A
year later, The Wall Street Journal reported that China had more 5G
subscribers than the U.S., not just in total but per capita.
Given the ubiquity of smartphones, the news that America seemed to be losing
the tech race to China was widely noted. Mostly ignored, however, was the
extent to which the U.S. had become vulnerable to Chinese pressure in
international trade.
America's Vulnerabilities
April 2019: President Donald Trump visits the International Union of
Operating Engineers International Training and Education Center in Crosby,
Texas. (Official White House Photo by Joyce N. Boghosian)
In testimony before Congress in October 2019, Carolyn Bartholomew,
chairwoman of the U.S.-China Economic and Security Review Commission,
revealed that at least two-thirds of the world's top 50 maritime container
ports were directly owned and managed by the Chinese or supported by that
country's investments (up from roughly 20 percent a decade ago). These
included terminals at major American container ports in Los Angeles and
Seattle. When it came to such ports, it led the world with seven of the 10
largest ones.
A year earlier, officials at the state-owned China Ocean Shipping Company,
one of the globe's largest container shipping lines, acknowledged that the
company had connected its routes along what was officially called the
Maritime Silk Road, linking regional markets in West Africa, Northern
Europe, the Caribbean, and the U.S. to form a more comprehensive and
balanced globalized trading network.
"By owning and/or operating a network of logistical nodes across Asia,
Europe, and Africa, China can control a significant portion of its inbound
supply chain for essential commodities and outbound trade routes for its
exports," Bartholomew explained. "In the event of conflict, China could use
its control over these and other ports to hinder trade access to other
countries."
Silk Road: Red is land route, blue is sea/water route. (NASA/Goddard Space
Flight Center, Wikimedia Commons)
In the manufacturing sector, China finds itself in a privileged position by
virtue of its special mineral deposits, called rare earth elements. A group
of 17 rare earth metals, including lanthanum, cerium, yttrium, europium, and
gadolinium, often called "industrial gold," are critical components of such
high-technology and clean-energy products as wind turbines, solar panels,
and electric cars, because of their magnetism, luminescence, and strength.
They are also used in a wide variety of weapons from jet fighters to nuclear
submarines.
Unsurprisingly, in recent years, there has been a rapid rise in the demand
for these minerals in advanced economies. They are dispersed in low
concentrations and are costly to extract from ore, an industry in which
China has invested a great deal since the 1970s.
According to the U.S. Geological Survey, in 2020, China accounted for 58
percent of rare earth minerals production, down from around 90 percent four
years earlier, as the United States and Australia boosted their own mining
of them. Still, as of 2018, the United States imported 80.5 percent of its
rare earth metals from China. In May of that year, the Trump administration
added these to a list of minerals deemed critical to American economic and
national security. And in July 2019, it declared them "essential to the
national defense," which freed up resources for the Department of Defense to
take action to secure a domestic rare earth production capability.
Even if the mining of these ores increased in the U.S., refining them
requires specialist technology and trained personnel as well as high upfront
investment. Due to the lack of these in the U.S. so far, China continues to
enjoy a near monopoly in processing the ore, with the raw material
containing the prized metal mined outside China shipped to the Chinese
sites. The refining process also generates large amounts of radioactive
waste and pollutes the environment. As a result, developed countries usually
opt for getting the refining done in emerging economies.
All in all, when you view the globe in the throes of a once-in-a-century
pandemic, you find an authoritarian state, wedded to centralized planning,
initiating programs with long-term benefits for its citizens and seeing them
through. You also see a politically riven democratic republic operating
primarily on an ad hoc basis.
The stark truth is that an American president cannot even bet on his
policies, however laudable or otherwise, surviving his four-year term.
Trump's succession after the Obama era illustrated this dramatically, as has
that of Trump's successor, Biden. When judged purely on the basis of final
results, centralized planning clearly beats short-term programming, even if
it is viewed with a mixture of derision and condemnation by the Western
governments that Biden is attempting to co-opt to challenge China. The
reality of our moment: that country is now rising on a distinctly wounded
planet.
Dilip Hiro is the author of Cold War in the Islamic World: Saudi Arabia,
Iran and the Struggle for Supremacy and most recently, After Empire: The
Rise of a Multipolar World.
This article is from TomDispatch.com.
