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Can China do much to fight back
against the power wielded by the US in the world economy? At first sight, that
looks unlikely. China is big, but world trade is conducted in dollars, and the
US has economic, political and military influence across the globe. The usual
result of a tally of US might is that its position as hegemon is unassailable.
But that would overlook how measures of its strength depend upon the world
staying in the form that US power has created since 1945. If it doesn’t, then
these will not count for as much. As one might expect, China has been
responding to US attacks, and the outcome is likely to foment a split in the
world economy.
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Imagine you wanted to travel
from one city to another, but the train company wouldn’t sell you a ticket.
Neither would the bus company. Then you were not allowed to buy or hire a car.
And anyone who sold you or lent you a bicycle would be fined, or would face
imprisonment. With due allowance for analogy, that is similar to what has
happened to Cuba, Venezuela, Iran, North Korea and anyone else that the US does
not like.
Woe betide you if you are on the
wrong side of the US. Then you will find it very difficult to ‘travel’ in the
world economy, that is to have any trade or financial dealings. It is not only
the sanctions the US imposes; these are also followed to varying degrees by its
allies in Europe, Japan and elsewhere. Could the same thing happen to China? It
already has, but so far only to a limited extent.
I begin by discussing important
dimensions of US power in the world, with a focus on the economic, commercial
and financial aspects. I will not deal with the mountains of US weaponry and
its means of intimidation with worldwide military bases, although these are
significant. The remainder of the article deals with how the rise of China is
reshaping the world economy and acting as an alternative focal point to the US.[1]
Many countries are paying attention to this, even if the ‘western’ powers do
not like it.
Economy & trade in the US-China balance
In the past few years, the
Trump-led US administration has stepped up anti-China moves. Even if Trump does
not get re-elected in November, this direction of policy is not likely to be
reversed by the Democrats. We have seen higher tariffs on China’s exports,
attempts to block its companies from receiving any US-made (or designed)
products, particularly in the technology sphere, as well as pressure on US
allies to exclude Huawei and other important Chinese companies from their
domestic markets on supposed ‘security’ grounds.[2]
China’s importance in the world
economy means that these exclusion tactics cannot easily be extended. Although
the US administration has trumpeted, so to speak, a new objective to cut China
out of the supply chains that its big corporations have profitably been using
for decades, even the ‘great again’ America must know that this would take many
years to achieve.
The US is the world’s biggest
economy. With a population of some 328 million people, its GDP in 2019 was
$21,439 billion. China has a much bigger population of around 1.4 billion
people, but a smaller GDP, estimated at $14,140 billion. China is nevertheless
number two in the world, and would be a little bit closer to the US when Hong
Kong’s $373bn is added to the mainland China number. Both countries have huge
domestic markets of interest to foreign companies, and each has a relatively
small volume of international trade when compared to GDP, giving their domestic
economies some insulation from the vagaries of the world market. China and the
US are the biggest two global exporters and importers of goods, but China is
far ahead on exports and the US leads in imports.
A Bank of England report
included an interesting chart of the international trade in goods, showing how
China was bigger than the US in trade with Asia and South America, and the US
was bigger than China with the rest of North America and with Europe.
Unfortunately, Africa was left out of account in this chart, but China’s direct
trade with Africa in 2019 was more than three times larger than that of the US.
China’s importance in international goods trade, 2018
The trade pattern shows there
are already different relative strengths of the two countries in relation to
the rest of the world. Geography goes some way to account for that difference,
but one also has to take note of how US companies export from outside the US –
including from China – and that many products from China will contain US
components. China has a far smaller volume of foreign direct investment and
ownership of foreign companies, so its role in world trade is overstated when
compared to the US by this simple country-to-country trade picture.
FX power plays
US economic power in the world
is shown most easily in the foreign exchange market. This comprises a multitude
of transactions, usually across borders, for goods, services and flows of money
to buy and sell equities, bonds, commodities, real estate and so forth. Most
internationally traded commodities, like oil, copper, wheat and gold, are
priced in terms of US dollars, as are many industrial goods like aircraft and
chemicals, let alone weapons and illegal drugs. Many countries also have their own
currencies directly tied or more loosely linked to the dollar, nearly all
central banks hold reserves of US dollar-based securities, and all
international companies have dollar bank accounts. As a result, the US dollar
is involved in 88% of all exchanges between one currency and another on the
international market.[3]
This gives the US government
more power than you might think. If a person or a company receives money from
selling, or pays money to buy something, then that money has to shift between
the bank accounts of the buyer and the seller. When that money happens to be US
dollars, the transaction has to go through the US banking system, perhaps
indirectly, even if both the buyer and the seller are not located in the US.
So, if the US government does not like you, your company, or your country, it
can block your ability to use the US banking system.
That would exclude you from the
usual channels of world trade and international business transactions. There
may be other ways to avoid the dollar entirely and get a transaction done, but
these will likely be more costly. And they will also run the risk of the US
government using other means of intimidation – for example, when it levies a
fine on any bank that processed a deal with you and threatens to stop that bank
from operating in the US. This is one way in which the political objectives of
the US administration are advanced by its economic power and influence, with no
guns needing to be fired.
The centre of gravity
Not only is the US dollar by far
the most widely used global currency, the US also has the biggest markets for
financial securities, ie for bonds, equities, futures and options contracts.[4]
US markets are the centre of gravity for world capitalism. Even though the bulk
of transactions in such markets are done within the US itself, the linkages in
the global system mean that they filter through quickly into other countries.
That is why financial news reports focus most on policy decisions by the US
central bank, the Federal Reserve, and the ups and downs of the US stock
markets usually have knock on effects elsewhere.
The New York Stock Exchange is
the biggest equity market by far, with a capitalisation of nearly $23,000bn at
the end of 2019. Nasdaq, also in New York, was the second largest, at nearly
$11,000bn capitalisation. Next in line was Japan’s Tokyo Stock Exchange, at a
mere $5,700bn, with London at less than $5,000bn.
It is only when China’s three
stock exchanges, in Hong Kong, Shanghai and Shenzhen, are taken together that
they come anywhere near the US. At the end of 2019, their total market
capitalisations amounted to around $10,500bn. However, the Chinese exchanges do
have a slightly higher number of corporations listed, some 5,900 compared to a
little over 5,300 in the two US markets.[5]
The reason for considering these
things is that they are not narrowly financial. For example, a company’s market
capitalisation – the total value of its shares – indicates the potential
leverage the company has in the broader market. A higher capitalisation means
that it can more easily borrow funds from banks, issue bonds itself to get
funds, or use its own shares as a means of payment in its takeovers of other
companies. Microsoft and Google stand out here, each having done more than 200
takeovers of actual or potential rivals, or of companies that will help them
build up a monopolistic position in the market.
It is mostly US companies that
figure at the top of the rankings for market capitalisation. In recent years,
it has been the Big Tech corporations like Apple, Amazon and Microsoft, each
having a number over $1,000bn. China’s Alibaba and Tencent are the only two
non-US companies in this top rank, but with valuations of half that of the
largest US corporations.
Financial markets magnify US
economic power. Not only does the US stock market present its corporations with
many billions of market value, that value is also denominated in US dollars, a
currency readily acceptable in most of the world. In global terms, it is ‘real
money’. Corporations wanting to takeover another will find it easier to do so
with US dollars than euros, Japanese yen or sterling, let alone Australian
dollars or Norwegian kroner. Apart from its size, liquidity and access to
funds, that explains the attraction for companies of listing on the US equity
market.
China and the US dollar
The US authorities run access to
the dollar, especially the Treasury and the Federal Reserve central bank. So
why is it that China, seen by the US as its most dangerous antagonist, has let
its economy be dominated by dollars?
First, if China wanted to
operate in the world economy, it had little choice 30-40 years ago but to
accept the existing structure of world trade and finance. Asia’s economies in
particular were, and still are, bound up with the US dollar, through close ties
of their currencies and through flows of trade, investment and loans. China has
also for a long time followed a policy of keeping its domestic currency
relatively stable versus the dollar, even in the wake of the severe crisis that
hit emerging markets in the late 1990s. This, along with capital controls,
helped keep its economy growing steadily by curbing one source of potential
instability.
Second, one method of limiting
the impact of possible capital flight is to build up foreign exchange reserves.
If foreign investors have assets in China, whether through direct investment in factories, in buying equities or debt securities, then
little could be done about the domestic effect on market prices if they sold those assets. But this would
not lead to a serious shortage of funds or a collapse of the currency if
China’s central bank could sell dollars it already had to counter these flows.
This was an important rationale
behind China boosting its official foreign exchange reserves from just $5bn in
1994 to a massive $3.84 trillion by 2014. Some reserves were shifted into
state-sponsored purchases of foreign assets (often done using US dollars), some
into covering the bad loans of domestic banks, some into offsetting downward
pressure on the value of China’s currency in the FX market.
That has still left what may
look like an extravagant volume of reserves, totalling $3.1 trillion by
end-June 2020. However, such funds have been required on a ‘safety first’
policy.
Consider that China has received
a large volume of foreign investment inflow. By the end of 2018, the cumulative amount was $2.8 trillion of direct investment in China, $0.7 trillion in equities and
$0.4 trillion in China’s debt securities. Not all of this near-$4 trillion is
at risk from capital flight – a chunk of it will also come from Hong Kong – but
how much might be vulnerable is unknown. China also has foreign assets of its
own that could be sold if necessary: $1.9 trillion in foreign direct
investments, and roughly $0.5 trillion in foreign equity and debt securities.
This reckoning puts in perspective what otherwise looks like absurdly big
foreign exchange reserves.
If anyone thought that a
country’s FX reserves had much to do with its international trade in goods and
services, the previous figures should put paid to that. Or contrast what
happens when you are not as much at the mercy of a potentially destabilising
flow of funds. The US has foreign exchange reserves of just $129bn, less than
10% of China’s.
China’s dollar holdings at risk?
Close to half of China’s foreign
exchange reserves is held in terms of US dollars,[6]
from bank accounts to US Treasury bills and other interest-bearing securities,
to gold.[7]
The rest is held in other currency denominations, especially the euro. Not just
the central bank, but Chinese state agencies, as well as non-state companies
and investors, also hold US securities and dollar bank accounts, as well as
having dollar liabilities. Could the US government seize China’s dollar assets,
or limit China’s access to them?
If seizure of China’s assets
looks implausible, consider what has happened to Venezuela’s gold reserves held
in the Bank of England’s vaults, or to payments that have long been overdue to
Iran! The US could, in principle, also say that the security certificates owned
by China – often held in the big US-based custodian banks like Bank of New York
Mellon, State Street, JPMorgan Chase, etc – are now invalid pieces of paper, or
computer registered items, which belong to an enemy state and now will not be recognised.
That would be an extreme measure, also undermining the US ability to attract
further funds and investment, so it is unlikely. Such things are usually only
done to ‘little’ countries to show them who is boss. But it remains a risk that
China’s policy has to manage.
Over recent years, there has
been lots of speculation that China could reduce its dollar risk by selling the
Treasuries and other US securities that its government and companies own. This
would be a foolish thing to do quickly on a large scale, since the prices of
the securities could fall in response.[8]
Much more importantly, it would also remove the easy access to US dollar funds
that China has, and will continue to need, given the dollar-dominated global
financial system. What China’s authorities have done instead is to cut back new
dollar exposure and quietly offload dollars in the market.
A more comprehensive way of
reducing the risk that China faces from US sanctions would be to build another
economic, commercial and financial network. Over the past decade, that is
exactly what China has been doing.
Your money is no good here
Almost all of the measures used
to highlight US economic power depend upon a link to the dollar-based system,
for example, the dollar’s domination of the global FX market, the huge
capitalisation values of US corporations, and the scale and influence of US
financial markets. But what if something shakes the foundations of this power
and the global system begins to take on a different form?
Up to now, China’s rise has been
evident in production and trade figures. By comparison, its development in the
more financial sphere has been limited, but let’s take a look at some of these
numbers and what they mean.
The US dollar rules the FX
system, with 88% of the $6.6 trillion daily turnover involving the dollar on
one side of the transaction. By comparison, even the euro is only at 32%, and
China’s currency, the renminbi, is at just 4%.[9]
Yet, 38% of the total volume of FX trading is between the dealing banks
themselves, and 55% is between banks and other financial institutions,
including 9% with hedge funds and other speculators. Only 7% of FX trading is
with non-financial firms! What would happen if international financial dealing
were less important, especially in US securities? This calls into question the
solidity of the dollar’s pre-eminent position in FX markets and in the world at
large.
A similar thing applies to the
financial power of big US corporations. For example, with a market
capitalisation of around $1.6 trillion each in mid-July, it would seem that
Amazon, Apple and Microsoft can do pretty much what they like: buy up any
budding rival company, run a predatory pricing policy or extend their
monopolistic positions further in other ways. But just as a company’s share
price can collapse when its prospects no longer look as rosy as before, so can
its apparent financial power if it is not able to operate as it wants and finds
its markets cut off.
So far these things have not
affected the big US corporations very much, although they have faced more
constraints than they would like in China’s domestic market. They have not been
able to compete well with the domestic champions Alibaba (e-commerce, payments
systems, finance), Baidu (a search engine) and Tencent (various operations,
from video games to e-commerce, to finance). The boot has instead been on the
other foot, as China’s big companies have been edged out of the US and face
restrictions in the markets of US allies. Nevertheless, that could change if
the US-dominated structure of world markets changes, a development that is well
under way.
World in flux
China has prepared itself
against US hostility for years. That didn’t take a lot of strategic insight,
given the numerous reports to the US Congress complaining about the Chinese
‘threat’ – ie the threat to US hegemony in the world economy, not simply a
military calculation. Three international projects have been key: the ‘One Belt
One Road’ project launched in 2013, now called the ‘Belt and Road Initiative’
(BRI); the Asian Infrastructure Investment Bank (AIIB), launched by China in
2013-14, and the BRICS Development Bank, now called the New Development Bank
(NDB), proposed in 2013-14 and starting up in 2015.
The NDB is headquartered in
Shanghai, and initially had enthusiastic support from all its founding members,
Brazil, Russia, India, China and South Africa (hence BRICS). They account for
20% of world GDP and 40% of the world’s population, and the NDB looked like it
was going to become a big player in development finance. But little activity
seems to have taken place in the last couple of years, although there have been
important, separate bilateral deals between China and Russia and between China
and Iran.[10]
At least partly, this has been
due to renewed tensions between India and China, the latest being over their
shared border in the north-west of India and India’s ban on the use of 59
Chinese phone apps, including TikTok. The election of Bolsonaro in Brazil, who
has criticised China’s investments in the country, is another factor. More
importantly, in recent years both India and Brazil have come more under the
influence of the US and more anti-China in their policy stance. Bolsonaro has
even tried to emulate Trump in this regard, as he has done in his disastrous handling
of the coronavirus pandemic.
The Asian Infrastructure
Investment Bank (AIIB) has had a more active time, and it now has more than 100
member countries. Not surprisingly, the US did not join, but several of its
close allies did, including the UK and Australia. It is a moot point whether
the latter were defying the US, or whether they saw joining as a means of
keeping an eye on what China was up to – apart from also not wanting to be on
the outside to tender for any new contracts. China accounts for nearly 30% of
the AIIB’s capital of $100bn, and for 26% of the voting power. Since 2016, this
bank has financed a number of power, energy and road projects in the
Philippines, Bangladesh, Pakistan, India, Indonesia, Egypt, Turkey and
elsewhere.
Belt and Road
The Belt and Road Initiative is
a much more serious plan from China. It has involved more than 130 countries in
its projects, and some 30 international organisations. The basic idea is to
develop ports, shipping lanes, roads and other infrastructure, including high
voltage electricity grids, in a vast enterprise spanning the next 30 years.
The plan’s scope can be seen in
the following image, where its routes run all around Asia and Europe and extend
into East Africa. It could be considered the beginning of a single market area,
but it is nowhere near that yet. Although trade, investment and transit
arrangements have been made with other countries along the routes, those
countries may often have a cautious approach to dealing with China.
Where the Belts and Roads go
Source: Ewa Oziewicz and Joanna
Bednarz, 'Challenges and opportunities of the Maritime Silk Road initiative',
October 2019
Europe, in particular, is wary.
Not only because the relevant powers are not used to a ‘developing country’
having so much leverage, but also because they have been within the US sphere
of influence. Yet they are growing worried about that, given Trump’s
unilateralist ‘America First’ approach that has also targeted their industries
for extra import tariffs, and their fear of the role of US Big Tech
corporations. While they have joined in some moves to curb Chinese companies,
this has been only to a limited extent so far.
As the political leaders of the
European Union, Germany and France will have to make up their minds which way
to jump. Yet that process will take some time to play out. For the time being,
they are working on trying to cohere the EU itself as the UK leaves, and they
hope that the EU can play the role of being an independent actor in the world
economy.
The UK, ex-EU and ex-much else,
is far more tied to the US. It has legions of political figures and economic
interests integrated with the Anglosphere global set up, from the UN Security
Council, to military cooperation, to the ‘Five Eyes’ spy network, to the rules
applied to finance and trade at the BIS, IMF and WTO, to deluded hopes for a
special Brexity relationship with the US in the future. These things will weigh
on British decision-making, and the resulting disarray in and confusion of an
arrogant imperial power should be amusing to observe.
The Belt and Road project is
very important for China, and opponents can easily cast it as simply a tool
with which China secures safe routes for its exports and imports. It has also
had negative media coverage because of signs of unequal deals, projects that
have led to large indebtedness for the country concerned, or projects in which
a commercial port is claimed to be a cover for a potential Chinese naval base
(as in Sri Lanka), or potential Chinese takeover and ownership when the debt
cannot be repaid or serviced.
Evidence I have seen points to a
more positive assessment. At least some of the problems with projects have been
due to local corruption as much as to any Chinese misdemeanour. It is also
worth noting that China’s infrastructure development plans often include
building schools and hospitals as well as improving energy supply. The BRI
should act to integrate more isolated areas into the world economy, greatly
speed up logistics, travel and transport, and help these regions grow. It is
not in China’s long-term interests that cooperating regions and countries
become mere servicing wastelands.
The Xinjian crossing
The BRI’s routes traverse areas
in which US imperialism has long sought to gain influence, many of which were formerly
inside the USSR – including Kazakhstan, Uzbekistan, Turkmenistan and Georgia –
and also Iran and Russia itself. One area along the route that has been
prominent in the news media recently is Xinjiang in north western China.
Xinjiang, or to give it the
official title, the Xinjiang Uyghur Autonomous Region, is home to around 25
million people, of which 45% are of the Uyghur ethnic group, and many of these
are Muslim. It is China’s largest natural gas producing region, and has been
the locus for many attacks by Islamic separatists, especially since the 1990s.
Plausible reports claim that this was a ‘blowback’ from previous Chinese arming
and training of Islamic guerrillas to fight Russia in Afghanistan in the 1980s.
China, along with Pakistan, Saudi Arabia and others, cooperated with the US CIA
in this period, and trouble brewed for China in this region when the guerrillas
came home.
The US, UK and other western
powers have a long history of using Islamic militants to do their dirty work of
political disruption and destabilisation, even though it often comes back to
bite them. Just think of Osama Bin Laden and the support the US also gave his
organisation to attack the Russians in Afghanistan. Or the British support for
Islamic militants in Egypt against Nasser and in Libya against Gaddafi.[11]
It is therefore no surprise that the US has been heavily involved in promoting
Uyghur separatists, and that western news media have been full of stories about
Chinese ‘concentration camps’ and brainwashing centres for Uyghurs.
BRI & the Xinjiang Region
Source: World Affairs blog, see
footnote 12.
It would take too long and be
too off topic to cover this in more detail, but my basic view is this. China
has not been kind to separatist forces in Xinjiang and may well have clamped
down on them harshly. It has also encouraged Han Chinese to move into Xinjiang.
But there is no evidence of actual or cultural ‘genocide’ of Uyghurs and the
region has even had some autonomy from strict regulations imposed elsewhere in
the country, for example, on population and family policy. The western media
view of all this is readily available; for an informed alternative view, I give
some sources in a footnote.[12]
Surely, anyone with any sense would see that there could not possibly be a ‘Save
the Muslims’ motive behind the western propaganda about Xinjiang.
Hong Kong less important for China now
As the US anxiety and
near-hysteria about China has grown, another opportunity has arisen for
mischief – in Hong Kong, especially since early 2019. There have been
widespread protests in this ‘special administrative region’ of China against
the introduction of laws that would increase mainland China’s authority and
potentially suppress dissent and opposition to government policy. Although led
principally by students, the protests clearly had support from a large section
of the population of Hong Kong.
Beijing was obviously none too
pleased with this, and its paranoia alarm bells rang loudly when some
demonstrators carried US flags and called for the US to impose sanctions on
Hong Kong to force China to drop its proposals. (The US has now done it.) With
the CIA-backed National Endowment for Democracy supporting the protests and
with Joshua Wong, one of the leading students, cosying up to arch reactionary
and regime-change interventionist, US Senator Marco Rubio, the stage was set
for a Chinese clampdown.
China’s political system is
authoritarian, but one should not fall for the hypocrisy of western powers
lamenting the threat to a tradition of democracy in Hong Kong. Prior to UK
talks with China in 1984 about the handover of Hong Kong in 1997, there was no
sign of democracy, but instead an oligarchic Legislative Council, an advisory
body to the British Governor. Full elections to this Council only began in
1995. So ‘democracy’ began to be introduced only just before Britain was going
to lose its colony after 99 years.
What will be China’s policy
towards Hong Kong now? To answer this question, it is worth noting the role it
has played in relation to China.
When it was a British colony,
Hong Kong specialised as an entrepot centre in Asia, with a large port
operation and a big financial sector. As China grew as a global production
base, particularly from the 1980s, Hong Kong also thrived as the ‘western’ gateway
into China, with booming cross-border deals. In turn, China used Hong Kong to
gain experience of international markets, from how best to run a port to how to
manage banking and finance.
Hong Kong is now less important
for China than it might seem. Its GDP is less than 3% of mainland China’s, and
its 7.5 million people could be seen as barely a rounding error compared to
China’s total. It is nevertheless politically inconceivable that China would
allow Hong Kong to become fully ‘independent’ or to secede. In the event of
continued protests about rule by mainland China, a much more likely policy
would be to slowly run down the remaining economic reliance China has on Hong
Kong. This is no doubt on the minds of some Hong Kong residents, not all of
whom are anti-Beijing.
Hong Kong’s population has
significantly higher living standards than the average in mainland China, and
US dollar millionaires make up a surprising 7% of the population. Such factors
will have influenced the protest movement in Hong Kong, and there have also
been many signs of locals resenting mainlanders. Some of the latter have been
attacked for supposedly being Beijing loyalists; others have faced opposition
from locals who felt their presence was driving up prices and rents. I think
that fear of an economic ‘levelling down’ is at least as significant a factor
in the protests as any call for democratic rights.
Top 10 World Container Ports, Volume in millions of TEU *
Rank
|
Port
|
2018
|
2017
|
2016
|
1
|
Shanghai, China
|
42.01
|
40.23
|
37.13
|
2
|
Singapore
|
36.60
|
33.67
|
30.90
|
3
|
Shenzhen, China
|
27.74
|
25.21
|
23.97
|
4
|
Ningbo-Zhoushan, China
|
26.35
|
24.61
|
21.60
|
5
|
Guangzhou Harbor, China
|
21.87
|
20.37
|
18.85
|
6
|
Busan, South Korea
|
21.66
|
20.49
|
19.85
|
7
|
Hong Kong, S.A.R, China
|
19.60
|
20.76
|
19.81
|
8
|
Qingdao, China
|
18.26
|
18.30
|
18.01
|
9
|
Tianjin, China
|
16.00
|
15.07
|
14.49
|
10
|
Jebel Ali, Dubai, United Arab Emirates
|
14.95
|
15.37
|
15.73
|
Source: Worldshipping.org. Note
*: The data represent total port throughput, including empty containers. A TEU
is a ‘Twenty-foot Equivalent Unit’. The dimensions of one TEU are equal to a
standard 20-foot shipping container.
One way of judging the ability
of China to sideline Hong Kong, if it wants to, is by looking at its importance
as a port. A list of the top world container ports – containers are critical in
the trade of goods – has mainland China with six in the top 10. Hong Kong’s
port is large, but is ranked number seven and is only roughly half the size of
Shanghai’s at number one. Shenzhen, at number three and also bigger than Hong
Kong, is only around 15 kilometres from Hong Kong (although a bit further to
travel by sea!).
Out of control
Rivalries in the world economy
can bring unexpected results, especially when a former underdog can now
pro-actively resist. The world order is no longer entirely one where, as Bob
Dylan put it, ‘You’re dancing with whom they tell you to, or you don’t dance at
all’. How far China is able to build stable alliances for an economic area that
limits US interference, and whether it too becomes oppressive, remain to be
seen. But in the meantime it has offered many countries an alternative to the
rich country model of development, one that has left poor countries poor.
Prospects for the Anglosphere
powers are not good. Political idiocy born of generations of arrogance now adds
to their difficulties in navigating a world that is changing increasingly
outside their control. Examples of their recent responses to Chinese technology
sum up their problem. China’s Huawei produces very good, and cheaper, 4G and 5G
products, including infrastructure and smartphones, and ByteDance also has a
popular media app, TikTok. Instead of saying, ‘we have something even better’,
the US and others respond by claiming, with no evidence, that they pose a
security risk and that Chinese products should be rejected.
By contrast, Germany, the most
productivist of the European powers, has shown more enthusiasm for China-led
developments than others. The Belt and Road Initiative already has an important
outlet in Duisburg, the world’s largest inland port, where it is the first
European stop for 80% of Chinese trains:
“Every week, around 30 Chinese trains arrive at a vast
terminal in Duisburg’s inland port, their containers either stuffed with
clothes, toys and hi-tech electronics from Chongqing, Wuhan or Yiwu, or
carrying German cars, Scottish whisky, French wine and textiles from Milan
heading the other way.”[13]
Duisburg’s main problem seems to be that
‘for every two full containers arriving in Europe from China, only one heads
back the other way, and the port only earns a fifth of the fee from empty
containers that have to be sent back to China’.
At the other end of the line, another
German company, BMW, has praised China’s technical know how:
“The auto industry is
undergoing a major transformation driven by technological development. In the
midst of industrial upgrading and transformation, we need to keep an open mind
and to collaborate with outstanding Chinese innovation powerhouses.”[14]
To say the least, these things
suggest that China’s growing importance in the world economy will be difficult
for the US to curb.
Tony Norfield, 14 July 2020
[1] Other
articles on this blog have also analysed US-China relationships, including one
from May 2011, looking at the growing strategic
tensions, one in April 2019 on the economic and
technology competition and another in September 2019
on the relative positions of the major powers. I cover the coronavirus pandemic here.
[2] The US makes
much of the links, actual or alleged, between top Chinese companies and the
Chinese Communist Party, the military, etc. For reasons that only an evil
commie would speculate upon, it seems to forget that Amazon, Google and myriads
of other US corporations, not just the arms producers, derive a lot of funding
and regular contracts from the US government, the CIA and the Pentagon.
[4] Although
London is the biggest market for dealing in foreign currency and for interest
rate swaps.
[5] Both totals
will include some companies listed on more than one exchange. Nearly 20% of
companies on the two US exchanges are foreign companies; there is no comparable
figure available for China, but it is likely very much lower.
[6] China does
not usually disclose the currency composition of its FX reserves, but China’s SAFE has reported that the dollar component of reserves fell from 79% in
1995 to 58% in 2014. It will have fallen further since 2014, and is likely now
a little under 50%. The absolute volume of dollars held will have risen up to
2014, given the big rise in total reserves, but will have likely fallen since.
[7] Over the
past 10-15 years, China’s central bank has boosted its gold reserves from 600
tonnes to 1,917 tonnes. At $1,700 per troy ounce, this amounts to ‘only’
$106.5bn and a little over 3% of the reserves total at present.
[8] I say prices
‘could’ rather than ‘would’ fall because of the huge size of the US
interest-bearing securities market, especially for shorter-term US Treasuries
and agencies, which would limit the response to any selling by China.
[9] FX deals
involve two currencies, so adding the shares of all currencies traded
would give 200%, not 100%.
[10] Going
against US sanctions, in July 2020, China and Iran have drafted a deal covering
trade, investment and military cooperation. See New York Times, ‘Defying
U.S., China and Iran Near Trade and Military Partnership’, 11 July 2020. This
Iran-China cooperation has been going on for several years. Notably, most of
the payments between China and Iran, if not all, exclude the US dollar.
[11] For the
less well known British escapades in this respect, see the book by Mark Curtis,
Secret Affairs: Britain’s Collusion with Radical Islam, 2010.
[13] The
Guardian, Germany’s ‘China City’, 1 August 2018.
[14] Comment
from Jochen Goller, president and CEO of BMW Group Region China, Asia Times,
6 July 2020.
