Beijing has over estimated is ability to enforce Unequal Treaties
This week US Treasury Secretary Janet Yellen wrapped of four days of high-level talks in Beijing, and left carrying on about striking a “conciliatory tone” and putting the relationship between the world’s two largest economies on a more “stable footing.” Which is high-end Diplomacy for “an expensive waste of time.” Well, Janet, most diplomacy is.
While Yellen was scolding her counterparts to quit flirting with Russia, they were doing just that. Sergei Lavrov, its Foreign Minister, was in Beijing and reportedly very grateful for the assist in rebuilding Russia’s hollowed military capacity. Nor did it help that while chewing the conciliatory bacon on the mainland, out in the South China Sea the US kicked off joint naval and air exercises with Japan, Australia and the Philippines – where the Chinese navy likes to pummel local ships with water cannon.
Unlike the rest of the dumpster fire that is global geopolitics, the rub with China isn’t really military – not yet at any rate. Beijing doesn’t want a war with America and given the way that President Biden’s White House staff walks back anything he says about Taiwan, it isn’t likely to get one. The current tension is over what the world sees as another round of “China Shock.” That’s where Beijing directs heaps of state money into ramping up manufacturing far beyond domestic demand and dumps the heavily subsidized surplus on the rest of the world at bargain prices. The last time they did this, in the early 2000s, it is estimated that it cost the US some 2mm manufacturing jobs. With US trade barriers going up, Beijing wants to do it again. Practically speaking, though, the “global south” doesn’t have the money. And that leaves Europe as the last gweilos[*] on the planet rich enough to absorb Chinese overproduction.
The EU is less enthused about the plan. The European Commission just launched an anti-subsidy probe on a Chinese wind-turbine maker. Probes on subsidies in EV and solar panels are likely to follow. A flood of the Chinese solar panels has shuttered several European green tech companies recently. Twenty years ago, the US could be philosophical about the loss of manufacturing jobs because we were flying-high on a pile of money and thinking that the dot.com bubble would take us to a place where we didn’t need those old economy jobs. After this century’s financial meltdown, migration crisis, covid lockdowns and the Russia getting expansive, a “China Shock” might take Europe to the point of no return.
On the other hand, if Beijing can’t find another sucker to finance its economy and fiscal policy, it might find itself in a similar position.
With China’s PLA Navy bombarding hapless Philippine coast guard ships in the South China Sea, it’s hard to argue that there isn’t a military component to all of this. President Xi has ordered the PLA to be ready to take Taiwan by force by 2027. Although, like his economic planning, ordering something and having it happen are two different things. Then there is the very hairy matter of Russia: Washington hasn’t officially accused China of supporting the invasion effort because, unlike Iran and North Korea, Beijing is being very Chinese about their support. Beijing wants to stay aloof from the dirty trenches of geopolitics for a long as it can. While the US to ties up options trying to preserve the status quo, Beijing wants to preserve its range of options for what it thinks is coming next. Which is a hell of a lot more military than economic.
The baseline assumption baked into communism, and here China is no different than the old Soviet Union, is that the West must eventually be confronted if China is to prevail. Co-existence is not an endgame, but a pause to gather strength for the confrontation. That the USSR, by the late 1960’s, concluded that it was unable outpace the West and pivoted to a policy of co-existence, only proves the original point: The Russians lost faith, and look what happened to them.
The rub for Xi is that while he is convinced that the liberal world order is stacked against China, and so must be upturned, the country is economically tied to that system. Or, to be more precise, its past meteoric success is from gaming the liberal world order to its advantage through asymmetrical trade barriers. The Goose that Laid the Golden Egg, it seems, is not in the Ancient Chinese Wisdom canon
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Xi isn’t after trade policy, fair or not. The man seems bent on revenge. His history is littered with what the Chinese call “The Century of Humiliation” wherein Western powers forced China to open its markets to European exploitation. He still seethes about the era’s “unequal treaties” and appears to want to force China’s own unequal treaties on the qweilos. He has over-estimated his ability to do so.
So Janet Yellen left the country having accomplished nothing, and the Russian foreign minister left with China’s support to rebuild its military capacity. China’s economic outlook is going to get worse before it gets better, and that is assuming that its demographics don’t cause the whole model to collapse before then.
There is one option that never really works as well as deranged leaders think it will, but it’s popular nonetheless. It’s worth remembering that at the close of the Two Sessions Xi said that the youth of China should learn to “eat bitterness” for the struggle ahead – and if that isn’t something you say to prepare for war, I don’t know what is.
[*] It’s Cantonese slang for “White Goblin” or “Foreign Devil” or something equally charming.