Investment & Finance

China Is Forcing the World to Find New Ways to Deal With It

Bloomberg
(ĐTTCO) - Western policies have largely failed to shape, slow, or stop an emboldened Beijing that knows it’s no longer simply a “rising” power.

Chinese soldiers march during the Victory Day military parade in Red Square marking the 75th anniversary of the victory in World War II, in Moscow, on June 24. Photographer: Handout/Getty Images Europe

Chinese soldiers march during the Victory Day military parade in Red Square marking the 75th anniversary of the victory in World War II, in Moscow, on June 24. Photographer: Handout/Getty Images Europe

Dealing with China is so complex it’s produced its own lexicon: Engagement. Containment. Confrontation. Constrainment. Even “con-gagement.”

The word stew reflects the dilemma for governments facing a power that is no longer simply “rising.” The leadership under Xi Jinping believes China is now strong enough that it can forcefully assert its agenda both at home and abroad because it has reached the point it can withstand whatever penalties come its way.
Xi’s imposition of a sweeping national security law on Hong Kong despite global outrage, a deadly military skirmish on the border with India and Beijing’s aggressive pandemic-era diplomacy are only the latest examples of how Western policies have largely failed to shape, slow or stop China.

As the U.S. prioritizes “America First” and the values-based multilateral architecture weakens, countries are increasingly realizing they need a rethink. Until now, strategies have largely fallen into one of two camps: Keep your fingers crossed that China turns into a better actor by pulling it into the global system of rules and institutions, or try and halt it in its tracks by economic or military pressure.

“The open policies toward China from the U.S. and European Union were well intended and mutually beneficial, with hopes that China will join or at least learn to conform to the order of the free world,” said Fernando Cheung, a pro-democracy lawmaker in Hong Kong. “But with growing economic power and military might, it’s becoming apparent that Xi thinks the order under the Chinese Communist Party is superior.”

While Covid-19 has accelerated the conversation on China, “the problem is a lack of agreement of what teaming up should look like — not all like-minded governments are all that like-minded when it comes to dealing with the challenges China poses,” said Bates Gill, a professor of Asia-Pacific security studies at Macquarie University in Sydney who has consulted for companies and government agencies.

The fissures President Donald Trump has opened with longstanding U.S. allies also hinder a united approach. “The basic building blocks of such a strategy — working multilaterally, respecting allies, and committing to a reliable and predictable set of well-thought-through policies which align ways, means and ends — are not part of this administration’s playbook,” Gill said.

For much of Trump’s term, he’s shied away from criticizing China for human rights violations, veering between a trade war and publicly admiring Xi. Now, the U.S. is stepping up its actions from stronger measures against telecommunications giant Huawei Technologies Co. to requiring Chinese state media in the U.S. to register as foreign agents to imposing sanctions on top Chinese officials.

“For China, sticking to its own domestic priorities — for instance, the decision to ram through security legislation in Hong Kong, the emphasis on building self-reliance in high tech industry, and sticking to China’s own political system regardless of the U.S. attacks -- are themselves the biggest retaliation against the U.S. and the Trump administration,” said Shi Yinhong, an adviser to China’s cabinet and a professor of international relations at Renmin University in Beijing.

Officials from multiple countries say the only solution to dealing with China is to better band together, with or without America. They are starting to do so in new and interesting ways — particularly middle powers like Australia, Canada, India and the U.K., which have long struggled to balance their economic reliance on China with their strategic concerns about its actions.

The U.S. is belatedly attempting to repair some relationships: Diplomats are seeking to rally allies in Asia and elsewhere, according to a senior Trump administration official and two senior western diplomats in China. Part of the clarion call is to reduce economic dependency on China via supply chain disengagement, while cranking up domestic investments in advanced technology and manufacturing.

The Australia, Canada and the U.K. recently released a statement alongside the U.S. condemning Beijing’s crackdown in Hong Kong. One Western diplomat described a more united approach to China as the “new normal.” After the border clash with China, Indian officials said they planned to invite Australia to annual naval exercises alongside Japan and the U.S., signaling progress on the on-again, off-again security grouping of nations known as the Quad.

It’s not going to be easy. Some China hawks in Trump’s inner circle still want to try and force a Soviet-style collapse of the Communist Party, an approach other nations won’t support, one U.S. official said.

In a recent meeting with Secretary of State Michael Pompeo, EU foreign policy chief Josep Borrell suggested a dedicated dialogue with the U.S. focused solely on China. But an official close to French President Emmanuel Macron warned the EU shouldn’t become a mediator between the Washington and Beijing, in part because Europe had its own agenda and proposals.

And from Africa to Southeast Asia, China’s economic diplomacy — often in regions largely ignored by the Trump administration and U.S. investors — makes ties with Beijing too valuable to throw out.

In some ways, Trump’s approach to China has created a vicious cycle. One U.S. official said some fear the countries are stuck in a doom loop of tit-for-tat measures that leave both sides worse off. There’s no longer trusted go-betweens such as ex-Treasury Secretary Hank Paulson, a former Goldman Sachs chief executive officer.

Some allies are tired of being lectured by U.S. officials on Huawei and feel that multilateral forums have had their agendas taken over by the U.S.-China rivalry, one Western diplomat said. Rather than attempt to alter China’s overall approach or its internal politics, smaller countries have opted to pursue technical cooperation on issues such as climate change, they said.

A senior European official echoed that view, saying leaders wanted to keep China as a partner on some matters. Another said EU nations see more room for collaboration with China than the U.S. and worry that antagonizing Beijing could see it block progress on peripheral issues, including Afghanistan and Syria.

While recent attempts to cooperate — including a parliamentary alliance of lawmakers in the U.S. and seven other democracies — are important, Trump is unlikely to “win continental European hearts as it has for the Five Eyes,” said Alicia Garcia Herrero, chief Asia Pacific economist with Natixis SA. It’s possible though such an effort would succeed under Joe Biden, Trump’s Democratic rival in the November election, she said.

At the same time, large swathes of the world are content with the benefits of Xi’s Belt and Road Initiative on trade and infrastructure.

“I don’t think development aid is as much of a priority for African leaders as credit from China that is not tied to certain conditions — whether it’s rule of law, anti-corruption, transparency,” said Adewunmi Emoruwa, the lead strategist for Nigeria-based advisory service firm Gatefield.

While some Chinese projects in the developing world have caused controversy — in places such as Sri Lanka — and concern about high debt levels, many nations, particularly those in Africa, lack the resources or expertise to establish alternate supply chains. China is Africa’s biggest trading partner, with two-way flows totaling more than $180 billion — almost four times that of America. Chinese investments often come without conditions imposed by Western donors.

China’s role in global manufacturing and the vested interests of Western allies also makes it difficult for Trump to argue persuasively for a full decoupling from the world’s second-largest economy, said Charles Liu, a former diplomat and founder of Hao Capital, a private equity firm.

“The U.S. hasn’t prepared itself mentally for the rise of China, so it has been trying to find ways to create problems for China and limit its ascent,” said Shen Shishun, senior researcher at the China Institute of International Studies under China’s Foreign Ministry. “The U.S. is creating problems on China’s doorstep, so of course China will not step away from this.”

Bloomberg

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