Corporate Interests Are Inflaming US-China Tensions
In a global economy defined by overproduction and underconsumption, American and Chinese corporations are struggling to extract profits from developing nations. Without massive wealth redistribution, consumption won’t return to stable levels.
- Interview by
- Daniel Denvir
In the 1970s, one of Karl Marx’s predictions came true: across advanced capitalist economies, the rate of profit began to fall. Corporations responded to this crisis by off-shoring production to developing countries, where lower labor costs allowed them to extract higher profits. China’s export industry benefited from this shift, but now its economy is suffering from a similar crisis. Just like their US counterparts fifty years earlier, Chinese corporations are facing diminishing profits. China has responded by squeezing foreign competitors out of its market and those of the Belt and Road countries.
US corporations were once China’s biggest allies in Washington. According to the Marxist political economist Ho-fung Hung, these corporate interests began to turn against China when its aggressive economic tactics began to threaten their hegemony. The result was an imperial rivalry that grows more intense and dangerous each year.
Hung is a sociology professor at Johns Hopkins University whose works include The China Boom: Why China Will Not Rule the World and City on the Edge: Hong Kong under Chinese Rule. His most recent book, Clash of Empires: From “Chimerica” to the “New Cold War,“ roots US-China tensions in this long history of overproduction, underconsumption, and desperate, profit-seeking capitalists.
Earlier this year, Hung sat down for a two-part interview with The Dig, a podcast from Jacobin. Hung and Dig host Daniel Denvir covered Chinese political-economic history from the pre-Qing period to the present, lingering on the sixteenth-century silver trade, the International Monetary Fund (IMF)’s entrapment of developing twentieth-century economies, and the impacts of the 2008 financial crisis. In this second part of the interview, which has been edited for clarity and length, Hung shows why the United States and China must both redistribute wealth if they hope to escape this death spiral of diminishing profits and escalating conflict. You can listen to the second part here; you can listen to part one here or read an edited transcript here.
The China boom and the rise of East Asia more generally played a specific role in the history of the world system, you argue, as a response to the crisis that hit advanced capitalist countries in the 1970s. What was the nature of that crisis? How did the rise of East Asia in general — and later China in particular — help provisionally resolve it? And why was the resolution made only provisional?
In the 1970s, the advanced capitalist countries, including the US and Europe, encountered a prolonged crisis. There are multiple facets of the crisis, but primarily the crisis is rooted in a falling rate of profits, if you use Marxian language. But even mainstream economists have their version of the same concept, the falling productivity and profitability of firms.
So among these advanced countries, companies are no longer as profitable as they were during the so-called golden age of postwar capitalism in the 1950s and ’60s. There are many reasons for this. One is intensifying competition: after World War II and all the destruction it caused, there’s a lack of supply for many demands. No matter what you make — vehicles, construction, machines — there is huge demand, and business is very profitable. But after Japan and Europe reconstruct from the war and develop productive industry, the capitalist market becomes more competitive.
Another reason is labor militancy. Organized labor in the developed world successfully presses for higher wages that grow at least as fast as inflation, sometimes faster. So the competitiveness of the capitalist system and successful requests for higher wages from organized labor create a profit squeeze on enterprises in advanced countries.
As they scramble to find ways to revive the profits, these enterprises try many different things. Some move to finance instead of production, but some who stay in production discover off-shoring: industrial relocation to lower wage countries.
Initially, it was the East Asian Tigers [South Korea, Taiwan, Hong Kong, and Singapore] that found themselves in a geopolitical sweet spot at the height of the Vietnam War and the height of the Cold War. Japan and the Four Tigers were the frontier states of the capitalist world against the expanding and seemingly quite successful socialist bloc. These countries enjoy free access to the US and European markets for their manufactured products.
So many manufacturers and retailers in the developed world took advantage of the opportunity to move production to these East Asian states. And in this context, these East Asian economies become very successful export-oriented industrializing economies, mobilizing their low-cost labor to produce goods for the developed world market. This was one of the solutions to the crisis in advanced capitalist economies, the consequence of which was to facilitate the rise of the East Asian Tigers.
China played a major role in the global recovery from the 2008 financial crisis, but you write that it also was a major cause of that crisis. How did the provisional resolution of the crisis of the 1970s create imbalances that ultimately paved the way for the 2008 crash?
Many see the provisional solution to the crisis of the ’70s as a crisis that never went away. If you look at the rate of profit in the major advanced capitalist economies, it never returns to 1950s and ’60s levels. During the 1970s, the profit rates of major developed economies fall; in mainstream economic language, industrial productivity falls in the 1970s and never recovers to what it was in the ’50s and ’60s. As a temporary solution, manufacturing moves to this low-cost, low-wage region, so that its profit margin can be revived.
But at the same time, this creates the real source of a longer-term imbalance in the global economy, because the original idea behind the globalization and opening up of countries in the Global South — the Asian Tigers, China, and Southeast Asia — is not just that they would become a source of low-cost manufacturing. Eventually, the assumption is that they will become a new frontier of market demand for manufactured products.
This is supposed to resolve the overproduction and overaccumulation that was the root cause of the 1970s crisis, but in the end, the Asian Tigers, China, and Southeast Asia increase production, repress consumption, and then promote exports. So at the aggregate level of the world economy, the problem of overproduction and overaccumulation actually worsened, because of the entrance of the productive capacity of Asia, China, and a large part of the Global South.
This underlying imbalance ultimately led to a series of financial crises, from the peso crisis in 1994 to the Asian financial crisis of 1997–98, and a series of crises in Turkey, Russia, and Argentina at the turn of the millennium. The 2008 financial crisis is actually the latest round of this series of financial crises; it got more attention and became more serious because its epicenter is no longer in Mexico, Malaysia, Thailand, Argentina, or another faraway place, but right in the center of Wall Street.
This long series of crises came out of this underlying imbalance between supply and demand in the global economy: that is, the issue of overproduction and overaccumulation.
China’s response to the 2008 financial crisis was also a provisional resolution, one that exacerbated its economic problems around its repression of domestic consumption and its reliance on exports and debt-fueled investment to maintain high growth rates. You write,
When China’s export-led boom faltered during the global financial crisis in 2008, the Chinese government responded by unleashing an aggressive stimulus program that successfully fostered a strong economic recovery driven by debt-financed fixed-asset investment. The weakening of the export engine and the reckless investment expansion of the state sector financed by state banks during the 2009–10 recovery created a mammoth debt bubble that was no longer matched by the growth in the foreign exchange reserve. Between 2008 and late 2017, outstanding debt in China soared from 148 percent of GDP to over 250 percent. The surge of loans during the 2020 COVID-19 pandemic pushed the share to more than 330 percent.
How does the repression of domestic wages and consumption relate to this problem of overinvestment and redundant production, capacity, and infrastructure? How and why did these trends accelerate after 2008?
In the end, the fundamental imbalance that led to the crisis is overproduction and overaccumulation. Right at the beginning of the 2008 global financial crisis, there is a policy discussion within China; policy advisers to the government and scholars had been talking about these issues of overproduction, overcapacity, and the debt bubble as underlying problems that will eventually haunt the Chinese economy. So they advocate that China respond to the crisis by boosting domestic private household consumption.
For example, there is a proposal in which the government gives consumption vouchers to peasants, to buy computers and electrical appliances, boosting demand when the global demand for exports plummets. If they had gone down this path, that would have been very helpful in resolving the fundamental imbalance of the global economy that helped precipitate a global financial crisis.
But the political and institutional structure of China don’t favor this kind of proposal, because nobody is institutionally representing the interests of peasant consumers. So this kind of consumption-boosting response to the crisis was shot down.
In the end, the response of the Chinese government is to open the floodgates of state bank lending: local government and state enterprises and all kinds of investment-oriented enterprises borrow the easy money from the state bank to build stuff. This is a kind of alternative investment in infrastructure, new factories, and new railroads; the high-speed rail is the most talked-about example of this response.
This kind of response, of course, can create an instant economic rebound for China and many countries that export commodities to China. So in the aftermath of the 2008 financial crisis, places that export a lot of commodities, like Brazil, Zambia, and Australia, didn’t feel the heat of the crisis, because the Chinese helped them a lot. With its building projects, this kind of investment-led rebound creates new demand for steel, commodities, and all kinds of things; the workers employed in the construction itself also become consumers.
But the problem with this investment-driven rebound is that when the building stops, you have an oversupply of these infrastructure projects and factories, and they are not profitable. Local governments and state-owned enterprises will borrow to build, but when the results turn out not to be profitable, they cannot repay their loans.
And then, these projects become excess capacity. The high-speed railway is heralded by many as a Chinese success story; it’s a success in terms of technology and efficiency, but the high-speed railway does not have many profitable lines. So after 2009 and 2010, the strong rebound in the Chinese economy starts to slow down drastically, heading toward a standstill, because they run out of things to build. They just have too many steel mills and too many coal plants, and they’ve built more real estate apartments than their customers can buy. The debt accumulated through this investment boom is still there.
To make matters worse, they then become addicted to debt, because heavily indebted enterprises don’t want to default, and the government doesn’t want them to default. So the government allows them to borrow again and again, using new loans to cover the old loans. The debt just keeps snowballing.
The reason only real estate companies are facing a reckoning around debt is that this debt addiction is just like a drug addiction. For each debt-fueled investment, you get a temporary boost in economic activity and GDP; but after that, you go into a stagnation or even a contraction in production, and then the government gets worried and uses a stronger dose of debt to stimulate the economy again.
Each time, the debt injection gets larger, and the effect gets smaller. It’s just like an addiction, and China is finding it very difficult to escape this addiction. This slowdown and the accelerating accumulation of debt are the two things that have defined the Chinese economy since the 2008 rebound.
Recently, the US’s growth rate has at times briefly surpassed China’s growth rate. It’s incredible. Is China, then, heading to the very sort of overproduction crisis that hit advanced capitalist countries in the 1970s and accelerated East Asia’s rise in the first place?
Between the Russian invasion, renewed anti-COVID lockdowns in key export-production regions, and a massive COVID outbreak in Hong Kong, there is serious financial turmoil in Chinese markets. Could this become a full-blown crisis?
The Chinese crisis is more comparable to the long-brewing slowdown in Japan since the 1990s than it is to the Asian financial crisis of 1997–98. However, many people are saying that China is heading toward a crisis. This crisis imaginary has been dictated by sudden, spectacular explosions of the system, like the Wall Street meltdown of 2008, the Euro crisis of 2008 and 2009, and the Asian financial crisis of 1997 and 1998.
But I don’t think China will undergo this kind of sudden, spectacular explosion of the financial market. China was close to that in 2015, when it faced a massive devaluation, the collapse of the stock market, and capital flight. But the Communist Party of China [CPC] has such strong control over the financial system that they can just stop it.
Basically, they adopt a lot of draconian measures to stop people from taking money out of China; they shut down the trading of companies that are falling too much, and they send a work team from the Communist Party to oversee the stock exchange. In 2015, they used these administrative means to prevent financial collapse, but it was close.
Still, China’s slowdown won’t explode like the 1997 Asian financial crisis. For one thing, even though China’s foreign exchange reserve isn’t growing as fast as it did in the 2000s, the local currency supply is still growing. There’s capital flight pressure, but China still has a substantial amount of foreign exchange reserves, so it won’t have a currency or financial market explosion like Mexico did in 1994, or like South Korea, Malaysia, and Thailand did in 1997.
China will be more like Japan: debt will continue to accumulate, the economy will become less energetic, and the government will refuse to let unprofitable companies fail, so these companies will get bailed out and become zombie companies. This is what happened in Japan after the 1990s and into the 2000s. It’s not a spectacular blowup of the system, but a long stagnation, a long slowdown, a simmering crisis. The government just keeps buying time and prolonging the crisis.
To some extent, this is a more difficult crisis to deal with; because of path dependence, you won’t take the course of drastic adjustment, and then you delay the problem without resolution. After spectacular blowups like 2008 in the US and 1997 in South Korea and Malaysia, there are often drastic readjustments, although they are often liberal adjustments that don’t prevent future cycles of rebound and collapse.
But as Japan or China undergo long slowdowns, their problems get deeper and deeper, and they become more and more addicted to debt. And that is a difficult situation to escape. The Chinese government has been trying to find a new source of expansion and to end this long slowdown. One option is the accelerated technological upgrading represented by “Made in China 2025”; another is the Belt and Road policy, which China hopes will resolve the long slowdown through capital exports.
It was this post-2008 domestic economic crisis, you write, that also spurred the Chinese state to concentrate political power under Xi [Jinping], which in turn made the US more hostile to China. Meanwhile, repeated crises in the United States emboldened a Chinese state that increasingly saw the US as in terminal decline.
How did 2008 accelerate this shift toward authoritarian rule?
First of all, in 2008, China suddenly finds out that the US economic model is not invincible and is in fact very vulnerable. At that time in China and elsewhere in the world, there’s a lot of talk about the collapse of the US dollar’s global hegemony and the collapse of the US financial system.
Because of this talk, a lot of people, including China’s leaders, come to believe that the US is in terminal decline. The Politburo of the Communist Party even convened a study group on the rise and fall of great powers; they conclude that the US will never recover economically or in terms of its international status. This perception has been stuck in the Chinese leaders’ heads since then, even though economically the US did recover. The US dollar’s global hegemony didn’t collapse, and actually strengthened. Instead, it was the Euro that was in trouble.
Chinese leadership, and particularly Xi, thinks that the US has substantially weakened since 2008. Thus, it is China’s chance to take on the US, and China can afford to be more aggressive. At the same time, it is an economic necessity that, after the 2008 global financial crisis and the 2009–10 China rebound, the Chinese economy would lose momentum and enter into stagnation if not outright contraction mode. For many troubled and heavily indebted Chinese companies with state backing, the strategy of survival is to eat up the market share of foreign companies in China.
When the pie is expanding, everybody can expand their slice without jeopardizing another’s share. But, when the pie ceases to expand or even contracts, it becomes a zero-sum game. If you want to expand your profits and your market share, you have to eat up the market share and profits of your opponent.
It turns out that many of the dominant enterprises in China are either outright state-owned or, if they are private enterprises like the real estate and tech companies, they have state backing and insider party-state connections. These enterprises become very aggressive, and with the help of Chinese regulators, they eat up their market share of the foreign investors in China. In many cases, they also try to appropriate the technological advantage and edge off foreign competitors, again with the help of the state.
This competition between foreign companies — especially US companies and Chinese companies — within China’s market becomes so intense that US corporations ask the US government for help. They complain that they are unfairly targeted, squeezed by their Chinese counterparts and sometimes even their partners.
This underlying economic force led to the deterioration of US-China relations. When the then Chinese president Hu Jintao visited the White House in 2011, President [Barack] Obama told him that the US had a problem with its companies in China being treated unfairly; these companies complain about intellectual property theft and things like that, so you had better fix it. This was the first time that a US president openly mentioned this problem, which many US corporations had been complaining about behind closed doors.
China’s increasing capital exports abroad after 2008 also worsened tensions with both the US government and US corporations.
Definitely. First, they complained about the situation in the Chinese market to other members of the American Chamber of Commerce in China; later on, they complained to the third market, the market of mostly developing countries, because one alternative remedy to the Chinese government’s profit problems is to help them create new demand in the overseas market. This is the background of the Belt and Road project, in which the Chinese government and the Chinese state bank lend money to developing countries in Asia — Pakistan, Kazakhstan, and Sri Lanka — and in the Middle East and even Europe. And actually, Ukraine is one of the Belt and Road countries.
As Chinese state banks and state entities lend money, what people find out is that traditional IMF, World Bank, and Asian development loans have policy strings attached — if you borrow from the IMF, you need to pursue a certain kind of European policy — but China’s loans don’t have these kinds of policy preconditions.
They do, however, have a procurement precondition, as people now find out: if you borrow money from Chinese entities, you are allowed to use the money to hire a Chinese company and to use Chinese materials and Chinese products to build your infrastructure, your stadium or railroad or highway or port facilities. This is a very explicit external stimulus. Chinese banks lend money to foreign countries in the developing world to create demand for oversupplied Chinese steel, high-speed rail trains, and coal plants.
For example, Chinese banks lend money to developing countries to build coal plants using Chinese contractors and Chinese materials. Through this, China exports excess capacity to developing countries, creating competitive pressure for American, European, and Japanese companies in these developing countries.
One very interesting example is construction machine makers, like Caterpillar in the US; Japan and Europe have their leading companies in this business as well. Ever since the Belt and Road takeoff, all the Belt and Road countries are buying Chinese construction machines overwhelmingly, at the expense of Caterpillar and European and Japanese construction machines. The situation deteriorates for American companies, as they find that they are not only in a tough, competitive situation in the Chinese market, but also in different markets in the developing world: in the Caribbean, Latin America, Central Asia, South Asia, and the Middle East.
Caterpillar is an interesting example because they are very outspoken about these problems; it is well-documented that at some point Caterpillar even lobbied the Obama administration to more aggressively strike free trade agreements with developing countries in Central and Latin America, explicitly saying that without these free trade agreements, we are losing out to our competitors from Asia, particularly those from China. They wanted help in this market.
So this triggers an intensifying capitalist competition between US corporations and Chinese corporations, one that totally changes the dynamics of underlying US-China relations.
To what extent have China’s massive overseas investments in and demand for raw materials from African and Latin American countries empowered these countries within the world system? And to what degree does it simply represent a new form of colonialism, this time with a Chinese face?
This is a very complicated question with no simple answer. The literature shows that this kind of a resource extraction and investment from more developed countries does not yield a yes or no answer, in terms of whether it will impede the development of the local economy and become a colonial situation. It depends on whether the developing country concerned is reliant on one or multiple external investors or extractors.
The impacts of China’s expansion in the developing world vary from country to country: countries that have a lot of investment from Europe and the US end up better off, because now they are courted by multiple powers. They can strike the best deal by playing one against the other, playing China against the US or Europe.
This is the situation in many Southeast Asian countries. China’s influence is expanding in their economies, but at the same time they keep traditional European and American companies and investors, so that they can play one against the other and get the best deal. It’s just like the Cold War: when you are courted by both the Soviet Union and the US, you can always get the best deal by making the two powers compete.
But if you are totally dependent on one side, this is a problem. Many developing countries that relied totally on, for example, British or American investment were very exploited. Ten years ago, when other countries became very dependent on Chinese loans, investments, and companies for mining, it was not clear what the long-term effects would be. But now, China has been in many places long enough that people are starting to find issues with this kind of dependency.
They’re also encountering the traditional problem, in which a more developed economy extracts the most valuable and profitable resources, taking the raw materials away to be processed elsewhere; the local economy is plundered of raw materials without receiving many benefits in return. This very familiar pattern did show up in many Latin American and African countries, so much so that it became a winning electoral strategy to accuse the opposition of colluding with Chinese companies and taking away our resources.
People running on this platform have been elected in Zambia, Sri Lanka, Malaysia, and most recently in Peru. In the election, the left-wing candidates basically want to negotiate the copper mining rights of foreign companies, many of them Chinese companies. China is not particularly inventive in creating this kind of a neocolonial situation. Chinese companies are behaving just like auto companies in the Global South have in the past, establishing trading and investment relations with these developing countries to maximize their economic benefits and the security and geopolitical interests of their states. They are just following the foot paths of old, global, neocolonial powers.
Again, the effect on the ground in the developing world depends on whether the developing countries in question have multiple powers courting them, playing one against the other to get the best deal. If this isn’t the case, they often become too dependent on one supplier of capital. Of course, the outcome also depends on whether the local government has a strong, institutionalized state, capable of negotiating with external capital.
You write that one big question is “whether China’s economic achievement in recent years is an exceptional phenomenon that will not be replicated by others or whether its achievement is a precursor of similarly rapid growth in other populous developing countries.”
There are two sorts of developing countries to consider here. One is big countries like India; the other is export-reliant countries in Latin America and Africa, which we were just discussing. Since China is not flattening the world system’s hierarchies, but instead is intensifying peripheral countries’ reliance on primary good exports, is it impossible for these countries to move up the value chain by copying China?
That is a tricky question, because the Chinese model of pursuing export-oriented industrialization benefits Chinese GDP growth. But at the same time, China is following the old Four Tigers model, in which they incentivize production and exports, but repress domestic consumption. The whole world’s imbalance between supply and demand and the problem of overproduction didn’t begin with China.
But after China rises up as a big supplier of all kinds of manufactured products, the problem of the lack of demand for manufactured products — not the absolute lack, but the lack relative to production capacity — makes it more and more difficult for other countries to follow China’s path, because there just isn’t enough effective demand for continuous expansion of the export production machine.
This does create difficulties for many developing countries. For example, in Latin America, Mexico and Brazil were trying very hard to industrialize their economies and turn away from natural resource extraction to become manufacturers. But the rise of China basically deindustrialized them.
On the one hand, domestic markets were conquered by Chinese manufacturers, and their domestic industrial establishments are complaining. And, of course, Chinese products also conquered a lot of the world market, from cell phones to cars and many other things. This makes it harder for these countries to export their manufactured products.
Because of the rise of China, many late-industrializing countries find it much more difficult to industrialize; some of them even deindustrialize. In Brazil, rising China has a lot of demand for their natural resources and raw materials, but also puts pressure on their industrial establishment. So thanks to China’s rise, Brazil industrializes and goes back to raw material and commodity exporting.
Overall, China’s rise is contradictory: it helped raw material exporters in the aftermath of the 2008 global financial crisis, but it made the path for aspiring industrial powers much more difficult. In the end, the rise of a gigantic China makes it harder for other countries to replicate China’s model.
It’s worth pointing out here that the Chinese-demand-fueled commodity boom was not a sustainable one for commodity exporters, which became a big problem for the Pink Tide governments in Latin America. As you write, “When China’s construction boom fizzled out after 2010, its demand for commodities fell and many commodity exporters, buoyed by the China boom, experienced a slowdown or even recession. The economic crises in Brazil and Venezuela in the 2010s are cases in point.”
Yeah, exactly. After the 2010s, when China’s construction boom ended, demand in global commodity markets also contracted. It caused trouble for many Pink Tide governments that rode on the commodity boom; Russia’s economic crisis also deepened because of falling commodity prices in the late 2010s.
The BRICS grouping — Brazil, Russia, India, China, and later South Africa — had its origin in an investment portfolio that Goldman Sachs created to lure investors into the stock markets of those BRICS countries. BRICS still exists as a global governance institution, but Goldman [Sachs] actually folded the portfolio in the 2010s because stock markets and companies in these BRICS countries were doing so badly. One big reason for this is that the end of China’s investment boom put huge pressures on these commodity exporters.
US-China relations have gotten a lot worse since you published China Boom. From the 1980s, the relationship was always tense, and there are always worries about the rise of China. But these tensions didn’t reach the level of full-on rivalry until the early 2010s, when Obama initiated the 2012 Pivot to Asia policy, focused on boosting US navy presence in the South China Sea. We also saw the Trans-Pacific Partnership, which pointedly excluded China.
By the time [Joe] Biden took office, you write in your new book, “the reservations about and even hostility toward China trade became so mainstream in Washington that even the new Biden administration pledged not to withdraw Trump’s China tariffs and to continue pursuing a confrontational policy toward China.” A lot of people explain this simply by pointing to the political and ideological divide between the two countries. But, as you write,
These ideological and political differences did not prevent the United States and China from pursuing economic integration and geopolitical cooperation in the 1990s and 2000s. [. . .] We therefore need to explain why the US-China symbiosis of the 1990s and 2000s suddenly turned into rivalry in the 2010s, given that the political and economic systems of neither country underwent any fundamental, qualitative change.
Your new book, Clash of Empires, argues that what ushered in this massive shift was the fact that US corporations — which had previously protected the US-China relationship from foreign policy hawks, organized labor, human rights groups, and certain manufacturers — began to sour on China.
What was this shield that corporate America provided to US-China relationships from the 1990s through the 2000s, and what caused US corporations to withdraw that shield?
If we look back to the late ’90s, ideological and geopolitical criticisms of China are not new; the so-called “China threat” discourse was already expanding in foreign policy and national security circles, and accusations of human rights violations in China have been widespread ever since the 1989 crackdown on the democratic movement. Even in the 1980s, national security, foreign policy, and military circles were as concerned about China as they are today. China itself was already showing its ambition to become more and more dominant in the Asia-Pacific region, which they called the Indo-Pacific. The territorial dispute involving China and its neighboring states stretches back to the ’80s and ’90s.
These conditions led to geopolitical confrontations between China and the US, including the Taiwan Strait Crisis in 1995 and ’96, when China shoots missiles across the Taiwan Strait to try to scare Taiwanese people during their first direct presidential election. China sees this as a move toward independence, and [Bill] Clinton orders an aircraft carrier group to sail through the Taiwan Straits. Tensions are high.
In 1999, in the course of a war, a US bomber destroyed the Chinese embassy in Belgrade and killed a number of Chinese people there, and that creates huge tensions. And of course, in 2001 there was the South China Sea spy plane incident. Despite these geopolitical tensions and Chinese human rights issues, back in the 1990s and 2000s these concerns never became mainstream among the political elite. They were strong in national security, military, and diplomatic circles, but across the whole government of the US — from George H. W. Bush to Bill Clinton and George W. Bush — they were never mainstream.
The key issue, here, is that US corporations were very keen to lobby on behalf of China. If there are any bills in Congress related to economics or geopolitics or human rights, they will lobby on behalf of the Chinese government to kill those bills. In return, they get access to the Chinese market and fat contracts in certain protected segments of the Chinese economy. Wall Street, telecommunication companies, and machine makers all become proxy lobbyists for the Chinese government.
So in the late 1990s and early 2000s, the corporate sector in the US prevents geopolitical and ideological hostility between the US and China from becoming mainstream.
You write that, in the early ’90s, this corporate lobbying effort was so successful because Wall Street was ascendant within the Clinton White House; that’s what led to most favored nation trading status being renewed for China. That was renewed, followed by normal trade relations and, most consequentially, China’s ascension to the WTO [World Trade Organization].
Exactly. Before China joined the WTO, the so-called “most favored nation” status — later renamed “normal trade relations” — between China and the US had to be renewed annually by the White House and Congress. With this status, China’s exports have low-tariff access to US markets.
Interestingly, in 1993, when Clinton just came into office, he created a new policy to tie this annual renewal of China’s low-tariff access to US markets to human rights conditions. He said that when we annually renew China’s trade status with the US, we will also evaluate China’s progress in human rights. If they don’t make any progress on key areas, we will raise the tariff on Chinese goods. This is the official policy in 1993.
But, in 1993 and ’94, there’s a massive lobbying effort by US corporations and China’s government to get rid of this human rights condition on Chinese goods’ low-tariff access to US markets. And in the end, it was successful. In 1994, Clinton suddenly declares that we will no longer take human rights into consideration when we decide whether to renew China’s most favored nation status.
During this very dramatic process in ’93 and ’94, you even see the head of the newly created National Economic Council, Robert Rubin, who is from Wall Street and later becomes the treasury secretary, take the corporate side. He’s a key advocate for removing human rights condition on Chinese trade, and he openly argued, through the media, with the State Department in the Clinton administration, staffed by people who are very optimistic about using economic relations to promote human rights, inspired by the Cold War and the democratization of South Africa.
Liberal internationalists like Madeleine Albright.
Yes — these liberal internationalists, including Nancy Pelosi in Congress, openly argue with Robert Rubin. Robert Rubin asks for the removal of the human rights condition, and then State Department officials and Nancy Pelosi refuse, claiming that the policy is working. In the end, Robert Rubin wins, partially because of Wall Street’s influence on the Clinton administration. Clinton takes away the human rights consideration for Chinese trade in 1994.
You write that it was only “as an ex-post justification” that “the Clinton administration fomented a theory of ‘constructive engagement,’ according to which free trade with China could empower China’s private enterprises and the middle class, which would in turn push for political liberalization.” This was the big idea of the 1990s.
Is it fair to say that this liberal-internationalist rhetoric, defending neoliberal globalization, always covered for a more basic economic motive?
It is a post hoc justification. Actually, I find it fascinating, because it parallels today’s debate about sanctions, such as the Uighur labor legislation that restricts imports from China made with forced labor. We’re witnessing a revival of debates from the 1990s.
In the early 1990s, the liberal internationalists think that these sanctions will create incentives. But later, after Wall Street and corporate America won the battle, the Clinton administration shifts to this theory of constructive engagement: you don’t ask questions about human rights, you just trade with them, and then you will eventually empower the middle class and private enterprise. And the middle class and private enterprise will eventually do the job of promoting democracy and political liberalization in China.
Because of intensive corporate lobbying, this theory becomes dominant for a time, but only in the late ’90s. At that time, even among China studies scholars, there are lots of people who really believe constructive engagement will work.
But this is discredited by reality in the early 2000s and late 1900s. In China studies circles, people lose hope about the CPC liberalizing during the late 1990s. There are crackdowns on labor unrest, religious sects, Tibet, and all other kinds of issues in the late 1990s; in the early 2000s, this led to new literature in China studies that attempts to explain China’s authoritarian resilience.
During the 1990s, the literature was asking when, why, and how China will eventually liberalize or even collapse like the Soviet Union. In the early 2000s, this gives way to a discussion in foreign policy and China studies circles around the question of why the Chinese authoritarian state was actually strengthening, despite economic liberalization. Study after study comes out showing that the middle class and private entrepreneurs in China are not interested in liberalization and democratization, so they are as supportive of the authoritarian communist state as ever.
Thus, in the early 2000s, the ideal of engagement and free trade actually died in silence. It became ridiculous to continue to suggest that trade and economic engagement will promote liberalization in China, but they continued to trade and invest anyway. This showed that engagement theory is really just a very thin veil for corporate interests.
In your book, you argue that the China boom is too enmeshed with the US economy and the US-governed world system for China to be able to create a rival order. China depends on exports to the US, and those exports depend on China buying up US debt — so that Americans can spend beyond their means, and also so that the US government can project military power beyond its means. But the incredible sanctions imposed on Russia have revealed that the US is willing to use the power accorded to it by dollar hegemony as a geopolitical weapon. Could this finally spur China to break with US dollar hegemony, or is it basically impossible for them to do so even if they wanted to?
There’s a definite incentive for China to get away from dependance on the dollar. China and Russia have been well aware that the US is willing to use their dependance on the dollar in the global transaction system to pressure them on geopolitical and policy issues. And China does have an incentive to promote the use of its own currency, the yuan or the renminbi, in international transactions, so that they don’t need to use the dollar in transition.
Right now, overwhelmingly, transactions between China and other countries are settled in dollars. When China buys oil from the Middle East, it’s settled in dollars; when China exports things to Asia or to Africa, the companies charge dollars. China has been promoting the international use of the yuan, but there’s a fundamental contradiction here.
For a currency to become more widely accepted as a form of payment, that currency needs to be freely convertible, meaning that whoever gets a hold of the currency can trade it for other currencies easily or invest in different things easily. But the Chinese currency is not yet fully convertible, because the Communist Party is very reluctant to open up its financial market and financial system. They think that opening up their financial system to allow free convertibility of their currency will lead to a speculative flow of hot money, and then China will be very vulnerable to international financial speculators.
And they’re not wrong about that.
They’re not wrong about it; they’re right about it. The last thing that China wants to open up is its financial system, and this is why foreign banks aren’t trading Chinese currency freely. If you earn money in China, it is very difficult to take it out, with penalties and regulations against doing so. The fact that Chinese currency is not freely convertible is a deal breaker for whoever wants to settle their trades in the yuan.
For example, during the [Hugo] Chávez government, China offered loans for oil to Venezuela. Initially, China offered to lend yuan, to which Chávez said, “If you lend in your own currency, I will go for traditional lenders.” In the end, China had to make the loan in US dollars, so that Chávez would accept the loan.
With the US dollar in hand, you can buy all kinds of things from different countries, make investments, and trade currencies; but with the renminbi, you basically cannot use it for anything other than buying stuff from China, so it is less flexible. There’s a fundamental contradiction between the urge to internationalize the yuan and reduce its dependence on the dollar, and the grave concern the Communist Party has about controlling the financial system. Making the yuan convertible and using it to replace the dollar would thus be very difficult.
The happy medium that China has been pursuing so far is to use the euro, actually. Data shows the Russia-China trade has been de-dollarized in the last ten years, ever since the Crimea crisis in 2014. But they are not shifting to trade in the ruble or yuan. Rather, 80 percent of trade between China and Russia has been settled in the euros. With this use of the euro as a replacement for the dollar, Russia and China reveal their assumption that there’s a huge wedge between the US and Europe.
Only not anymore.
Yes — the Ukraine crisis has caught them by surprise, as the US and Europe come back together in unison. So their assumption is no longer true.
Actually, this was also the assumption of Saddam Hussein. In the late 1990s and early 2000, one background to the second Iraq invasion was that, when the euro was born at the turn of the twenty-first century, Saddam Hussein basically had an understanding with the French and the Germans that if they help him break the UN embargo, oil will flow not in the US dollar, but in the euro. This was a grave threat to US dollar hegemony at the time.
Some people even go as far as to argue that this is one underlying reason why neoconservatives saw Saddam Hussein as a threat: he could destabilize the oil market and make the euro an alternative to the dollar. So Saddam Hussein, Russia, and China have always assumed that they can drive a wedge between Europe and the US by de-dollarizing and shifting to the euro. But we are in a different world now, and this assumption no longer holds.
China and Russia, of course, occupy very different places in the global economy. Would China’s centrality to the global economy prevent the US from using the geoeconomic power of the dollar hegemony to punish China in the way that it is punishing Russia currently? Punishing Russia has already created extraordinary economic blowback; doing the same to China seems like it could be catastrophic for the global economy.
Definitely. The China-US economic linkage is much deeper and more extensive than the Russia-US or even Russia-Europe linkages. And this linkage goes both ways. This is why, even within China, there is a debate, which will come up at this year’s Party Congress, about Xi Jinping serving another term.
Some establishment elites within China are worrying about whether his aggressive rhetoric and confrontations with the US need to be readjusted. On the one hand, it is unimaginable for the US to sanction China like they are doing to Russia; they can stop importing Russian oil and gas, which is less than 5 percent of US imports, but the US cannot totally shut down all Chinese exports because everything relies on Chinese supply.
At the same time, China is very much intermeshed with the global economy, and its export sector is still the driving force of its economy. The foreign exchange reserve created by this sector is the foundation of Chinese local currency loans, which they use to drive investment and construction. So this is a kind of mutually assured destruction situation.
Xi Jinping has been throwing around this concept of “internal circulation” — that China needs to be emphasizing internal circulation rather than only focusing on external circulation. This is the language of advocating for decoupling. Of course, in the US there’s a lot of talk about decoupling and re-shoring strategic industries back to US manufacturing.
And in China, there’s also a tendency to suggest that decoupling might be good. There is a push and pull between this tendency and opposite forces, who argue that if China really wanted to decouple from the US, it will become a giant North Korea. Decoupling would be difficult and painful to do without hurting a lot of elite interests and popular interests; nobody will be willing to absorb the social and political risks of doing so. So, both in the US and on China’s side, there is the countervailing force against decoupling. But the competition is real and the rivalry is real.
I always like to point out a striking parallel with Germany and the United Kingdom on the eve of World War I. In the late nineteenth and early twentieth centuries, they are increasingly competitive in terms of business and finance, and increasingly become geopolitical rivals. And yet they are still very interlinked economically and even socially; their royalty and their aristocracies intermarry with one another. There’s mutual investment and trade, but the push and pull became imbalanced in the end and became an impetus for World War I.
We are not yet at that tipping point with the US and China, but I do see a lot of similar dynamics and tensions in US-China relations now that are very similar to the UK-German situation a century earlier.
How concretely could the relationship move from rivalry to war?
I’m cautiously optimistic. China is exporting capital and competing with US capital in the Belt and Road countries. But at the same time, China is confronting issues with capital export. That is, you export capital to a faraway place, and then you need to protect your investment; you need to project political or even military power to protect your investments in those faraway places.
As China is exporting capital, they are facing increasing geopolitical risks — risks of changes in government, the risks of pandemics and terrorism. And interestingly, in Pakistan and Africa, there are security company reports showing that Chinese personnel and Chinese facilities are becoming the number one target of local bandits, rebel groups, and terrorists.
China is very restrained in the sense that they don’t want to project their military and political power outright. They hire Erik Prince, the former owner of Blackwater, a mercenary organization that worked for the US during the Iraq War. After Prince got into big trouble with the US, he’s now in Hong Kong and running a subsidiary company of a Chinese state-owned enterprise, which provides security services to Chinese companies and personnel in Belt and Road countries.
The fact that China is using a mercenary solution indicates that China is unlike earlier imperial or colonial powers, which were not shy about explicitly exporting military power; China is more cautious in projecting military power. But there are also signs that China wants to have foreign bases, with the People’s Liberation Army stationed in places like Djibouti. In comparison, this presence is still very tiny compared to, for example, Russia. Russia can send paratroopers and then bombs all the way to Syria. Compared to Germany a hundred years ago, China is also much less militaristic. It’s very militaristic and draconian internally, but externally China is shier about employing militaristic policies.
This is why the geopolitical rivalry between China and the US is less dangerous than the rivalry between the very militaristic Germany and the equally militaristic UK in the early twentieth century. One possibility is that China-US competition restrained. Nowadays, we have multilateral global governing institutions, from the WTO to the World Health Organization (WHO) and the UN.
Geopolitical warfare may be translated into malicious, but less lethal, competition within these institutions. We already see this in the struggle over the WHO during the pandemic, and debates in the Security Council of the UN and committees of the WTO. But maybe this is wishful thinking.
You write that during the seventh through tenth century Tang Dynasty, a Sino-centric order prevailed across Asia. That was briefly challenged by the Japanese empire’s attempt to build a Japan-centered Asian order, and after World War II, the US-dominated Cold War order prevailed. Is China currently trying to revive that Sino-centric Asian order? And if so, how does US dominance, which is ironically financed by China, impact China’s regional ambitions? Now that the entire West has united against Russia, does that put China in an uncomfortable position?
Before the Ukraine war, China saw a parallel between the Chinese situation and the Russian situation. This is very explicitly expressed in the February 4 joint statement between Putin and Xi Jinping during the Winter Olympic opening, in which China declares its support for Russia’s opposition to NATO presence in former Soviet states. At the same time, Russia also supports China’s opposition to the formation of a security alliance in the Asia-Pacific. The contentious issues are about Taiwan, the South China Sea, and all these Southeast Asian countries who have territorial disputes with China. During the Cold War, these were all client states of the US empire.
But in the last ten to twenty years, China is definitely trying to expand its economic and political influence in all these states; Cambodia is the one with which China has the longest and deepest relations, and politically it is the most friendly to China. There is also Chinese expansion of influence in Sri Lanka and Nepal, the latter of which has Maoists who have been historically linked to China and want to use China to cancel out India’s power. These states are historical vassals of the Chinese empire, and you can already see China trying to reassert its economic and political influence over them.
But in the twenty-first century, the situation is very different from the Early Modern period or the Cold War period, when modest states would accept their status as subsidiaries of bigger empires. Now, nationalism is in the air everywhere, from Ukraine to Taiwan, Malaysia, and all these smaller states. They want self-determination and independence. One way to achieve this is to play these big powers against each other, and this is what these smaller states have been doing.
Our analysis can often focus too much on the dynamics between big powers, without paying enough attention to these smaller states. This is shown in the Ukraine crisis, because nobody expected Ukraine to put up such fierce resistance. Even Biden, when he offered Zelensky a way out, assumed Ukraine will fall very rapidly and that the best the US can do is provide refuge for people who are going to be in exile. But the Ukrainian military and nationalist resolution to defend their country surprised everyone.
The same holds true in Asia. Smaller states are very conscious of the fact that they don’t want to be vassals of either China or the US, and so they are developing strategies that balance one power against the other to maximize their sovereignty. The Philippines is a good example. [Rodrigo] Duterte came to power as an anti-American populist president; he tried to pivot toward China and sever ties with the US, in terms of military and trade. But later on, he pivoted back to the US when he felt pressure from China over the South China Sea and other issues.
So for smaller and weaker states, a nationalist desire for self-determination and sovereignty is really driving geopolitics more than the preferences of big empires. Again, you can tell that the situation would be very different if the Ukrainian people and its army were not putting up a fight and Ukraine were falling rapidly. We can’t cover all the implications of the Ukraine crisis for Asia, but for now Xi Jinping is watching it carefully, and we really need to pay more attention to the agency of smaller states squeezed between empires.
You argue that the most durable solution to the US-China rivalry is both the US and China engaging in massive economic redistribution at home. Why?
For China, one source of conflict is that Chinese companies — both those that are private and politically connected, and those that are state-owned — have falling profits and overcapacity, so to survive they need to squeeze other corporations out of home and overseas markets. But this is not an inevitable situation.
If the Chinese government, in 2008, had used stimulus on domestic demand, that demand would have expanded. And if the mass market expanded again, then the pie would grow again. Chinese companies wouldn’t need to squeeze foreign companies to grow and revive their profits, and the Chinese companies’ urge to export their capital overseas, looking for new spheres of influence and new sources of profit, would be significantly reduced. With that, the conflict between companies from different countries would be reduced. So reviving the economy and profitability through a Keynesian income-boosting strategy could also reduce international conflict.
The same logic applies to the US. Like many other developed countries, the US has this urge to export capital to China and other places in the developing world, as a result of falling profits and the long crises of the 1970s. This puts its corporations in competition with Chinese corporations in the Chinese market and other markets. All this has to do with the US’s vast inequality and its lack of effective demand relative to productive capacity; this pushes American corporations to export capital and compete with Chinese companies in the developing world.
Again, if there were to be significant redistribution in the US, then US companies could revive profits at home, rather than going to China and other developing countries. I’m not saying that they won’t go out; they still will go out, but the urge and its significance will be lowered. Corporations will be more focused on the domestic market, but that domestic market needs to be boosted via income redistribution.
The ultimate problem in both China and in the US is the lack of the growth in household income relative to the GDP. The GDP is growing fast; household income is also growing, but much slower than GDP and productive capacity. It’s not like in the ’50s and ’60s, the golden age of Keynesianism, when household income actually grew at the same pace as GDP and productive capacity. But now we are in this situation of perpetual excess capacity, pushing capital to export and find new sources of profits around the world. These corporations clash with one another, leading to today’s geopolitical rivalry.
What are the obstacles to redistribution in China? And has China already begun to undertake this sort of shift, with the so-called “common prosperity” agenda that was initiated after the financial crisis of 2015?
The common prosperity slogan needs to be taken with a grain of salt, because every once in a while, since the 1990s, the Chinese leadership talks about the need for redistribution to create domestic consumption demand, so that China can be less reliant on foreign demand, markets, and financing. They have different slogans in different periods: from developing the west, meaning the underdeveloped western interior of China, to the critique of the uncoordinated, imbalanced economy by Premier Wen Jiabao ten or twenty years ago. Occasionally, they have this reckoning about the necessity of redistribution. But every time it becomes only a slogan, and nothing is done.
That, in the end, has a lot to do with institutionalized and vested interests in the party state. Industries and developers are institutionally represented in the political system, while peasants and workers are not sufficiently represented in the system. There also aren’t independent peasant organizations or labor organizations. Even when the higher-ups have good ideas about redistribution, institutional interests will prevent them from doing it.
It’s just like the talk about reducing coal power capacity. There are very noble slogans about doing this, but again, the vested interests of the coal plants and the provinces that depend on coal are so strong that it is difficult to move away as advertised. The US is a democratic system, but the way in which vested interests capture the political process is similar.
Even though Democrats want to make the economy greener, coal-dependent areas like West Virginia have interests that make the transition much slower than it should be. These are different political systems, but both find it easier to talk about facilitating redistribution than to actually get it done. The common prosperity slogan is yet another attempt to talk about the significance of redistribution, like we’ve been seeing recurrently over the last twenty or thirty years.
But it is very possible that it will end up like the previous ones: as just a slogan, with not much accomplished in the end.
Speaking of coal, is US-China climate cooperation possible, given how bad the relationship has gotten? John Kerry, the US climate envoy, said that he wants to separate climate negotiations from everything else. But I don’t see how that works in practice.
It depends on what exactly we are talking about. The data shows that China is already the world’s leading producer of solar panels and wind turbines; that is definitely an incentive for the US to increase the import of these Chinese-made green products. But one reason US corporations were complaining during the Obama administration is that a US green technology company collaborated with a Chinese company, providing their high-tech components and software, and then China built new wind turbines. Later on, they found out that China hired someone within the American company to appropriate its designs and technology. This led to a court case, and the Chinese partner did concede wrongdoing and paid a huge fine.
These issues occur a lot in the green high-tech sector, and this is a countervailing force against US-China cooperation around green products. US corporations want to cooperate with China on green technology and import more Chinese green products, but at the same time American green corporations are being hurt by this intellectual property appropriation; this appropriation was part of what precipitated the trade war. So it is very difficult to disentangle green efforts from other issues, like intellectual property disputes and the trade war.
On the other hand, while China is rolling out green technology like wind turbines and solar panels impressively, it is also expanding its coal sector. China is exporting coal capacity to the Belt and Road countries. Even though Xi Jinping has said that China will stop exporting coal and financing coal plants, the data shows that this continues.
Again, it will take some time for people to discern whether the Chinese leadership really means to deliver on this promise, or whether they are just saying it without doing it. China’s green technology sector has become a vested interest that vies for government support, but the coal sector is also huge politically; it’s a very powerful vested interest that has a hold on the political process.
For China to transition to a greener economy, we need to break the kind of political hold of this vested interest. Green cooperation between China and the US should happen and it should be supported. But it is very difficult to disentangle from these issues of protectionism, trade disputes, and intellectual property theft, and also from the vested interests that control the political system.
There are two key topics I want to cover before we finish: Hong Kong and the pandemic.
Hong Kong historically played a major role as a financial intermediary between China and the rest of the global capitalist economy. Casual observers have noticed that Hong Kong’s political freedoms have recently been eliminated or severely reduced. However, there was also a related but distinct economic dimension to Hong Kong’s special status.
What has the recent extension of Beijing’s control over Hong Kong meant for Hong Kong’s economic position? And what has this meant for the entire Chinese economy?
That is a big topic, and I’ll have to answer in a very condensed way, because I have another book, which is three hundred pages, about politics and protests in Hong Kong. China has been facing a dilemma over Hong Kong ever since the sovereignty handover in 1997. On the one hand, China wants Hong Kong to be an offshore financial center to resolve the contradiction between China’s need to connect to the global financial system and its political imperative to shield the Chinese financial system from global high finance.
As we discussed earlier, the CPC wants to have full control of the financial system, yet Chinese companies and state entities need financial services from global finance. The solution is to develop Hong Kong as its offshore financial market.
Hong Kong is part of China, but it has its own currency and its own central bank. Its government supposedly makes financial and economic policy on its own, without Beijing’s dictation. There’s a permeable but regulatable financial border in the capital flow between mainland China and Hong Kong.
So developing Hong Kong as an offshore market seems to resolve the contradiction between China’s need to use the global financial system and its political need to shield its own market. Chinese companies can be listed in the Hong Kong stock market, and they can buy financial products in Hong Kong rather than doing so in mainland China.
But to maintain an offshore financial market, you need a separate, internationally recognized legal system and also the free flow of information. Facebook and other Western social media platforms are banned in China; Google is banned in China; there’s no free press in China. But in Hong Kong, up until very recently, they do have a free press, so they can find out about wrongdoing and corruption, and they do have social media. These things are very important for maintaining an offshore financial center where people will want to do business.
But this relative liberty and rule of law in Hong Kong also creates a space for opposition and for political dissidents that trouble China. In resolving its financial contradictions through Hong Kong’s offshore market, China creates a new contradiction: between the necessity of maintaining certain freedoms in Hong Kong, and the possibility of creating a political opposition in Hong Kong that makes China increasingly ungovernable.
The result is a showdown in 2019 and a crackdown in 2020. Hong Kong is in uncharted territory, now that Xi Jinping is trying to crack down on political dissidents and destroy the free press while maintaining Hong Kong’s financial freedom. But it’s unclear whether China can maintain financial confidence in its offshore markets without political freedom.
Even before the pandemic, a lot of private equity companies, including those with a mainland Chinese background and some international businesses, are starting to move away to Singapore. Singapore is not a democracy, but it is far enough from mainland China that they don’t need to worry about its government being biased toward the Chinese government and against them.
Now, after the crackdown in Hong Kong, many financial firms are watching to see how bad the situation will get; many people in the financial sector are already preparing for the worst. The containment of the pandemic has also become politicized. Which method we should use to control the virus became a debate between different camps, and the government accused medical doctors and public health experts of trusting the Western vaccine and buying into the Western principle of living with the virus. The government said that they need to follow a draconian lockdown approach, which, for them, shows the superiority of the Chinese system. Everything is getting politicized, all without checks and balances from a free press.
This lack of freedom will not only affect the dissidents, but eventually will affect all areas of governance, from health care to public health and financial regulation. We already see examples of foreign financial entities disclosing corruption and wrongdoing by powerful Chinese corporations and being sanctioned by the Hong Kong authorities. A few years ago, a financial analyst reported corruption at Evergrande, China’s much troubled real estate developer; that analyst was silenced, and many people assume that it was politically motivated.
This situation is worrying a lot of financiers, and many of them are thinking about leaving Hong Kong for places further from mainland China’s authority, such as Singapore and London. If that happens, it will deal great collateral damage to the Chinese economy. Up until now, China has enjoyed this offshore financial center within its sovereignty. But if this offshore financial center moves to other places outside of China’s sovereignty, it would be a negative for China’s economic lead.
Finally, how has China’s experience managing the pandemic impacted the state’s domestic legitimacy on the one hand, and its position within the world system on the other? China has generated a lot of ill will overseas, but, in sharp contrast to the West, it probably saved millions of lives at home as well.
Meanwhile, its trade grew about five times faster than the global average over the past three years. But right now, Omicron is ripping through China, where a shockingly large portion of the elderly population is unvaccinated, leading to lockdowns in key export-production regions.
China’s experience with the pandemic has been a roller coaster over the last two years. Initially, when the disease first beaks out in Wuhan, the conversation is about how a Chinese cover-up led to the creation of this pandemic, and how people in China are unhappy about the cover-up. Wuhan is suffering, and the world is looking at China as the kind of authoritarian country that covers up its mistakes, creating a global crisis.
Conversation shifts very rapidly after the virus reaches the shores of the US and Europe, and exposes the incompetence of the incumbent governments. At the same time, China mobilizes its very draconian machinery to lockdown whole regions and millions of people, rapidly cutting off the chain of transmission of the virus.
In late 2020 and early 2021, it seems that China has been successful at controlling the virus and Western countries have failed; China is boasting about its model. But, when the vaccine comes into the picture, it shifts the tide of the conversation, because the mRNA vaccines created by Western countries are quite effective and China is struggling to come up with their own mRNA vaccine. They create Sinovac and Sinopharm, which are traditional vaccines and less effective.
And then, in this Omicron wave, we see the limits of the lockdown approach, because the new variant is much more contagious. Meanwhile, research shows that the Chinese vaccines are less effective at preventing serious illness than the mRNA vaccines.
So now the conversation is about whether China can continue its draconian lockdown approach, and it seems that Xi Jinping himself is shifting the tone, emphasizing the danger of inflicting damage to the economy. Some people suggest that China might be silently and slowly moving away from this draconian lockdown approach, but it’s still too early to tell. Right now, the perception is that the US, Europe, and other Asian countries — from Singapore to South Korea and Japan, though not Taiwan — are emerging from the pandemic through these mRNA vaccines. Meanwhile, China is stuck in a draconian lockdown, paying a heavy price as they struggle to develop their version of the mRNA vaccine.
So the question of who is doing better is still unresolved, as is the question of how this will impact China’s legitimacy, both globally and domestically. But there has definitely been a deterioration in relations between China and the rest of the world because of the pandemic. No matter how well China did in containing the virus, it still cannot get rid of people’s perception that it is not cooperating with the international WHO investigation into the origins of the virus.
Many still believe that China is hiding information and impeding the international scientific investigation. China’s early cover-up is still a problem; people argue, reasonably, that if China had acknowledged the existence of the virus earlier, then maybe a global pandemic would not have erupted. It could perhaps have been contained in China or in Wuhan. So the pandemic is going to have a long-lasting impact on global governance, on US-China relations, and on China’s relation with the world, to be sure.