The U.S. and China are facing a collision on a wide spectrum of issues, from economic to a gamut of political and military concerns.
The arguments flew thick and fast at the annual Shangri-la discussion in Singapore last weekend. Curiously enough, China has a new defense against economic protests from the Europeans as well as the Americans. Finance Minister Lou Jiwei in the annual bilateral meeting of the two countries’ cabinet ministers this week in Beijing asked where foreign suppliers were when China was in full expansion a few years ago. Why didn’t they see the oversupply [and consequent dumping] coming?
Lou also argued that China is no longer a centrally planned economy with its private sector now going full blast, producing a disproportionate amount of the surpluses. That seems unrealistic given the tendency of the huge government monopolies with their preferred access to capital to go their own way whatever market conditions. Hidden in Lou’s explanation, of course, is Beijing’s call on the U.S. and the other members of the World Trade Organization to call label it a “market economy’, thereby loosening even more strings on production.
The truth is that Chinese Soviet-style planners have, indeed, lost control of their model. True enough, a private sector has arisen which is contributing disproportionately to the total production in many industries. That’s especially true for steel which the Chinese are dumping in Europe and the U.S. at below costs on already embattled Western industries.
China’s four government banks, under political pressure from local Communist Party officials, are overextended. In the process, with the usual Chinese commercial genius, debt centers and private banking has further extended credit to failing manufacturers creating overcapacity throughout the economy. Export subsides and currency manipulation send these surpluses on their way to foreign markets, especially with China’s own once fast growing economy now in the doldrums.
Equally troubling are the growing Chinese claims for regional naval dominance. Building military outposts on enhanced reefs in the South China Sea a thousand miles of the China mainland appear a challenge to nearer neighbors, the Philippines, Vietnam and Malaysia. Beijing adamantly rejects Manila’s approach to the World Court for a decision on conflicting claims, seeking support from Moscow who faces similar threats over its actions in Ukraine.
The Chinese threaten to declare a zone of international air control in the area as they did – with foreign rejection – in the East China Sea near Japan. It’s true that Chinese export manufactures and imported commodities such as Mideast oil make up the largest part of the region’s traffic. But the U.S.’ traditional advocacy of freedom of the seas throughout the world going back to its earliest days of its first foreign wars against the Barbary Pirates – is at stake.
Perhaps the most dangerous aspect of the U.S.-China encounter is its relationship to the internal politics of China’s ruling party. Pres. Xi Jinping is trying to make himself into another all-powerful Mao Tse-dung. Differences with the U.S. are used by his opponents in the intra-Party scuffles. His domestic concerns were reflected in a comment at the annual Sino-US Strategic and Economic Dialogue: “Some differences can be solved through hard work. [But] Some differences cannot be solved at the moment.”
Xi may have been referring in part to the growing difficulties in cutting back on overproduction at the regional and local levels. A warning in the People’s Daily, the official voice of ruling Party, about high levels of debt was widely interpreted as a signal to Mr Xi from Party opponents not to waver from making difficult economic reforms. However, analysts doubt local governments’ willingness to close plants and lay off workers in oversupplied industries such as steel. That comes at a time Beijing is increasingly coming down on foreign investors, apparently in another effort to placate local Party and industry interests.
As Xi argues, the relationship between the world’s largest developed country and the world’s largest undeveloped economy may be the most important in the world. Mired in the continuing Mideast crisis and its resultant refugee flow, it has taken second place at best for the Obama Administration. That isn’t likely to be the case for the new executive taking over January 2017.