Trans-Pacific View author Mercy Kuo regularly engages subject-matter experts, policy practitioners, and strategic thinkers across the globe for their diverse insights into U.S. Asia policy. This conversation with Shaun Rein – Founder and Managing Director of China Market Research and author of The War for China’s Wallet, The End of Copycat China, and The End of Cheap China – is the 138th in “The Trans-Pacific View Insight Series.”
Describe the core construct of China’s new world order.
American policymakers need to understand China is not looking to challenge and replace the American-led world order as the Soviet Union wanted during the Cold War. President Xi wants China to have a greater say in international affairs that an economic power of China’s size deserves. Many nations feel Western, historically ethnically white nations have an outsized say in institutions like the World Bank or IMF and feel the U.S. contains their growth.
By launching initiatives like One Belt, One Road [OBOR] and using economic carrots and sticks with other nations, China hopes to gain more influence. Worried about President Trump upending long-term alliances and relationships, many nations like the Philippines are moving closer to China’s orbit and benefiting from China’s economic largesse. However, such economic carrots come with a price — adherence to China’s political aims and loss of political independence. Like it has done with South Korea, Norway, and Mongolia, China will punish nations that cross it politically by stopping trade and by using the state-owned media to rally consumers to boycott brands.
Explain how China’s innovation and investment strategy shapes China’s world order.
China uses economic carrots like low interest loans and infrastructure investments to curry political favor from nations in a divide-and-conquer plan. For example, many ASEAN nations criticize China for its reclamation of islands in the South China Sea which many countries view China using as unsinkable destroyers in the event of war.
To blunt criticism, China essentially buys support from nations like Laos and Cambodia by showering them with low interest loans and infrastructure projects. In return, Cambodia mutes criticism of China in ASEAN pronouncements. There is clearly a quid pro quo deal in place.
China uses similar strategies in Europe with Hungary and Ethiopia in Africa. For example, earlier this month every European nation ambassador in China except for Hungary signed a letter criticizing China for not opening up projects enough for foreign firms in the One Belt, One Road initiative. Most likely China will dole out economic benefits to Hungary in the coming months in a similar to way that it opened up 12 direct flights for Ethiopian Airlines to China, just weeks after Ethiopia publicly supported China while other African nations were criticizing it, making that country’s national carrier the main hub for Africa-China flights.
Why should Western policymakers pay attention to the Belt and Road Initiative, also known as OBOR?
Many countries in the past few years, from Malaysia to the Philippines to Russia, have been taken over by strongman governments. Leaders in these nations are less likely to adhere to Western ideals of democracy and human rights. They are more pragmatic and ruthless in maintaining power and being self-interested in economic benefits.
These leaders are thus likely to broker deals between Chinese firms and favored cronies in OBOR initiatives. In return for personal profit, they will support China more, which is why in many ways China can handle a trade war with the U.S. better than President Trump realizes — America no longer carries the sway it did even 10 years ago.
Many of these strongmen leaders don’t want to be criticized or lectured anymore by the United States and Western European nations on human rights and such. China does not do that, preferring to keep a hands-off approach in other nation’s internal affairs.
Assess China’s ambitions to play a global leading role in artificial intelligence.
If people are concerned about Facebook and privacy issues, then they should see China, where there is no privacy at all.
The reality is that because of the combination of the lack of privacy laws, the sheer amount of data controlled by China’s tech companies like Alibaba and Huawei, and the government’s support of AI in order to achieve more control over its citizens, China will win the AI war. Whoever has more data and fewer privacy laws will prevail.
Right now Silicon Valley is two years behind China when it comes to mobile and tech innovation. I feel like I am going into the Dark Ages when I visit the U.S. from a mobile services standpoint. But there is a dark side to China’s lead — the lack of privacy for Chinese citizens has lead to quite literally having an Orwellian big brother overseeing them. The police, for example, recently installed live streaming cameras into the foot massage parlor I frequent. Combined with facial recognition powers, the level of tracking capability that private Chinese and government institutions have disturbs me.
How should U.S. policymakers navigate competition and cooperation with China?
President Trump is right to criticize China for unfair business practices. But he is wrong to pinpoint the trade deficit as an issue. The reality is most of manufacturing is benefiting U.S. companies that relocated sourcing to China. These companies will simply start to source from Vietnamese, Indonesia, and even African companies, if Trump slaps tariffs.
Trump should be targeting China for protectionism. It is absurd that China blocks or severely curtails the China operations of Google, Amazon, Facebook, and Twitter yet America allows Alibaba, Tencent, and Baidu unfettered access in America. Tencent and Alibaba are now the largest foreign investors in Silicon Valley after Samsung.
Trump should focus on reciprocity and should take a hard line. Fighting for a trade rebalancing is an unwinnable war.