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China is not strong enough to pull off its bid for world dominance
Introduction of new stricter security laws in Hong Kong has escalated tensions with the West
AMBROSE EVANS-PRITCHARD2 June 2020 • 5:00pm
This article is an extract from the Telegraph's Economic Intelligence newsletter. Sign up here to get exclusive insight from two of the UK's leading economic commentators – Ambrose Evans-Pritchard and Jeremy Warner – delivered direct to your inbox every Tuesday
Just days before China rammed through its national security law for Hong Kong - giving the Communist Party’s secret police free rein - the Trump Administration issued an astonishing document.
The US Strategic Approach to the People’s Republic of China is a declaration of total cold war. It states in black and white that China has become a fundamentally hostile and predatory power under China’s President Xi Jinping.
It deems Beijing's chauvinist-Leninist regime to be incorrigible. Xi will never play by the settled rules of global governance unless confronted and checked. His drive for world dominance is deemed to be a strategic danger to the US alliance system and the democratic values of the West. The ideological war must henceforth be fought on every front.
The tone is harsher and if anything more radical than George Kennan’s watershed article for Foreign Policy in 1947, laying out the case for containment of the Soviet Union. His text called for a “patient, firm and vigilant containment of Russian expansive tendencies” and for use of “adroit counter-force” to combat Soviet subversions of Western institutions.
Xi was courting trouble when he told Party cadres in 2013 to prepare for a long-term “conflict” with the West, and vowed to defeat liberal free-market systems. He upped the ante two years later with calls for an all-out struggle against “dangerous Western views and theories.”
Residents in Hong Kong took to the streets to protest the new security laws from China CREDIT: Billy H.C. Kwok/Getty Images AsiaPac
The slow, lumbering, and unruly American hegemon has finally given him an answer. The White House text published on May 20 says the US and China are now in a state of “great power competition” and that Washington will act accordingly.
The high drama of the last two weeks has obscured the strategic revolution under way. The chaos of the pandemic is certainly useful cover for Xi as he settles his score with Hong Kong’s impertinent democracy.
He could hardly have expected the spectacular coup of race riots across America as an extra bonus. “I can’t breathe” has become the mocking cry of the Chinese state media. US President Donald Trump’s approving tweet for deployment of the 101st Airborne Division against American citizens on their own streets is a propaganda gift.
But the ‘George Floyd uprising’ will pass, just as the Rodney King uprising in 1992 passed, and before that a string of primordial screams, because race politics are an aspect of America, but not the essence of it. The country did after all elect a black president in 2008. China will not be led by a Uighur in my lifetime.
The White House document states that there will be no more kid-glove treatment of global rivals (read Putin’s Russia too, or the Chavistas) in the forlorn hope that “their inclusion in international institutions and global commerce would turn them into benign actors and trustworthy partners. For the most part, this premise turned out to be false. Rival actors use propaganda and other means to try to discredit democracy.”
Chinese state media has seized on the US race riots - the words at the bottom mean "beneath human rights"
It catalogues a long list of “broken and empty promises”. It accuses the Communist Party (CCP) of gaming the World Trade Organization (WTO) trade system to pursue export dominance, and of lodging the People’s Liberation Army at the heart of the economic and technology complex through the doctrine of Military-Civil Fusion. It alleges pathological technology theft.
The US will now go on the counter-offensive and take it to the foe. This reminds me of the Reagan Doctrine in the early 1980s, which I covered as a foreign correspondent in Central America - a proxy war that Washington won, nota bene, contrary to widespread claims at the time that the US was enfeebled and prosecuting a lost cause.
For a flavour, here are a few nuggets:
“The United States rejects CCP attempts at false equivalency between rule of law and rule by law; between counterterrorism and oppression; between representative governance and autocracy; and between market-based competition and state-directed mercantilism. The United States will continue to challenge Beijing’s propaganda and false narratives that distort the truth and attempt to demean American values and ideals.”
“The United States does not and will not accommodate Beijing’s actions that weaken a free, open, and rules-based international order. We will continue to refute the CCP’s narrative that the United States is in strategic retreat.”
“We do not cater to Beijing’s demands to create a proper ‘atmosphere’ or ‘conditions’ for dialogue. Likewise, the United States sees no value in engaging with Beijing for symbolism and pageantry; we instead demand tangible results and constructive outcomes. We acknowledge and respond in kind to Beijing’s transactional approach with timely incentives and costs, or credible threats thereof.”
You get the gist.
One can only guess at the reaction within the Standing Committee when this incendiary text was published. It would have confirmed the view of hardliners that the US is now determined to halt the rise of China, and that there is no longer anything to be gained from restraint.
The document is the collective voice of Washington. It reflects the thinking of both parties on Capitol Hill and much of the military-diplomatic establishment. Trump is almost a China dove at this juncture, swept along by political forces that are getting ahead of him.
It will not be any easier for Xi Jinping under the Democrats. It might in fact be worse under a President Biden because he is not so easily distracted by publicity stunts and would methodically build a containment alliance rather than squandering diplomatic capital.
Trump’s decision to revoke Hong Kong’s special status under US law will - when fleshed out - matter more than meets the eye. It puts the hub on the wrong side of the world’s financial superpower, deprived of implicit support from the Fed and the US Treasury, and treated like any other city in China. The 1,400 US companies on the enclave - and 96,000 US nationals - will start to drift away, some to Singapore. Capital is already leaving.
It is not so much the loss of tariff-free access that hurts, but everything else. Iris Pang from ING says the killer is the coming curb on technology transfers. A whole industry of service companies revolves around US digital and hi-tech components.
There is a view that Hong Kong can shake this off, switching its focus to mainland China, hosting all the ADR stock listings that are either fleeing or being expelled from New York. I doubt it. Great financial entrepots are famously sticky. They have incumbency advantages. But they invariably go into structural decline once their unique geopolitical advantage is disrupted.
What Xi has just done to Hong Kong is akin to the Habsburg asphyxiation of Antwerp in the 16th Century. It also had a special status as a free-thinking hub until Philip II - a fanatical control-freak, like Xi - suppressed their liberties in the pursuit of the Counter-Reformation. Persecuted Jews fled North to Amsterdam. The great Buerse faded away.
Xi Jinping has clearly concluded that Hong Kong’s economic value as Asia’s premier hub - and as China’s gateway to world finance - is less than the political cost of letting the enclave’s democracy movement continue to defy him and reproach his totalitarian model. Hong Kong’s role as a conduit for foreign capital flows and investment is no longer quite so crucial in any case under Beijing’s new policy of “self-reliance”.
The security law covers “subversion, terrorism, splittism, and interference by foreign countries or foreign influences”, the same categories that are routinely used within mainland China to crush the slightest flicker of civil dissent. Apologists claiming that this is a minor breach of Hong Kong’s autonomy - and this seems to include the EU’s foreign policy chief - are really saying that nothing should stand in the way of making money.
Hong Kong’s success is built on the rule of law and an independent judiciary, but that is precisely what the Communist leadership cannot abide. They are incensed that just 60 of the 8,500 pro-democracy protestors arrested last year have been convicted. The courts are the problem. “The city represents everything Xi’s regime hates about liberal democracy,” said Chris Patten, ex- Governor of Hong Kong.
This could hardly have hit at a worse time for Hong Kong. The enclave is coming off the biggest lending bubble in the world (BIS data), with hyperinflated property prices and a banking system with assets of 8.3 times GDP, comparable to Iceland and Ireland before their trouble began. The economy has already been hit by multiple shocks.
Nor is China recovering fully from the pandemic. A fifth of migrant workers have yet to return from their villages. Disguised unemployment is running at 15pc. The rebound has partially stalled as China’s export sector - employing 60 million people - feels the full blowback of the global lockdown.
The latest stimulus package pushed the augmented fiscal deficit (IMF definition) to 15pc of GDP but the credit expansion packs just a quarter of punch seen in the uber-stimulus of 2008-2009. The reason is that China can no longer risk promiscuous loan creation.
It was one thing to borrow with abandon when trend growth was running at 10pc a decade ago and the world economy was your oyster: it is quite another when your growth rate (the true rate) is nearer 4pc and heading for 2pc by the mid-2020s, your debt ratio has reached 330pc of GDP, and when you are already burdened with the legacy of epic malinvestments.
I stick to my long held view that China’s GDP at market prices will not overtake American GDP this decade, or in the 2030s, or this century. There is a lot of ruin in the old republic yet, to borrow from Adam Smith, and nor is Pax Americana as dead as it looks.
Xi Jinping has taken a fateful step in walking away from the Sino-British Declaration and so brazenly flouting an international treaty law lodged at the UN.
The US is now reacting in earnest to Xi's wolf warrior diplomacy. Others will follow. China is not quite strong enough to pull off this bid for global power - this Griff Nach Der Weltmacht. It jumped the gun.
https://www.telegraph.co.uk/business/2020/06/02/china-not-strong-enough-pull-bid-world-dominance/
Introduction of new stricter security laws in Hong Kong has escalated tensions with the West
AMBROSE EVANS-PRITCHARD2 June 2020 • 5:00pm
This article is an extract from the Telegraph's Economic Intelligence newsletter. Sign up here to get exclusive insight from two of the UK's leading economic commentators – Ambrose Evans-Pritchard and Jeremy Warner – delivered direct to your inbox every Tuesday
Just days before China rammed through its national security law for Hong Kong - giving the Communist Party’s secret police free rein - the Trump Administration issued an astonishing document.
The US Strategic Approach to the People’s Republic of China is a declaration of total cold war. It states in black and white that China has become a fundamentally hostile and predatory power under China’s President Xi Jinping.
It deems Beijing's chauvinist-Leninist regime to be incorrigible. Xi will never play by the settled rules of global governance unless confronted and checked. His drive for world dominance is deemed to be a strategic danger to the US alliance system and the democratic values of the West. The ideological war must henceforth be fought on every front.
The tone is harsher and if anything more radical than George Kennan’s watershed article for Foreign Policy in 1947, laying out the case for containment of the Soviet Union. His text called for a “patient, firm and vigilant containment of Russian expansive tendencies” and for use of “adroit counter-force” to combat Soviet subversions of Western institutions.
Xi was courting trouble when he told Party cadres in 2013 to prepare for a long-term “conflict” with the West, and vowed to defeat liberal free-market systems. He upped the ante two years later with calls for an all-out struggle against “dangerous Western views and theories.”
Residents in Hong Kong took to the streets to protest the new security laws from China CREDIT: Billy H.C. Kwok/Getty Images AsiaPac
The slow, lumbering, and unruly American hegemon has finally given him an answer. The White House text published on May 20 says the US and China are now in a state of “great power competition” and that Washington will act accordingly.
The high drama of the last two weeks has obscured the strategic revolution under way. The chaos of the pandemic is certainly useful cover for Xi as he settles his score with Hong Kong’s impertinent democracy.
He could hardly have expected the spectacular coup of race riots across America as an extra bonus. “I can’t breathe” has become the mocking cry of the Chinese state media. US President Donald Trump’s approving tweet for deployment of the 101st Airborne Division against American citizens on their own streets is a propaganda gift.
But the ‘George Floyd uprising’ will pass, just as the Rodney King uprising in 1992 passed, and before that a string of primordial screams, because race politics are an aspect of America, but not the essence of it. The country did after all elect a black president in 2008. China will not be led by a Uighur in my lifetime.
The White House document states that there will be no more kid-glove treatment of global rivals (read Putin’s Russia too, or the Chavistas) in the forlorn hope that “their inclusion in international institutions and global commerce would turn them into benign actors and trustworthy partners. For the most part, this premise turned out to be false. Rival actors use propaganda and other means to try to discredit democracy.”
Chinese state media has seized on the US race riots - the words at the bottom mean "beneath human rights"
It catalogues a long list of “broken and empty promises”. It accuses the Communist Party (CCP) of gaming the World Trade Organization (WTO) trade system to pursue export dominance, and of lodging the People’s Liberation Army at the heart of the economic and technology complex through the doctrine of Military-Civil Fusion. It alleges pathological technology theft.
The US will now go on the counter-offensive and take it to the foe. This reminds me of the Reagan Doctrine in the early 1980s, which I covered as a foreign correspondent in Central America - a proxy war that Washington won, nota bene, contrary to widespread claims at the time that the US was enfeebled and prosecuting a lost cause.
For a flavour, here are a few nuggets:
“The United States rejects CCP attempts at false equivalency between rule of law and rule by law; between counterterrorism and oppression; between representative governance and autocracy; and between market-based competition and state-directed mercantilism. The United States will continue to challenge Beijing’s propaganda and false narratives that distort the truth and attempt to demean American values and ideals.”
“The United States does not and will not accommodate Beijing’s actions that weaken a free, open, and rules-based international order. We will continue to refute the CCP’s narrative that the United States is in strategic retreat.”
“We do not cater to Beijing’s demands to create a proper ‘atmosphere’ or ‘conditions’ for dialogue. Likewise, the United States sees no value in engaging with Beijing for symbolism and pageantry; we instead demand tangible results and constructive outcomes. We acknowledge and respond in kind to Beijing’s transactional approach with timely incentives and costs, or credible threats thereof.”
You get the gist.
One can only guess at the reaction within the Standing Committee when this incendiary text was published. It would have confirmed the view of hardliners that the US is now determined to halt the rise of China, and that there is no longer anything to be gained from restraint.
The document is the collective voice of Washington. It reflects the thinking of both parties on Capitol Hill and much of the military-diplomatic establishment. Trump is almost a China dove at this juncture, swept along by political forces that are getting ahead of him.
It will not be any easier for Xi Jinping under the Democrats. It might in fact be worse under a President Biden because he is not so easily distracted by publicity stunts and would methodically build a containment alliance rather than squandering diplomatic capital.
Trump’s decision to revoke Hong Kong’s special status under US law will - when fleshed out - matter more than meets the eye. It puts the hub on the wrong side of the world’s financial superpower, deprived of implicit support from the Fed and the US Treasury, and treated like any other city in China. The 1,400 US companies on the enclave - and 96,000 US nationals - will start to drift away, some to Singapore. Capital is already leaving.
It is not so much the loss of tariff-free access that hurts, but everything else. Iris Pang from ING says the killer is the coming curb on technology transfers. A whole industry of service companies revolves around US digital and hi-tech components.
There is a view that Hong Kong can shake this off, switching its focus to mainland China, hosting all the ADR stock listings that are either fleeing or being expelled from New York. I doubt it. Great financial entrepots are famously sticky. They have incumbency advantages. But they invariably go into structural decline once their unique geopolitical advantage is disrupted.
What Xi has just done to Hong Kong is akin to the Habsburg asphyxiation of Antwerp in the 16th Century. It also had a special status as a free-thinking hub until Philip II - a fanatical control-freak, like Xi - suppressed their liberties in the pursuit of the Counter-Reformation. Persecuted Jews fled North to Amsterdam. The great Buerse faded away.
Xi Jinping has clearly concluded that Hong Kong’s economic value as Asia’s premier hub - and as China’s gateway to world finance - is less than the political cost of letting the enclave’s democracy movement continue to defy him and reproach his totalitarian model. Hong Kong’s role as a conduit for foreign capital flows and investment is no longer quite so crucial in any case under Beijing’s new policy of “self-reliance”.
The security law covers “subversion, terrorism, splittism, and interference by foreign countries or foreign influences”, the same categories that are routinely used within mainland China to crush the slightest flicker of civil dissent. Apologists claiming that this is a minor breach of Hong Kong’s autonomy - and this seems to include the EU’s foreign policy chief - are really saying that nothing should stand in the way of making money.
Hong Kong’s success is built on the rule of law and an independent judiciary, but that is precisely what the Communist leadership cannot abide. They are incensed that just 60 of the 8,500 pro-democracy protestors arrested last year have been convicted. The courts are the problem. “The city represents everything Xi’s regime hates about liberal democracy,” said Chris Patten, ex- Governor of Hong Kong.
This could hardly have hit at a worse time for Hong Kong. The enclave is coming off the biggest lending bubble in the world (BIS data), with hyperinflated property prices and a banking system with assets of 8.3 times GDP, comparable to Iceland and Ireland before their trouble began. The economy has already been hit by multiple shocks.
Nor is China recovering fully from the pandemic. A fifth of migrant workers have yet to return from their villages. Disguised unemployment is running at 15pc. The rebound has partially stalled as China’s export sector - employing 60 million people - feels the full blowback of the global lockdown.
The latest stimulus package pushed the augmented fiscal deficit (IMF definition) to 15pc of GDP but the credit expansion packs just a quarter of punch seen in the uber-stimulus of 2008-2009. The reason is that China can no longer risk promiscuous loan creation.
It was one thing to borrow with abandon when trend growth was running at 10pc a decade ago and the world economy was your oyster: it is quite another when your growth rate (the true rate) is nearer 4pc and heading for 2pc by the mid-2020s, your debt ratio has reached 330pc of GDP, and when you are already burdened with the legacy of epic malinvestments.
I stick to my long held view that China’s GDP at market prices will not overtake American GDP this decade, or in the 2030s, or this century. There is a lot of ruin in the old republic yet, to borrow from Adam Smith, and nor is Pax Americana as dead as it looks.
Xi Jinping has taken a fateful step in walking away from the Sino-British Declaration and so brazenly flouting an international treaty law lodged at the UN.
The US is now reacting in earnest to Xi's wolf warrior diplomacy. Others will follow. China is not quite strong enough to pull off this bid for global power - this Griff Nach Der Weltmacht. It jumped the gun.
https://www.telegraph.co.uk/business/2020/06/02/china-not-strong-enough-pull-bid-world-dominance/
