The Chinese Power Play: Development or Domination?
The Chinese Power Play: Development or Domination?
The Perception Of Chinese Development
Contents
Introduction
China Weaponising Supply Chains
Or China Developing The World?
Concluding Remarks
Bitesize Edition
China has experienced one of the most impressive periods of development ever seen. They have pulled a huge proportion of their population out of poverty in a short time. Albeit this wasn’t without struggle or tragedy, with the Great Leap Forward killing millions.
Today, China exists in the upper echelons of superpower geopolitics. Whether interpreted as a rivalry, a competition, or outright conflict with the United States is dependent on interpretation and perception. The most important element of superpower geopolitics is the perception and interpretation of the other country and its actions. When exploring supply chains, overproduction, and innovation, the perception of China is two-fold.
Firstly, some see China as weaponising supply chains. Their overproduction is interpreted as an aim to undermine the domestic industries in other countries. Alternatively, China could be seen as developing the underdeveloped world, helping provide millions of people with the opportunity to live a better quality of life. Hence, as we explore this perception and China’s attitudes towards supply chains, I’ll provide the evidence of both interpretations. From this you can decide for yourself if China is indeed weaponising global trade or if they’re aiding the underdeveloped world in providing opportunities for a better quality of life for their citizens.
Introduction
One key issue that has emerged in my recent work on energy affordability has been a perception towards China’s rapid development in recent decades. The development has dragged a huge proportion of their population out of poverty, which should be celebrated as a huge success.
However, perception and motivation are important. Strategic rivals of China could perceive China as building an oversupply of key materials to protect itself from supply chain disruptions, whether enforced by other nations purposefully or as a black-swan event. This could lead to geopolitical tit-for-tat as seen in the US-China trade war.
Or China could be flooding the market with cheap exports to undercut geopolitical competitors. This has also seen responses through the Inflation Reduction Act and CHIPS Act in the United States and has led to questions about potential European strategies to not get left behind in this superpower competition.
Alternatively, some could perceive that China has enabled cheap development of manufactured products which the underdeveloped and developing world can take advantage of, thus improving their quality of life and bringing more of their populations out of poverty. Perception is key, hence let’s dive deeper into this issue. What evidence exists of China weaponising trade, and what evidence supports China providing a better opportunity for those less fortunate around the world?
China Weaponising Supply Chains
One such area of future technological importance where China possesses close to 90% of the global market share is rare earth element processing. The weaponisation of this has already been seen with the 2010 rare earth embargo on Japan. It’s all good discovering the mineral sources in the ground, but they then need mining, separating, purifying, and refining. This is an expensive process if you don’t have streamlined industrial processes in place. Hence China is so important in the sector, and why other nations finding sources of rare earth elements isn’t exactly the biggest win. The entire rare earth elements process is complicated, costly, and difficult. China possesses such technology to attend to the entire rare earth process.
China also has state-owned enterprises that the central government provides stimulus to when necessary through its local government structure. With many companies established in specific key industries, such as electric vehicles, only a few need to succeed for China’s global market share and importance in key industries to grow. The strategy paid off with electric vehicles, with BYD being the biggest EV company in the world, and expanding on a global level. Other companies are also beginning to expand outside China, such as XPeng and Li Auto.
China has enforced limitations on public companies if they grow too large via China’s Antimonopoly Law. Take one look at Alibaba and Jack Ma for the last few years. He fled the country due to his company growing too strong and influential within China and his criticism of Chinese financial regulators who wanted to break up his company into smaller pieces. He returned in March 2023. As I discussed a few weeks ago, monopolies or duopolies aren’t encouraged to emerge in China, even though they do exist in key sectors, as Huawei and China National Petroleum do in the communication and oil sectors. In an ideal world, China would pursue an environment of perfect competition in every sector that doesn’t involve state owned companies. From this, they only need a few winners to grow in stature, influence, and market share on a global stage.
Take a Chinese global market share that is so large in a key industry, and other countries will assess the importance of their individual domestic production. If more money is made in China’s potential large consumer market, which is a pivot China is currently trying to pursue away from manufacturing, it comes to question how companies can be incentivized to remain in low-growth nations outside of China, even if they were founded in other countries.
Take Volkswagen, for example. They are considering shutting factories in Germany and focusing more on the Chinese market. Will we look back one day and realise that China was establishing itself as a necessary part of the supply chain for businesses, whether countries and governments like it or not? From here, China is in an incredibly powerful position. Imagine a potential scenario where governments refuse to interact with China, or if geopolitical competitors refuse to play by China’s trade rules, then good luck developing key industries vital for the future of innovation. If you’re left behind technologically while China advances, good luck catching up. This could well be a part of China’s long-term geopolitical strategy.
This is a potential scenario that the United States is aware of, as seen through their efforts to nearshore through NAFTA and to re-evaluate domestic production via the Inflation Reduction Act and the CHIPS Act. The worry is that China is flooding the market with overproduction of manufactured products. Supply and demand imbalances are reflected in prices, and any imbalance can take time to correct itself naturally. The time in between this is tough. The biggest accusation is that China is flooding the market to undermine domestic industries in other countries due to low Chinese prices flooding the global market. Take steel in the United States, for example. US Steel is currently in a dispute regarding a sale to a Japanese company. Is this the doing of Chinese overproduction of steel flooding global markets? This brings tariffs and subsidies to the forefront of geopolitical competition today, an issue I’ve discussed over the previous few weeks, of which tariffs on steel have been a key aspect of the tariff war.
While there are points that seem to support that China is attempting to weaponize supply chains, there is the other side of this debate. Is China actually helping to develop the underdeveloped and developing countries of the world?
Or China Developing The Underdeveloped?
China is also pursuing a buildout of fourth-generation nuclear power plants, in a move that will place them years ahead of the United States who are hindered by cost and scheduling overruns seen in Vogtle Units 3 and 4. It’s reported that China wishes to be active in nuclear fusion by 2040! They are also a big player in the solar market. These moves in the energy market will provide China with a diverse energy sector that is vital to protect against periods of intermittency. No transition can occur overnight, and baseload sources are required. China understands this. Any excess energy could benefit nations surrounding China via exports.
Energy is the biggest necessity. Our lives function every day due to energy, often in wats we take for granted. The light turns on, we can cook our food, drive our vehicles, and make coffee, all because of energy. This brings into question the future of our necessities. Can one state weaponise necessities?
Regarding China, the potential negative scenarios are often portrayed through superpower competition with the United States. What if this isn’t China’s aim at all? What if China is providing the opportunity for billions of people around the world to live a better quality of life and to pull themselves out of poverty? What if China is set on giving the underdeveloped and developing world a chance?
Hence arises the Belt and Road Initiative. Modelled on China’s Ancient Silk Road, the initiative involves a web of supply chain nodes and pathways that stretch as far as Western Europe. China provides key infrastructure such as railways, ports, and roads which boost trade potential and connectivity. This is an approach that many underdeveloped countries hope could break the cycle that sees them advance very little before setbacks such as civil war or lack of capital set them back further. Often, countries return to the IMF, and the cycles begins once again. China is giving them a different approach through projects such as Mozambique’s Maputo-Katembe bridge and Algeria’s Cherchell Ring Expressway Project, among countless others.
In response to China’s approach to the land-based spread of influence through BRI, some countries have retorted that this is China’s attempt to enforce unsustainable debt terms on countries that can’t afford it, thus leading to economic dependence on China. However, from the point of view of these countries, the cycle needs breaking and a different strategy adopted. It’s also worth exploring how much China has loaned out via the BRI, and how much has been repaid. Many countries can’t afford the loan repayments, and so China could well find itself at a loss. China does often pursue debt restructuring or debt relief, however, as they have in Africa. It’s worth noting this is stated as relief, not forgiveness. As part of a project in Sri Lanka, the Hambantota International Port, debt repayment for Sri Lanka became difficult. A conglomerate from Hong Kong, China Merchants Port, eventually attained a 70% stake in the port and a 99-year lease. This gives China a node in the Indian Ocean, which is a geopolitical advantage. China might not get financial repayment, but it will gain an advantage from its Belt and Road Initiative projects.
The same strategy also allows China nodes of influence to spread around the world further, be it through factories such as BYD’s factory in Hungary, or military bases like the one in Djibouti. The United States has promoted a world order of ocean power, enforced through naval strength and global troop deployment. This gives the United States nodes of maritime influence, surveillance, and control around the world. Nobody can rival the United States in naval strength, so China prioritises pursuing land-based trade and connectivity. The United States is leaps and bounds ahead navally, but China is attempting to mount a challenge from the land.
Our world is always expanding. Of course, the oceans and land are important and will continue to be. But, whoever possesses the high ground surveils all below. The next high ground is space, hence why the superpowers are embroiled in a new space race. Who holds the high ground and can best navigate the field of play below, that being the land and the oceans.
A rush to the moon and beyond for resources and influence will strongly determine the next chapter of the new space race, and a new realm to navigate in geopolitics.
Other trends in innovation include the small chips we call semiconductors that are in many products we utilize on a daily basis. Quantum is also a deeply interesting industry. As quantum computers grow in number of qubits, we will reach the limit where RSA cryptography will be broken with ease. Hence, we’re in a race to create new data encryption methods.
A final area currently taking centre stage in innovation is artificial intelligence. More on this next week.
Concluding Remarks
Trade, supply chains, and connectivity and key issues currently at the forefront of geopolitics. As I discussed in the introduction, perception is important. Geopolitical competitors could see China’s rise as too confrontational, whereas China could see it as its right to technological development and innovation. How this affects the world around us will be impacted by US-China superpower dynamics and the interaction between the players.
Next week, I’ll explore China’s pursuit of artificial intelligence and how this will impact the wider world of geopolitics.
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