The Chinese Power Play: Development or Domination?

The Perception Of Chinese Development

Contents

1. Introduction

2. China Weaponising Supply Chains

3. Or China Developing The World?

4. Concluding Remarks

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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.

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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?

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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.

Photo by zhang kaiyv on Unsplash

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?