A 100 yuan bill.
-Analysis-
BUENOS AIRES — Mired in a persistent crisis of growth, the world may be moving toward two unnerving scenarios. One is that the West, and especially the United States, may have resigned itself to China absorbing Russia into its orbit on the back of the Ukraine war. A less dramatic version would be the consolidation of an Eastern front, characterized nonetheless by a strategic divide between those two powers.
The other, more disturbing possibility is of two fronts already decided on the need to eliminate, rather than interact with, the competition.
This could explain the United States' constant ratcheting up of protectionist measures against China, no matter what these measures are called by the White House. The Biden administration recently moved to curb Chinese access to sophisticated chips (with an order restricting U.S. investments in China in that sector), even as banking institutions like Goldman Sachs are advising businesses to disinvest in China — and fast. The pretext given for such moves is national security, as Treasury Secretary Janet Yellen observed on a recent visit to Beijing.
Yellen insists the United States is not trying to obstruct China's commercial development, but block those developments that could harm U.S. national security. Whatever the labels, the United States does want to dampen communist China's technological development, seeing as its ambition is nothing less than global primacy by the middle of the century or before.
The U.S. is presently targeting all high-tech products and components that may have military applications or give China a cutting edge, and pressuring allies in Europe and Asia to adopt a similar approach, even if the EU is reluctant to follow suit.
Chinese problems
Regardless of Western measures, China isn't doing well at present. Like the West, it is affected by a global economy shrinking for multiple reasons including the 2020 pandemic, subsequent anti-inflationary measures, a recession cycle that seemed to predate the pandemic, and, to a lesser extent, the Ukraine war.
Perhaps a graver factor compounding China's problems is the autocratic tendencies taking shape under its president, Xi Jinping. A former Chinese prime minister, Li Keqiang, was one of those in the Chinese leadership who foresaw the global contraction and urged moving closer to the West instead of tying China to the Russian president's violent adventurism. Siding with Putin might have to be paid for in trade, he warned.
The dissent is part of the muted reaction among Chinese leaders to Xi's abandonment of the liberalizing policies that began under Deng Xiaoping, and which unleashed Chinese enterprise on numerous fronts. Xi — who likes to dress like Deng's nemesis and the founder of communist China, Mao — has reestablished the state's dominant role in the economy and practically every area of life in China.
His draconian policies to stamp out COVID-19 harmed China's manufacturing capabilities, and while growth resumed with the end of confinement, it barely grew in the April-to-June period compared to the first three months of 2023.
A commercial divorce
After three years of unremitting pandemic restrictions, the country now faces a confluence of negative trends including a property sector slump, ballooning debts (with state debts valued at around U.S. $18 trillion for 2020), incipient deflation, and a threatened liquidity crunch if people stop spending. Experts believe state-sector debts would make it very difficult to spend on public works as a classic tool of economic revival. Indeed, China's debt pit today is partly the legacy of the last stimulus packet from 2009.
Less is being consumed, less being made and less sold.
Amid declining trade worldwide, global financial agencies want the world's two big powers to find some form of agreement to revive trade flows. Treasury Secretary Yellen believes a commercial divorce between East and West would prove disastrous to the world's economy. And yet the divorce is happening.
Rate increases in Western states have duly dampened consumer demand, which explains a reduction in imports in both the United States and China (on the back of a steady drop in Chinese exports).
Less is being consumed, less being made and less sold. This isn't good news for the Global South. This is the part of the world that is generally badly governed and, bar exceptions, has seen revenues fall following the pandemic and now a capital drain thanks to rate hikes in the West. The situation constitutes a double threat to these regions, with less growth in developing or underdeveloped countries, and aggravated financial risks that discourage the investments needed to turn the tide.
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