(These are the unpublished, uncorrected page proofs of this article that has been published online and will be part of the forthcoming issue of the Journal of Contemporary Asia. For the published piece, the link is: https://doi.org/10.1080/00472336.2023.2199760)
Two unconnected crises in the 1970s, a crisis of profitability of global capitalism and a deep crisis of political legitimacy in China, led to creation of a formidable alliance between corporate/financial-led US capital and the Chinese state that sought to resolve both crises by opening China for corporate exploitation. The solution, however, masked different objectives. Transnational corporations moved to China in search of cheap labour to counter falling profits and Beijing sought to use foreign capital to develop the Chinese economy and gain access to technology. Over time China’s interests and those of the USA diverged, as US deindustrialisation became the obverse of China’s dynamic industrialisation. Factions within the US elite began to promote a different approach towards China than that of alliance and accommodation and were able to grab the upper hand during Donald Trump’s presidency, advocating an aggressive approach towards China. This posture consolidated under the Biden administration. These developments set up a struggle for hegemony to which China and the USA bring differing advantages and disadvantages. While a hegemonic transition is one possible outcome of this conflict, the possibility of a hegemonic stalemate or hegemonic vacuum cannot be discounted.
At the beginning of the third decade of the twenty-first century, China was the world’s second biggest economy.[1] It had also become the centre of global capital accumulation or, in the popular image, the “locomotive of the world economy,” accounting for 28% of all growth worldwide in the five years from 2013 to 2018, more than twice the share of the USA, according to the International Monetary Fund (IMF) (Reuters, November 5, 2019).
So dependent on China’s economy had the global economy become that The Economist (May 26, 2022), the free market mouthpiece that has consistently criticised the Communist Party’s economic policies, acknowledged that “over the past 20 years China has been the biggest and most reliable source of growth in the world economy,” and warned that slower and “less predictable growth” brought about by President Xi Jin Ping’s priorities, like his “Zero COVID” strategy, would have “big consequences for it and the world.”
True, China’s growth rate was down to 3% per annum in 2022, compared to the pre-COVID figure of 6%, but this was mainly owing to Beijing’s Zero COVID strategy, which saw prolonged lockdowns in Shanghai and other cities. There was, however, an expectation that growth would return to pre-crisis levels after restrictions were loosened.
As for the US economy, most economists, including those at the IMF, agree that the US economy suffers from stagnation. Where there is disagreement is whether it is demandside or supply-side factors that are principally responsible. This stagnation has persisted since the 2008 Wall Street crisis.
But beyond economics, many saw Beijing making a bid for global political and ideological leadership, and this was especially evident in the first year of Donald Trump’s presidency, when the USA appeared to be abandoning its traditional leadership role. The triumphalism was, however, short-lived as Trump, followed by President Joe Biden, steered the USA to a wide-ranging confrontation with Beijing. Beijing has struck a more sombre note in the last few years, with one China watcher observing that the country’s leadership “feels more insecure than it has since 1968–69, when a major war with the Soviet Union threatened” (Khan 2018, 7). This article seeks to explain why the relationship between the USA and China has turned from a glowing economic partnership to a bitter rivalry. It roots this transformation in the unravelling of the original deal or “devil’s bargain” between the US corporate class and Beijing. The key element of that bargain was that in return for giving the transnational corporations access to cheap labour and the Chinese market to counteract the decline in their rate of profit, the Chinese would use foreign capital to comprehensively develop China’s economy and gain access to the advanced technology through investment by transnational corporations (TNCs).
The article: (i) elucidates the context and key elements of this basic deal; (ii) traces how it resulted in US deindustrialisation and interacted with other negative trends such as financialisation, racial polarisation, and ideological conflict so as to create “crises of decline” in the USA, even as it led to dynamic, if unbalanced, growth in China; and (iii) concludes by showing how the perception of the USA’s decline and acting on it sparked a bid for global leadership by China that finally roused Washington to an aggressive response that effectively ended the USA-China partnership.
Crisis of Profitability in the USA
This narrative begins in the early 1970s, with two concurrent but unconnected crises: a severe crisis of profitability in the US economy and a crisis of political legitimacy in China.
In the mid-1970s, the so-called trente glorieuses or 30 golden years of USA-led global capitalism came to an end, with a coincidence of stagnation and inflation that came to be known as stagflation. What the central cause of stagflation was continues to be debated, with the likely chain of events being more intense competition globally, leading to overcapacity, indicating an “over-accumulation of capital,” and resulting in “cost-push” inflation, as Big Capital and Big Labour engaged in a contest of strength, with one side deploying price increases to overcome the advantage of the other’s wage gains via union power, to maintain or increase their respective shares of decreasing rates of profit. What was indisputable was that there was a sharp decline in the rate of profit, from around 14% in 1963 to 6% in the early 1980s (Shaik 2016, 66).
Economists who broke with the reigning Keynesian consensus saw the progressive, New Deal constraints on corporate profitability as the central cause of stagflation, and they developed a counter-narrative, which became known as neo-liberalism. Their main objective was to bring about reverse income redistribution, that is, to radically raise the rate of profit by halting real wage growth, cutting transfer payments from the rich to social security programmes for workers, and destroying the political power of labour.
Income redistribution also included lowering the marginal tax rate on the highest incomes from 91% in 1950–1963 to 39.6% in 1987–2002 (Pethokoukis 2012). One result was a decline in the share of wages in national income from close to 60% in 1977 to around 55% in 2011 (Shaikh 2016, 664).
The neo-liberal response to the crisis of profitability also included financialisation, or channelling much investment to finance, where the return was much higher than in other sectors of the economy. Financialisation resulted in a situation where the financial sector (appropriately named “FIRE” – finance, insurance, and real estate) accounted for only 8% of US gross domestic product but raked in 30% of total profits, with some analysts estimating as much as 50% (Noahpinion 2013).
Another response was intensified globalisation, a key thrust of which was shifting manufacturing operations to places where capital could extract much greater value from workers who could be hired at much lower wages than in the USA. Among these three principal ways of shoring up the rate of profit, globalisation of the productive process, or the marriage of capital with labour not located in the US industrial heartland, appears to have been the most decisive, and here China became a central actor.
Crisis of Legitimacy in China
Compared to the dazzling growth of its East Asian neighbours, China in the 1970s was experiencing modest gains. But its economic performance was related to a much bigger problem. After over 25 years of “line struggles” that had caused tremendous social upheavals, people were exhausted with politics. The Chinese Communist Party (CCP) was experiencing a crisis of legitimacy, and key people in the leadership were seeking an alternative to the Maoist utopianism that had led to the chaos of the Cultural Revolution. When the Cultural Revolution began in early 1965, nothing much appeared to have changed in neighbouring Asia since the communists had come to power in 1949. But by the time it ended in 1976, with Deng Xiaoping’s assumption of power (a second time),
[T]he Japanese miracle had been emulated in South Korea and Taiwan. The sleepy entrepots of Singapore and Hong Kong had become flourishing industrial centers. The rampant East Asian tigers had proved that being part of the old Chinese cultural area, let alone Chinese, need not condemn one to poverty. Yet at the historic heart of the area, China itself now lay spread-eagled, this time by its own hand, not as a result of foreign invasion or conventional civil war (MacFarquhar and Schoenhals 2006, 2).
For the Chinese leaders the message was clear:
[T]hey had to embark upon a policy of rapid economic growth to make up for lost time and to relegitimise CCP rule. They had to abandon Maoist utopianism in favor of building the strong and prosperous nation of which they had dreamed when they joined the nascent CCP in the 1920s. Otherwise the CCP itself might not last. So “practice,” not ideology – not Marxism-Leninism, not Mao Zedong Thought – became the “sole criterion of truth.” If it worked, it would be done (MacFarquhar and Schoenhals 2006, 2).
The twice-purged Deng assumed the mantle of leadership of a Chinese socialism that was at a critical crossroads by asserting the priority of facts over established theory. In this, Deng might be regarded as the socialist equivalent of Keynes, whose break with classical capitalist economics was reportedly justified with the words, “When the facts change, I change my mind.”
Two Crises, One Solution
The post-World War II New Deal and Social Democratic-inspired restrictions on the free flow of capital at home, and nationalist laws on portfolio and direct investment in developing countries, discouraged capital from the centre economies from moving aggressively abroad in search of cheap labour in the 1960s. But the crisis of the Keynesian economy and ideology that had promoted social compromise in a national context led to the erosion of Big Labour’s power to constrain Big Capital’s determination to liberalise portfolio capital and direct investment flows.
The “runaway shop” phenomenon began in the 1970s, with transnational corporations setting up operations to exploit cheap labour in the largely non-unionised American South and in developing economies like Mexico, Central America, South Korea, Malaysia, the Philippines, and Thailand. The supply of cheap labour available for TNC’s in these economies was not insignificant, but the entry of China with its vast reserves into the global labour market in the late 1980s was of a different order altogether.
China was a massive non-capitalist enclave sealed off politically and economically from global capitalism from 1949 to the late 1970s. The focus on egalitarian income distribution and on building a social infrastructure apparently did not conflict with the achievement of not insubstantial GDP growth. Angus Maddison, regarded as the authority on comparative historical statistics, estimated China’s average annual GDP growth rate between 1950 and 1976 at 4.7%, compared to 4.5% for Western Europe, 4.6% for East and South Asia, and 4.7% for the world (cited in Li 2008, 29). By the end of the Mao era, as economist Ho-Fung Hung (2017, 50) points out, “China was already endowed with a network of state industries and infrastructure; a large, educated, and healthy labor force; and a state autonomous from foreign governments and international financial institutions.” This achievement is usually overshadowed by the social and political crises that accompanied intense “line struggles” during the time of the Great Leap Forward to the Cultural Revolution. But it “laid the foundation for the success of the subsequent market reform” (Hung 2017, 50).
Be that as it may, China began moving away from socialist priorities towards a guarded embrace of market incentives after Mao’s death in 1976. They were tried first in the countryside, and when these promoted quickening growth, the focus shifted, in 1984, to subjecting state enterprises to market reform, and then, in the late 1980s and early 1990s, to opening the country to international market forces and foreign investment. These initiatives were marked by Deng’s precarious balancing act, which was to embrace the market while not embracing Western-style capitalism. As Vogel (2011, 400) put it,
Westerners and even some Chinese critics claimed that Deng was experimenting with capitalism without using the name, but that is not how Deng saw it. He was determined to expand markets and he personally had no objections to private enterprise; he accepted competition as a driving force in commerce. But he aimed as well to keep the Chinese Communist Party firmly in control, to constrain the markets to ensure that they served public purposes, to prevent capitalists from dominating Chinese politics, to retain public ownership of land, to keep a large role for stateowned enterprises, and to maintain state economic planning.
Deng was not about to abandon the gains of the Chinese Revolution. He was groping for a system that would harness the dynamism of the market to bring about shared prosperity, even if this meant the emergence of inequality and many other negative features of capitalism in the short term. Deng eventually described what he was after as “socialism with Chinese characteristics.” This was a term that would obfuscate more than clarify the political economy that would be fully formed under his successors, which was a dynamic state-directed capitalism.
Birth of the China-TNC Partnership
There is a school of thought that heaps the blame for the woes of US labour on China (see, for example, Klein and Pettis 2020). What these economists forget is that US TNCs played an active, central role in creating the Chinese economic dragon. As pointed out above, TNCs had begun moving industrial processes in earnest to cheap labour areas in the mid-1970s. From their perspective, China in the late 1980s was merely their latest potential pawn in their struggle with US labour. But as they witnessed adventurous Overseas Chinese enterprises from Hong Kong, Taiwan, and Southeast Asia begin to invest in Southeastern China and reap huge profits from cheap mainland Chinese labour, US corporations saw the momentous implications of China’s trade and investment opening for their problem of declining profits.
First, in China there was a large labour pool, previously un-integrated into capitalism, which was starting from a very low wage base and was relatively sealed off from immediate market pressures for wage increases, and whose mere existence and size could exert significant downward pressure on global wage rates in manufacturing. In the first decade of the twenty-first century, China was to release no less than 121 million new workers into its manufacturing and service sectors (McKinsey Global Institute 2012, 6).
Second, China had a large reservoir of rural labour that, via migration, would serve as an internal check on wage rates in the cities (McKinsey Global Institute 2012, 6). In the 2000s, more than 80 million rural people went to the cities to fill urban jobs. As Hung (2017, 69) points out, “one indispensable fuel for China’s export-oriented success has been the protracted low-wage labor released from the countryside since the mid-1990’s” (Hung 2017, 69).
Looking back, one cannot overstate the importance of the fact that in slightly over 30 years, China not only served as a lifesaver for global capitalism but became its most dynamic force. As Chun (2018) put it: “by fuelling global capitalism with its enormous workforce and vast market for capitalist expansion and financialization, China actually helped extend and sustain the global capitalist system.” Beginning in the early 1990s US TNCs moved into China in force, establishing either subsidiaries or sub-contracting arrangements with small and medium Chinese suppliers, determined to enter the huge mainland market and access cheap labour for export-oriented production.
China did not disappoint. In the early 2000s, the hourly manufacturing wage there was less than 5% of that in the US (Li 2008, 108). Investment in China, along with neo-liberal restructuring and financialisation at home, contributed to halting the precipitous decline of profitability, with profit rates for US corporations climbing from a post-war nadir of 6% in the early 1980s to close to 9% in the early to mid-2000s (Shaik 2016, 66). What TNC executives came to call enthusiastically the “China price” made a major difference to the corporate bottom line, and from $30 to $40 billion a year in the mid-1990s, the stock of US investment in China had climbed to $107.6 billion by 2019 (USTR 2019).
Nor did the transnational corporations disappoint China. While investment directed at production for local consumption accounted for the bulk of total investment, investment from abroad for production for export was a decisive element in China’s capital accumulation. Foreign direct investment (FDI) played a much larger role in the capitalist industrialisation of China compared not only to Europe and the USA, but also to its East Asian neighbours. From 1985 to 2005 annual FDI in China is reported to have averaged nearly 3% of GDP, a fairly large figure, whereas during their high-growth eras, Taiwan and South Korea each had FDI inflows of only about 0.5% of GDP, and Japan less than 0.1% (Kroeber 2016, 52–53). Whereas almost all exports from South Korea, Taiwan, and Japan were accounted for by domestic firms, in the case of China, since the early 1990s, foreign firms have accounted for a third or more of all exports (Kroeber 2016, 53). When it comes to high-tech products, the situation is even more lopsided, with foreign firms accounting for around three-quarters of exports – with the figure reaching 90% of the exports of computers, components, and peripherals (Kroeber 2016; Panitch and Gindin 2013, 297).
Not surprisingly, US big business soon became China’s closest foreign ally. During President Clinton’s administration, US big business lobbying overcame a powerful array of motley forces composed of traditional right-wing elements linked to Taiwan, human rights advocates in the Democratic Party, and a Pentagon that was increasingly convinced that China would be the USA’s principal strategic competitor. As one of the most authoritative accounts of the development of USA-China economic relations described the situation:
The Clinton team was prodded by business lobbyists who had long been pressing the administration and Congress to help China with its WTO bid. In the mid-1990s, Boeing formed what it called “the Rump Group” of ten major US exporters, including AT&T, AIG, Chrysler, and General Electric to push a “normalisation initiative” for improved economic relations between the United States and China. Boeing would put up $2 million in seed money for a lobbying campaign that would spend far more in the years ahead. The group flooded US negotiators with information about Chinese markets and the trade barriers they wanted dismantled as part of a “commercially meaningful agreement” for China’s entry into the WTO (Davis and Wei 2020, 70).
The corporate lobby not only secured the passage of the Permanent Normal Trading Relations Act, “normalising” relations with China under Clinton, it was also able to muster Washington’s strong support for China’s entry into the World Trade Organisation (WTO) in 2001. China fulfilled most of its WTO commitments on time, and foreign businesses immediately benefited from the measures that followed China’s accession, so that by 2003, “roughly 70 per cent of U.S. firms surveyed in China reported that Chinese domestic reforms had improved their business climate ‘to a great extent’ or ‘to a very great extent’” (Tan 2021).
Corporate USA’s support for strong trade and investment ties with China would remain strong through succeeding administrations until the Trump presidency. This is not to say that there were no second thoughts or dissenting actions among some corporate players before Trump, owing to concerns about forced transfers of advanced technologies.[2] But in terms of a decisive turn in the TNC-China alliance, this did not take place until Trump came to power in 2017, as will be discussed later.
While the China-USA TNC partnership was based on mutual interest, their strategic goals were different. The TNCs were out to exploit Chinese labour for super profits. China offered its manufacturing labour force for exploitation, but its goal was to gain the investment and technology needed to comprehensively develop the economy. As Leo Panitch and Sam Gindin pointed out, in pursuit of its strategic goal the Chinese leadership used foreign investment as a substitute for a domestic capitalist class. Indeed, in the halcyon years of the first decade of the twentieth century, they favoured foreign over domestic capital, this preference being “expressed in various ways, including the tax system, subsidies, trade regulations, and access to finance” (Panitch and Gindin 2013, 296).
These favours bestowed on foreign investors were, however, not without a quid pro quo, and that was the transfer of advanced technology. Indeed, as one study noted: “Transfer of technology was the pinnacle of Deng’s agenda from the outset.” The China “he had dreamed of was a country that would be producing cutting-edge technology,” and he “firmly believed that unless China was on the technological frontier, the whole transformation endeavor would end up in failure” (Mavroidis and Sapir 2021, 90).
At some point in the future, however, when China would have built up its industries and begun a self-sustaining process of developing advanced technology, the common interest that originally propped up the alliance would be superseded. Beijing, however, had seen this divergence from the very beginning, but was confident of being able to manage foreign capital precisely because it was, to a degree not paralleled by any other country, independent of foreign capital and its main protector, the US government.
What the TNCs and policy and political leaders in Washington failed to appreciate at the outset, seduced as they were by the prospects of super-cheap labour, was that the Chinese state was not like previous client regimes that had been integrated into global capitalism. The Chinese state was the product of a nearly three-decade-long successful popular national revolution and had gone on to stop US forces in Korea in the 1950s, and to play a decisive role in assisting the Vietnamese to win their war against the Americans. The Chinese state was far stronger than even the South Korean and Japanese states, whose capacity to resist US economic and political demands was limited by their structural subordination to the US state, as a protectorate in the case of South Korea, and a defeated and occupied rival state in the case of Japan.
The cost of China’s willingness to have its workers exploited was considerable. A recent estimate shows that for the period 1960–2018, among developing countries, China suffered the greatest loss in terms of value transfer – or unequal exchange – the figure coming to some $19 trillion (Hickel, Sullivan, and Zoomkawala 2021). But from the CCP’s perspective, the cost in the short and medium term of allowing global capital to exploit China’s labour in return for comprehensive development of the economy – and securing its own legitimacy in the process – was a devil’s bargain that had been worth making. Moreover, by the end of the second decade of the twenty-first century, the relative power of China’s foreign corporate allies had been reduced by a decade-long stagnation in the US economy followed by a COVID-19 recession, and by China’s technological advances (although there were sectors where US technology companies remained important).
Transnational capital was also conscious that they also were entering a devil’s bargain and that it was a bargain they could not ignore if they were to improve their bottom lines. As former US Treasury Secretary Hank Paulson (2018) put it, many US firms “accepted the Faustian bargain of maximising today’s earnings per share while operating under restrictions that jeopardise their future competitiveness.” The Chinese leadership’s bargaining points were cheap labour and a huge market. Like the TNCs, it was simply acting in hard-nosed capitalist fashion in making technology transfer a conditio sine qua non for entering China.
The Chinese Moment and What Produced It
In the interval, the alliance between corporate USA and China’s communist party elite made possible the swiftest rise in history of a nation-state from a marginal status in the global capitalist economy to near its top.
Several conditions external to China facilitated this phenomenal ascent. First was the fact that China appeared on the scene as the provider of the cheapest accessible labour in the world at a time when the US corporate elite was tearing up its informal social contract with labour that had prevailed during the so-called “golden years” from the late 1940s to the late 1970s.
Second, China’s emergence as an export-led industrial power coincided with the TNCs perfecting of a revolutionary way of dispersing the different phases of production according to the complementary logics of labour cost reduction, locational advantage, and fiscal advantage, to gain maximum profitability, a process that came to be known as the “value chain.” A key innovation here was the development of containerised shipping, which transformed cargo operations into a swift and efficient roll-on/roll off process (Klein and Pettis 2020, 25).
Third, contrary to expectations that peripheral economies like China would be limited to providing cheap labour while the centre economies would monopolise knowledge intensive activities, high-tech offshoring followed manufacturing offshoring. The information technology that facilitated the latter could not be monopolised but had to be shared if it was to be effectively deployed. Baldwin (2016, 79–112) says that China was smart enough to capitalise on its having joined the capitalist world economy at the time that what he calls globalisation’s “second unbundling” was taking place, that is when the productive process was being broken up into a value chain, and the technology facilitating this was being dispersed. As Milanovic (2019, 152) pointed out, this has resulted in “innovation rents, received by the leaders of the new technologies … being dissipated away from the center.” While Baldwin and Milanovic appear to view this process as inevitable, the fact is, in the case of China, this diffusion was facilitated by policies of forced technology transfer imposed by the Chinese state. US corporations bristled at this and many brought their complaints to US courts (Hung 2022, 34–39). However, for most, compliance was the condition of their access to super-cheap Chinese labour.
Fourth, China benefited from the reduction of tariffs and elimination of quotas that came with the establishment of the WTO and China’s 2001 accession. While US free trade ideologues and trade technocrats had promoted the WTO in the belief that the USA, being the world’s most competitive economy, would gain most, it was actually China that proved to be its greatest beneficiary. Among other things, it meant that China did not have to struggle for markets with the force of arms or coercion, which all other previous rising capitalist powers had had to employ. With uninhibited access to 163 foreign markets, Chinese exports grew by 30% between 2001 and 2006, and their value rose from $266 billion in 2001 to $2.5 trillion in 2015 (Mavroidis and Sapir 2021, 29–30).
A Capitalist Power Sui Generis
There was no doubt that even as Chinese leaders continued to describe China’s political economy with variants of Deng’s construct of “Socialism with Chinese Characteristics,” by the end of the second decade of the twenty-first century, China was a capitalist country.[3] The market relations that had been experimentally initiated in the countryside in the late 1970s, and spread to the cities in the 1980s, had become the dominant economic relations. Non-strategic sectors of the economy, which meant most of the economy, had been privatised and were marked by intense competition. While market signals stemming from local consumer demand and global demand became the dominant determinant of resource allocation, the hand of the state did not disappear, although it became “smarter.” While departing from central planning, the state did not follow the Northeast Asian developmentalist model that restricted, if not banned, foreign investment in the domestic market. In the non-strategic sectors competition opened to state-owned enterprises (SOEs), private businesses, and foreign investors, with regulation devolved to local authorities. In contrast, in strategic sectors considered important to national security, national interest, or overall “national competitiveness,” large-scale foreign investment was managed in ways that enabled the state “to transfer foreign technology, increase the national technology base, encourage indigenous technology and production capacity, and promote domestic business” (Hsueh 2011, 3–4). In other words, foreign investors were allowed to exploit China’s labour and market, and market forces reigned in most sectors of the economy, but in strategic, cutting-edge technologies, the TNCs were required to turn these over, either to Chinese private firms or to state enterprises. That was the quid pro quo, and most TNCs agreed, if reluctantly, allowing the prospects of short-term profits to override the risk that they were agreeing to terms that could make them unnecessary to China in the long term.
Given the massive pullback of the state from large swathes of the economy, it is understandable that China’s political economy has been described by Harvey (2007, Ch. 5) as “neoliberal with Chinese characteristics.” But this obscures the essence of the Chinese strategy: allowing short-term exploitation of its labour and domestic market in return for rapid, comprehensive development, and technology transfers, the terms of which were enforced by a strong state beholden to no imperial power or foreign corporate class. Labels derived from previous experiences of capital accumulation do not adequately capture the uniqueness of the Chinese experience. Metaphors derived from military strategy are perhaps more useful: one can compare the Chinese party-state to a military general trading space (in this case, short-term super-exploitation of labour) for time (acquisition of technology) to build up the capacity for a counter-offensive (comprehensive development).
Unbalanced Capitalist Development
Like its East Asian neighbours whose route it followed as a fast-growing export-oriented economy, China’s breakneck capitalist development has been marked by severe imbalances. For one, regional disparities have increased, as authorities prioritised the development of coastal regions in order take advantage of seaborne global trade. Also, China’s industrialisation became synonymous with environmental degradation. Economists have estimated that environmental pollution cost the Chinese economy the equivalent of 3–10% of GDP owing to workdays missed, crops lost to pollution and contamination, a decline in tourism, and other problems. A recently published retrospective analysis by the Chinese Academy of Sciences placed the figure higher, at 13.5% of GDP in 2005 (cited in Economy 2018, 158).
China’s breakneck capitalist growth, relying on cheap labour, has had two contradictory effects on the socio-economic conditions of its people. On the one hand, the proportion of people living in extreme poverty declined from almost 92% in 1981 to 0.14% in 2019 (Hasell et al. 2022). At the same time, however, China has gone from one of the world’s most egalitarian societies during the Mao period to one of the world’s most unequal. Research shows that in the period 1988–2008, income inequality rose far more rapidly than in any other region in the world (cited in Kroeber 2016, 197). Estimates of China’s Gini Index range from 0.47, the government’s estimate, to 0.55 (Kroeber 2016, 197). As Kroeber (2016, 197) notes: “If we accept the government’s figure, China’s income inequality is substantially greater than all developed countries. More important, it is much greater than in the successful East Asian economies it emulates (Japan, South Korea, and Taiwan) or even India – a country long infamous for its extremes of wealth and poverty.”
Class-related inequality has recently been joined by gender-related inequality as a great source of concern. Ironically, as China has become more prosperous, the gap between women’s incomes and economic status and those of men has increased. With the headlong rush towards capitalism, the earnings of women went down from 80% of those of men at the start of the reform era to 67% in the cities and 56% in the countryside by the late 2010s (The New York Times, July 16, 2019).
China also has an over-capacity problem, especially in heavy industry but also in many medium industries. Before COVID-19, there had been significant over-capacity in several industries, leading to practically flat prices and causing some analysts to say that China was suffering from “industrial deflation” (Wall Street Journal, January 10, 2019). Since China accounted for a great part of global production and trade in heavy goods, its surpluses brought down global prices, contributing to global deflationary pressures in the capital goods sector before the pandemic, when severe disruption of supply chains and trade over two years caused an upward trend in prices.
Over-capacity is a symptom of over-accumulation, and it is a product of the Chinese way of capitalism. Specifically, it is due to excessive investment. Repression of consumption was a policy dictated by the need to channel people’s savings towards the industrial export sector. Excessive investment stemmed from the decentralised economic strategy where local areas were given a great deal of autonomy in investment decisions. Many local authorities, says Hung (2016, 155), act “developmentally,” that is, they pick industrial “winners” and act proactively to set these up at the local level. The totality of these efforts, however:
creates anarchic competition among localities, resulting in uncoordinated construction of redundant production capacity and infrastructure. Foreign investors, with the expectation that the domestic and world market for Chinese products will grow incessantly, also race with one another to expand their industrial capacity in China.
Over-capacity is not a recent problem. As early as the 2000s, more than 75% of thecountry’s industries were suffering from over-capacity, and fixed asset investment in industries already experiencing over-investment accounted for 40–50% of China’s GDP growth (Hung 2016, 155). The situation has worsened, with state media reporting 21 industries suffering from “serious” over-capacity, a list that includes cement, aluminium, shipbuilding, steel, power generation, solar panels, wind turbines, construction machinery, chemicals, textiles, paper, glass, shipping, oil refining, and heavy engineering (McMahon 2018, 43).
To solve the over-capacity problem, state authorities have tried to shut down the less efficient enterprises and “rationalise” the remainder. This is, however, easier said than done, because officials fear provoking worker unrest, since the ability to maintain social stability is a key justification used by the CCP for its continued political dominance. Moreover, closures may be demanded by the centre but it is the local authorities that have to deal with the consequences, and so the response is often to dig in their heels. Over time, alliances of local officials and enterprise managers have evolved strategies of keeping “zombie” enterprises alive, subsidising them, incessantly borrowing from state banks to keep them going while staving off demands for repayment, engaging in “internal protectionism,” or keeping out-competing products from other localities (McMahon 2018, 43).
Keeping “zombies” (which are mainly SOEs) alive has been extremely costly. Overcapacity brings down prices, bringing down profits throughout an industry. Indebtedness becomes a permanent condition, so that one can speak of a permanent line of credit to banks which is never repaid. Calculations of the levels of debt of the public and private corporate sector in China are few, but according to the consulting firm McKinsey, China’s companies went from owing $3.4 trillion in 2007 to $12.5 trillion in mid-2014, “a faster buildup of debt than in any other country in modern times” (cited in McMahon 2018, 31).
Such massive indebtedness, mainly to state banks, is often depicted as posing a serious threat to the economy. But China is no ordinary capitalist economy. Under normal capitalism, when loans are non-performing, the banks come calling on the debtor and either collect or force them into bankruptcy. But in China, the fact that SOEs and banks are owned by the government places the day of reckoning far into the future. As McMahon (2018, 32–33) writes: “The real advantage of China’s system of state ownership isn’t that the cleanup is easier than in market economies; it’s that the clean-up is easier to put off, something that it can do indefinitely but not forever.” Moreover, social stability is considered by the authorities as a public good, the value of which outstrips, in their calculation, the cost of rising indebtedness.
In addition to these problems, is China’s continued dependence on the West for many advanced technologies, despite the fact that, as Chun (2018, 157) observes, the “government has repeatedly pledged to ‘rebalance’ and move China up the value chain.” However, US corporations have become increasingly resentful of what they call “forced technology transfer,” and they have pressed Washington to take steps to prevent it. The subject of forced technology transfer has been marked by acrimonious debate, with China stoutly denying it is taking place. Like China, many developing countries engage in such a market for technology practices and deny they are coercive. Nevertheless, as one legal expert who has followed the issue asserts,
“[U]nder pressure from the US, China has gradually amended some laws and regulations addressing forced technology transfers …” (Lee 2020).
Having posed these caveats, China’s technological dynamism cannot be denied. L. Rafael Reif (2018), president of the Massachusetts Institute of Technology, has asserted that “… China has unrivaled capacity to rapidly ramp up large-scale production of advanced technology products and quickly bring innovation to market,” warning that without an effective US response, “in fields from personal communications to business, health and security, China is likely to become the world’s most advanced technological nation and the source of the most cutting-edge technological products in not much more than a decade.”
It is not only in the application of science to technology that China is surging but in basic scientific research. Studies confirm that in basic research China is catching up in both quality and quantity with the USA, with one Western study claiming that comparative data across disciplines showed that in 2019, 1.67% of scientific articles with Chinese authors were in the top 1% of the most-cited articles, compared to 1.62% of articles with US authors (South China Morning Post, March 12, 2022). An example is quantum technology where one report notes that “to the dismay of some scientists and officials in the United States, China’s formidable investment is helping it catch up with Western research in the field and, in a few areas, pull ahead” (Washington Post, August 18, 2019).
Crises of Growth in China
Along with its advances, China faces the mounting problems already mentioned: surplus capacity, the environmental crisis, and growing inequality. In the longer term, perhaps the greying population will be the greatest threat.
In fact, dislocations created by breakneck industrialisation have triggered mass protests. Before official media stopped publishing statistics on “mass incidents” after 2008, such events went from 10,000 in 1994 to more than 100,000 in 2008 (The Economist, October 4, 2018). Protests range from rural actions against land grabs by local authorities in rural areas, to workers’ strikes and environment-related mobilisations. While repression remains the dominant response to peasant protests, there have also been concessions, such as “people’s centred governance” focused on providing better social welfare benefits and restraining local officials during the Hu Jintao-Wen Jiabao leadership prior to 2013.
In the cities, authorities have been particularly careful and tactical tolerance and concessions have been part of the government response to troubles. In 2018, with the economy slowing, there were 1,700 workers’ actions throughout China protesting mainly against unpaid wages and factory relocations, up from 1,250 in 2017. While there were reports of protesters and activists being arrested, one analyst monitoring workers’ actions said there were “far too many protests to crack down on” and in most cases the police did not get involved (cited in ABC News, February 16, 2019). Moreover, according to labour researchers Hui and Friedman (2018), the government seems to be aware that union reform could stabilise labour relations and has made cautious moves to “strengthen enterprise-level union organisations, along with implementing pilot workplace union elections and collective bargaining.” There has, however, been a pushback under Xi.
Environment-related protests have also been widespread, though most of these apparently have been internet-based. Owing to its large support from the middle class, the government is more sensitive in the area of the environment than in its handling of labour and peasant protests. Civil society organisations and personalities have been allowed space to air grievances, although this is also narrowing under Xi.
The government’s response to protest reflects its nervousness about instability. In fact, the Communist Party is obsessed with stability, which is the reason party and government officials often go to great lengths to ensure that worker discontent does not spill into the streets, by making concessions such as keeping loss-making SOEs on life support. As McMahon (2018, 36) observes, “one protest above a certain size automatically puts an official’s promotion prospects on ice.”
Despite such fears, most protests are single-issue affairs, motivated by concerns about the welfare of local communities or groups. As a rule, protesters do not reach across localities to other groups with “systemic demands.” Interestingly, there are relatively few protests calling attention to conditions of great inequality, as in other countries. There is, of course, fear of repression, like the massacre around Tiananmen Square in 1989. But perhaps equally or more important, as Kroeber (2016, 199) explains, while inequality has grown, incomes have risen even faster. Average per capita income rose between 1988 and 2008 by 229%, ten times the global average of 24% and far ahead of the rates for other developing Asian economies. He adds:
For most of the past three decades, all boats have been rising, and most people pay more attention to their own boat than the boats that have risen higher … They may, in short, have bought into Deng Xiaoping’s motto early in the reform era that “some people and some regions should be allowed to prosper before others.”
These various crises might be said to be “crises of growth” stemming from rapid industrialisation. China cannot avoid crises, because they are manifestations of the unbalanced growth that Hirschman (1958) saw as a necessary feature of rapid capitalist industrial development. As elsewhere, people have responded with protests and mass actions, but few students of China would claim that the ruling regime is undergoing a crisis of legitimacy. There is little challenge to the CCP’s political and ideological hegemony, except from democracy and human rights activists who, brave and exemplary though they may be, are few and far between. The situation is different from the USA, where the crises might be labelled “crises of decline.”
Crises of Decline in the USA
The USA’s crises are directly related to the rise of China. One of the more solid accounts ties the USA’s industrial decline directly to China’s entry into the WTO in 2001:
For American manufacturers, the bad years didn’t begin with the banking crisis of 2008. Indeed, the U.S. manufacturing sector never emerged from the 2001 recession, which coincided with China’s entry into the World Trade Organization. Since 2001, the country has lost 42,400 factories, including 36 percent of factories that employ more than 1,000 workers (which declined from 1,479 to 947), and 38 per cent of factories that employ between 500 and 999 employees (from 3,198 to 1,972) (McCormack 2009).
As McCormack (2009) explains, long before the banking collapse of 2008, key US industries such as “machine tools, consumer electronics, auto parts, appliances, furniture, telecommunications equipment, and many others that had once dominated the global marketplace suffered their own economic collapse.” Employment in manufacturing dropped to 11.7 million in October 2009, a loss of 5.5 million or 32% of all manufacturing jobs since October 2000. The last time fewer than 12 million people worked in the manufacturing sector was before the Second World War, in 1941. In October 2009, there were more people officially unemployed (15.7 million) than were working in manufacturing (McCormack 2009).
Not all deindustrialisation was caused directly by relocation to China. And, not all the manufacturing jobs lost were lost to China. However, relocating to China was a central contributor. Contrary to neo-liberal claims, a landmark study by Autor, Dorn, and Hanson 2016) concluded that in the USA:
adjustment in local labor markets is remarkably slow, with wages and labor-force participation rates remaining depressed and unemployment rates remaining elevated for at least a full decade after the China trade shock commences. Exposed workers experience greater job churning and reduced lifetime income. At the national level, employment has fallen in U.S. industries more exposed to import competition, as expected, but offsetting employment gains in other industries have yet to materialize.
The China Shock is estimated, conservatively, to have led to the loss of 2.4 million US jobs (The New York Times, July 9, 2019). This, in turn, was one of the triggers of the “Trump Shock” – Donald Trump’s election to the presidency in 2016, owing much to his winning key deindustrialised mid-western states. Among other things, Trump campaigned on a platform of aggressively changing the USA-China economic relationship, and in office he was true to his word (see below).
The loss of industries, jobs, and technology to China was not the only cause of the USA’s troubles. Also important was the redistribution of income to the rich through, among other measures, radical tax reform that, as noted earlier, massively reduced the marginal tax rate on the highest incomes along with the financialisation that drove profitability; indeed, it was the over-reach of the speculative economy that triggered the financial implosion of 2008. The globalisation of production, income redistribution in favour of the rich through fiscal reform, and financialisation were the three prongs of the “neoliberal revolution,” the key economic outcome which, by the middle of the second decade of the twenty-first century, was financial implosion, stagnation, and extreme income inequality. Describing the outcome, Piketty (2020, 523) writes,
[I] want to stress that the word “collapse” [in the case of the US] is no exaggeration. The bottom 50 per cent of the income distribution claimed around 20 per cent of national income from 1950 to 1980; but that share has been divided almost in half, falling to just 12 per cent in 2010–2015. The top centile’s share has moved in the opposite direction, from barely 11 per cent to more than 20 per cent.
In broad macro-economic terms, while US GDP grew in the 2012–2022 period, the Great Recession following the Global Financial Crisis, generated, “a large, persistent negative output gap … with the economy eventually recovering to a lower trend path that appears to be due to a reduction in productivity growth that began prior to the onset of the Great Recession” (Eo and Morley 2022, 248). Most analysts agreed that the US economy was in the grip of stagnation, with the key difference being between those such as former Treasury Secretary Larry Summers (2017) who claimed this was due to lack of demand and those who stressed inadequate investment owing to “an increasing scarcity of profitable investments,” as former IMF Deputy Managing Director David Lipton (2016) put it.
In terms of reindustrialisation or “reshoring,” which was an aim of both the Obama and Trump administrations, this “has moved at a snail’s pace,” with the USA not being “able to shift manufacturing back from Asia in a meaningful way” (Debroy 2022). From 2011 to 2021, US imports from China grew at 2.6%. With the onset of the USA-China trade war, US imports declined 16% in 2019 and 3% in 2020, only to recover by 19% in 2021 (Debroy 2022). Also, a 2021 McKinsey study revealed that most businesses that were eager to regionalise their supply chain at the onset of COVID-19 instead ended up increasing their inventory to manage the disruption of global supply chains since it is “quicker to build inventories than factories” (cited in Debroy 2022).
Ideological and Political Polarisation in the USA
Stagnant incomes, worsening income distribution, and a strong sense that the Democrat Party no longer represented their interests, but those of the highly educated and the minorities, opened the white middle and working classes to mobilisation by the far right (Piketty 2020, 812–818). Class anger and racial resentments stoked by racially coded rhetoric expanded and consolidated Trumpism, with its informal ideology of white supremacy, and contributed to Trump gaining 11 million more votes in 2020 than he did in 2016, with some 58% of whites voting for him. This was also the volatile formula that exploded in the January 6, 2021, “insurrection” in Washington. As the philosopher Charles Mills pointed out:
The psyche of white citizens is foundationally shaped not merely by rational expectations of differential social and material advantage, but also by their status positioning above Blacks. For a significant percentage of white Trump supporters (I don’t want to say all), I think the hope was that Trumpism – tapping into their “white racial resentment” – would address and eliminate both of these dangers, the ending of differential white material advantage and also the threatened equalization of racial status … What we saw on January 6 was in significant measure the acting out of the rage at this prospect (cited in Steinmetz-Jenkins 2021).
The USA is today in a state of severe polarisation, if not undeclared civil war, and the reason is not just economic pain caused by neo-liberal policies but intense political polarisation on racial lines and the loss of the glue provided by a common ideology.
Ideological disintegration was accompanied by a deepening of the political divide between a Trump captured Republican Party and Democrats and progressives who seemed bewildered by the swiftness of the mobilisation of the far right. Few would object to characterising US liberal democracy as being in crisis. The dispute would be over how serious the crisis is. In her book How Civil Wars Start, Barbara Walter (2022, 159–160), a prominent academic and member of the Central Intelligence Agency’s (CIA) advisory Political Instability Task Force panel asserts that the USA is farther along the road to civil war than most liberals think:
Where is the United States today? We are a factionalized anocracy [a degenerating democracy] that is quickly approaching the open insurgency stage, which means we are closer to civil war than any of us would like to believe. January 6 was a major announcement by at least some groups … that they are moving toward outright violence … In fact, the attack on the Capitol could very well be the first series of organized attacks in an open insurgency stage. It targeted infrastructure. There were plans to assassinate certain politicians and attempts to coordinate activity.
For Walter and her CIA colleagues, ethnicity has emerged in their global comparative studies as the prime predictor of susceptibility of a society to civil war, and in the USA, armed white radicals are stoking conflict. However, ethnicity by itself does not produce conflict. It needs triggers, and these are the emergence of hegemonic ethnic groupings or “super-factions,” the exacerbation of conflicts by “ethno-nationalist entrepreneurs,” and the frenzied mobilisation of ordinary citizens who feel that only the armed ethnic militias stand between them and those who would destroy them and their world. And to move this process along, social media have become a central weapon of radicalisation. The angry buzz in white nationalist chat rooms these days is the “Great Replacement Theory,” wherein whites are said to be the victims of an ongoing conspiracy hatched by blacks, feminists, LGBTQIAs, migrants, and Democrats to make them a minority and eventually destroy them in a race war.[4]
The failure of a “red tide” or Republican sweep during the 2022 mid-term elections has brought a sigh of relief in liberal quarters, but this may just be momentary setback for the radical right.
Politics and Ideology in China
In contrast with the USA, China, though it had tensions associated with breakneck industrialisation, is not suffering from political polarisation. Partisans of Western-style democracy were, as noted earlier, a small minority, though spontaneous feelings of alienation against the authorities are expressed widely online. Also, as noted earlier, in contrast to the simplistic view of a population cowed by repression, political protests have been common, both on the ground and on the internet, though some say there has apparently been a decline in numbers under Xi’s regime. Because, as already observed, protests have been local, no protest movement has established a critical mass across the country. Thus, there is little challenge to the CCP’s political hegemony, and few would claim that the ruling regime is undergoing a crisis of legitimacy. Certainly, the polarisation of the USA is nonexistent.
On ideology, Xi has been sensitive to the critical importance of ideological cohesion for the stability of the regime. In 2013, he wrote: “The disintegration of a regime often starts from the ideological area, political unrest and regime change may perhaps occur in a night, but ideological evolution is a long-term process. If the ideological defenses are breached, other defenses become very difficult to hold” (cited in Economy 2018, 42). The domestic political and ideological unravelling of the USA in the Trump and Biden eras would probably have been taken by Xi as a confirmation of his concerns and why he was right to take a pre-emptive strategy in China.
In his 2017 speech to the CCP’s 19th Congress, Xi presented his attempt to fabricate an ideology for the present, laying out the two goals of shared prosperity and revival of the Chinese people:
Never forget why you started, and you can accomplish your mission. The original aspiration and the mission of Chinese Communists is to seek happiness for the Chinese people and rejuvenation for the Chinese nation … In our Party, each and every one of us must always breathe the same breath as the people, share the same future, and stay truly connected to them. The aspirations of the people to live a better life must always be the focus of our efforts. We must keep on striving with endless energy toward the great goal of national rejuvenation” (Xi 2017b).
How seriously must we take statements like this? Should we merely dismiss them as self-serving statements? Founding director of the Brookings China Strategy Initiative and an adviser for the Clinton and Biden presidential campaigns, Rush Doshi (2021, 42), says they must be taken seriously since they “better reflect Party thinking than more frequently cited but often less reliable sources like Chinese journal articles and think tank reports.” He adds that the most authoritative documents are “leader-level memoirs, doctrinal texts, archival sources, official speeches, classified materials, and think tank reports.” Of course, taking them seriously also means interpreting them cautiously.
Do such assertions “connect” with the people or do they just react to it as empty rhetoric? To the veteran Singaporean diplomat Kishore Mahbubani, who has voiced both measured praise and measured criticism of the CCP, the reality of discontent among some Chinese is dwarfed by the rough consensus among most Chinese that as they “look back over … two thousand years, they are acutely aware that the past thirty years under CCP rule have been the best thirty years that Chinese civilisation has experienced since China was united by Qin Shi Huang in 221 BCE” (Mahbubani 2020, 11). Allowing for some exaggeration, there is more than a grain of truth in the words of this long-time observer of China.
Mahbubani’s observation about contemporary China’s “special vigor” is supported by other China watchers, among them Stanford University psychologist Jean Fan who writes that “China is changing in a deep and visceral way, and it is changing fast, in a way that is incomprehensible without seeing it in person. In contrast to the USA’s stagnation, China’s culture, self-concept, and morale are being transformed at a rapid pace – mostly for the better” (Mahbubani, 2020, 12).
Despite a widespread, and often grudging, acceptance of the CCP’s hegemony, there is a continuing threat to the Party’s legitimacy, and this stems from corruption. According to Milanovic (2019, 67–128), legal systems exist in state capitalist systems like China, but they are subordinate to the priorities set by the politico-technocratic elite. This selective application of the law creates a discretionary “zone” that offers tremendous opportunities for corruption. Nevertheless, corruption cannot be allowed to spread uncontrolled since this would subvert technocratic rationality, militate against economic growth, and thus erode the legitimacy of the system. Thus, as with Xi’s ten-year-long campaign against corruption, there must be efforts to contain it, and sacrificing corrupt high officials is often the price paid to stabilise the system.
Nevertheless, corruption cannot really be eliminated since it is rooted in the system of discretionary decision-making or selective application of the law that is central to the functioning of state-directed or political capitalism. There is a large gap between the ideological leadership projected by the CCP and the reality of corruption that is rife in China. However, the ideological crisis is of a different order altogether in the USA, where a troubled liberal democracy held onto by liberals and progressives is confronted by the angry ideology of White Supremacy that has captured the Republican Party.
The Crisis of the Multilateral Order
An important source of US strength internationally has been the network of multilateral institutions that have served as the canopy for global economic governance, in particular, the IMF, World Bank, and the WTO. Over the last three decades, these institutions have run into problems, the IMF for its preservation of a system of capital subscriptions that favour the Western bloc, the World Bank for being the main ideological proponent of increasingly discredited neo-liberal development policy, and the WTO for serving as an instrument for reducing policy space for developing countries by prying open their trade regimes. As these institutions lost credibility, China vastly expanded its aid programme, making it what one specialist called “the world’s largest development bank” (National Public Radio, October 11, 2018). China also launched the massive Belt and Road Initiative designed to provide infrastructural “connectivity” across “Eurasia” while also helping solve China’s over-capacity problem.
Beijing was also in the process of creating an incipient alternative multilateral system. Four key institutions have been set up since 2014, with Beijing making a central contribution to each: the Asian Infrastructure Investment Bank, New Development Bank, the Contingent Reserve Arrangement, and Regional Comprehensive Economic Partnership. While often interpreted as China’s effort to supplant the US-dominated multilateral system, Beijing has moved carefully on these initiatives, reflecting the same caution that it has displayed on the matter of promoting the renminbi as a reserve currency. Hung (2017, 31) asserts that China’s effort to build multilateral banks “should be seen not as a challenge to the existing system of international finance, but as a way to supplement that system that allows China to sacrifice some of its discretionary power to obtain the cover and legitimacy that other participating countries can provide.”
From Triumphalism to Insecurity
Donald Trump’s initial moves in coming to power in 2017 – among them his bombastic declaration of an “America First” posture in his inaugural speech, his withdrawing the USA from the Trans-Pacific Partnership, and his turning on traditional allies that he accused of taking advantage of the USA – led Beijing to a re-evaluation of the USA-China relationship. This led, Doshi (2021, 67–128) claims, to a decisive shift in Beijing’s Grand Strategy from “Building Regional Order” to promoting China’s global leadership. He points to a key speech of Xi at the Central Foreign Affairs Work Conference where the latter declared: “At present, China is in the best development period since modern times, and the world is in a state of great changes not seen in a hundred years, and these two [trends] are simultaneously interwoven and mutually interacting” (cited in Doshi 2021, 267).
What the implications of this shift meant were spelled out by Xi for the outside world in Davos, the Mecca of global capitalism, in January 2017, when he portrayed China as the leading edge of globalisation, the engine of global growth, and the main force for an open world economy:
China’s development is an opportunity for the world; China has not only benefited from economic globalization but also contributed to it. Rapid growth in China has been a sustained, powerful engine for global economic stability and expansion. The inter-connected development of China and a large number of other countries has made the world economy more balanced. China’s remarkable achievement in poverty reduction has contributed to more inclusive global growth. And China’s continuous progress in reform and opening-up has lent much momentum to an open world economy (Xi 2017a).
More than this, Xi offered to back up his words with the Belt and Road Initiative. Evoking the fabled “silk routes” through which trade between China and Europe was carried out in early modern times, Xi told his rapt audience of hungry corporate chieftains, that they stood to benefit immensely from the business opportunities it offered. To the rest of the world, China’s role is portrayed not only as providing assistance but also offering an alternative development model to that of the West. After his performance in Davos, Xi declared that China’s modernisation “offers a new option for other countries and nations who want to speed up their development while preserving their independence; and it offers Chinese wisdom and a Chinese approach to solving the problems of mankind” (cited in Yan 2019, 132). This was a marked departure from an earlier cautious approach, first articulated by Deng, that the road followed by China was applicable mainly, if not only, to China. This break in policy was followed by the CCP sending 30 delegations to more than 80 countries in a co-ordinated global propaganda effort (Yan 2019, 132).
Over five years later, at the 2022 Communist Party Congress, Xi was singing a different tune. Instead of exuding triumphalism, he was warning that his country must be prepared for “strong winds and high waves and even dangerous storms.” Instead of painting a picture of a world ready to receive China’s leadership, he was pointing to “drastic changes in the international landscape” that were not in China’s favor” (cited in Japan Times, October 10, 2022).
What had happened in between were the Trump administration’s aggressive response to Xi’s initiatives and the global dislocation caused by COVID-19. Xi and the CCP leadership had made two big mistakes in relation to the USA.
First, they had assessed Trump’s initial posturing as drawing the USA away from international engagements. The Trump administration, however, was merely changing its manner of engagement from promoting multilateral approaches to relying on unilateral measures to confronting global problems – and to Trump, the USA’s prime international problem was China.
Second, the confident assumption Xi displayed at Davos that it was time for China to take a global leadership role, in fact, finally roused Washington to the threat to its primacy posed by Beijing.
The US response was not long in coming. On the economic front, the Trump team named China an “economic aggressor”; declared a trade war on Beijing via prohibitive tariff increases on Chinese imports; initiated a technological war by banning the use of telecommunications equipment from Chinese firms that were deemed national security risks; sought to change the character of China’s state capitalism by demanding a reduced role for the state in the Chinese economy; aimed to decouple China and the USA by ending the USA’s dependence of China for manufactured goods and China’s dependence on US high technology; and put an end to Washington’s benign approach to the TNC-China alliance by discouraging US TNC’s from investing in China and explicitly asking them to leave China and re-shore (White House Office of Trade and Manufacturing Policy 2018).
US corporations were routinely denounced by Trump officials like Trade Adviser Peter Navarro as accomplices of China’s destruction of the USA’s manufacturing base. In the most publicised case of curbing cutting-edge technology transfer under Trump, the USA banned the Chinese high-tech corporation Huawei from obtaining technology developed by US firms to advance its 5G communications technology. Huawei, the administration alleged, had been funded by and worked closely with the Chinese state, creating what Washington considered a dangerous national security situation (CNBC, August 18, 2019).
Realising that they had, like Frankenstein, created a monster with their devil’s bargain of trading technology for short-term profits, many key US TNCs backed Trump’s crusade, bringing to a dramatic close the 25-year-long China-TNC alliance.
Trump steered away from the corporate accommodation with China towards the Pentagon’s view of China as the country’s main global rival, making provocative moves such as installing the THAAD anti-missile defence system in South Korea over Beijing’s protests, deploying intermediate-range missiles in the Pacific after the USA withdrew from the Intermediate Range Nuclear Forces Treaty in 2019, and heightening aggressive US naval patrolling in the South China Sea (see Stashwick 2019).
To leaders in Beijing, fears of a comprehensive US effort to contain China had come true. Indeed, if one were to identify a point where the USA’s political, military, and economic elites moved decisively to define China as a threat to US primacy, it was under Trump.
Upon his assumption of office in 2021, Biden moved to repair damaged ties with Washington’s allies in order to bring US policy back to a multilateral track. The prime objective, however, was the same: to isolate China. Biden kept Trump’s high China tariffs and his allies led a successful effort in Congress to pass the Chips and Science Act, which appropriated $250 billion to build manufacturing and technology to counter China, “embracing in an overwhelming bipartisan vote the most significant government intervention in industrial policy in decades,” as The New York Times (July 27, 2022) put it. Biden’s administration then followed up on Trump blocking telecommunications technology transfer to Chinese firms with a far-reaching ban on the export of advanced microchips to China and on the employment of US citizens and permanent residents in Chinese firms involved in the design and manufacture of artificial intelligence chips, graphic processing units, and central processing units.
Equally important, on the diplomatic front, Biden has been able to obtain a consensus among US allies that China is a rival that threatens the primacy of the West and that the struggle against it would require co-ordinated political and economic action. Ever since the Russian invasion of Ukraine early in 2022, Russia, an ally of China, has served as a proxy for China for the purpose of mobilising NATO and the European Union in an anti-China alliance, a campaign that Washington has carried out successfully. This has had major benefits for Washington’s aim to isolate China militarily in the Asia Pacific, where NATO vessels from the United Kingdom, France, and Germany have joined US, Australian, South Korean, and Japanese ships in so-called freedom of navigation patrols in the South China Sea.
A combined economic, diplomatic, and military posture against Beijing was articulated in the administration’s National Security Strategy unveiled in late October 2022, which Biden summed up as identifying China as the “most consequential geopolitical challenge” faced by the USA. National Security Adviser Jake Sullivan said the significance of the document was that the “post-Cold War era is over” (cited in South China Morning Post, October 13, 2022). By the “post-Cold War era,” Sullivan presumably meant that period that had been marked by detente and co-operation between China and successive US administrations. It was not lost on Beijing that the US document was a declaration of enmity short of war.
The Struggle for Hegemony
What recent events have shown is that contrary to hopes that there would be a relatively peaceful ascent of China to global leadership in the manner of Britain’s relatively smooth ceding of primacy to the USA, this is now out of the question. After decades of indecision, the USA has finally decided to relate to China as a “revisionist power.” As Biden put it in the introduction to the National Security Strategy Paper, “China harbors the intention and, increasingly, the capacity to reshape the international order in favor of one that tilts the global playing field to its benefit” (cited in South China Morning Post, October 13, 2022). No matter how much Beijing might have wanted to contest this description of its intent in the arena of global public opinion, it was Washington’s judgement that mattered.
In the battle for global hegemony, China and the USA have different distinct advantages and disadvantages. The USA, of course, has on its side the long dominant Western alliance and the multilateral system of institutions that set and impose the rules for the global economy, trade, and finance. Washington, however, has an economy severely weakened by deindustrialisation and financialisation and a polity deeply divided ideologically and politically. China does not have control of the multilateral system but it has a range of political and economic allies in Asia, Latin America, and Africa, and its model of state-led development draws admiration from developing countries that are no longer inspired to follow what they perceive to be a Western democratic model burdened with deep antagonisms and increasingly dysfunctional when it comes to charting political direction. Moreover, Beijing does not suffer from the depth of political and ideological divisions the USA has and though confronted with the crises associated with rapid growth and trailing the USA in advanced technology, its economy remains dynamic.
The main obstacle standing in China’s way, however, is the USA’s military superiority, and as the USA runs into economic, political, and diplomatic headwinds in its effort to contain China, the temptation to redress the balance by military means will increase. This is not the place for a comprehensive assessment of the strategic balance, but some things are important to note:
- China’s defensive posture remains strategic defensive, as the Pentagon admits (United States Department of Defense 2019, 27);
- Though China has raised its military spending and might be in the process of reorienting its force posture, Beijing is not engaged in an arms race with the USA, which continues to spend three times more than China[5];
- China’s strategic nuclear arsenal remains puny in comparison to that of the USA6;
- China has only one overseas base, in Djibouti, compared to the scores of US military bases and military installations in Japan, South Korea, the Philippines, and Guam. In addition to the Seventh Fleet, the formidable floating base patrolling the East China Sea and South China Sea; and
- Having focused for so long on a defensive strategy reliant on A2/AD (Anti- Access/Area Denial) weaponry, China’s offensive capabilities are limited, with its naval offensive punch being provided by three aircraft carriers with a Soviet-era design that are in technological terms light-years away from the capabilities of state-of-the-art supercarriers like the USS Gerald Ford.
Absolute US superiority is what gave Washington the confidence to send a destroyer on a provocative mission to the Taiwan Straits in July 2022 (CNN, July 20, 2022). This was followed two weeks later by the dramatic visit of then House Speaker Nancy Pelosi to Taiwan, after which Biden made an explicit commitment to defending Taiwan militarily (Reuters, September 19, 2022).
Taking their cue from the administration, US military leaders have been even more confrontational in their rhetoric. Particularly alarming has been a recent leaked memo from General Mike Minihan, who leads the US Air Mobility Command, declaring, “My gut tells me we will fight in 2025” (Reuters, January 29, 2023). Minihan, it bears noting, is not the first member of the US command to predict conflict with China in the immediate future. Admiral Michael M. Gilday, Chief of Naval Operations, said in October 2022 that the USA should prepare to fight Beijing in 2022 or 2023 (Taipei Times, November 4, 2022).
Towards Hegemonic Transition or Hegemonic Stalemate?
What does the USA-China balance of power portend for the outcome of the struggle for global hegemony?
With an economically strong but militarily relatively disadvantaged China facing off against an economically and politically weakened USA seeking to shore up its position by throwing around its military superiority, can one really speak about a hegemonic transition?
Perhaps one might consider not so much a hegemonic transition but the emergence of a hegemonic vacuum akin to but not exactly the same as that which followed the First World War, when the weakened Western European states had ceased to have the capacity to restore their pre-war global hegemony while the USA did not follow through on Woodrow Wilson’s push for Washington to assert hegemonic political and ideological leadership.
Within such a vacuum or stalemate, the USA-China relationship would continue to be critical, but with neither actor being able to decisively manage trends, such as extreme weather events, growing protectionism, the decay of the multilateral system that the USA put in place during its apogee, the resurgence of progressive movements in Latin America, the rise of authoritarian states and the likely emergence of an alliance among them to displace a faltering liberal international order, and increasingly uncontrolled tensions between radical Islamist regimes in the Middle East and Israel and conservative Arab regimes.
Both conservative and liberal policymakers paint this scenario to underline why the world needs a hegemon, with the former advocating a unilateral Goliath who does not hesitate to use threat and force to enforce order and the latter preferring a liberal Goliath who, to slightly revise Teddy Roosevelt’s famous saying, speaks sweetly but carries a big stick. Most Western analysts, of course, have the USA, not China, in mind.
There are, however, likely to be actors who view the current crisis of US hegemony as offering not so much anarchy but opportunity. While there are definitely risks involved, a hegemonic stalemate or a hegemonic vacuum could open the path to a world where power could be more decentralised, where there could be greater freedom of political and economic manoeuvre for smaller, traditionally less privileged countries, where a truly multilateral order could be constructed through co-operation rather than be imposed through either unilateral or liberal hegemony. As many have pointed out, the Chinese characters for crisis and opportunity are the same.
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Notes
- As China specialists have pointed out, measured by “purchasing power parity” (a metric that calculates a country’s gross domestic product by using the prices of specific goods to compare the absolute purchasing power of different currencies), China is already the world’s largest economy (Doshi 2021, 313–314).
- One indicator of the changing relationship is the number of lawsuits in US courts filed against Chinese corporations for alleged technological piracy, which jumped after 2009 and rose in subsequent years during the Obama administration (Hung 2022, 37).
- The tortuous efforts of the CCP to square the circle of a capitalist China idealised ideologically as socialist are discussed in Chun (2018).
- This theory was inspired by French philosopher Alain de Benoist, who regards race as central to the identity of a community and considers immigration an existential threat to European cultures (see Rose 2021, 127).
- US military spending in 2021 came to $801 billion and China’s to $293 billion (Stockholm Peace Research Institute 2022).
- China has about 260 nuclear warheads while at the end of 2017, the USA’s nuclear arsenal contained just under 1,400 deployed and approximately 4,000 stockpiled warheads (Gomez 2019, 20).
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