Tag: US-China relations

Intel, chip manufacturing, and power

The FT reports that hedge fund investor Third Point wants Intel to divest its microchip manufacturing business. Today Intel both designs and manufactures chips, but is increasingly falling behind new chip manufacturers in Taiwan and Korea.

Why should we care about arcane maneuvering in the chip industry?

Two points to take note of:

  • The design and manufacture of advanced semiconductor chips are an important front in the ongoing tech/trade war between China and the US. Even were Intel to divest, the immediate geopolitical consequences may be mild. The cutting edge manufacturers are still located in allies like Korea and Taiwan, allowing the US to use political pressure to block access for Chinese companies, forcing them to rely on technologically inferior domestic chip manufacturers.

    In the longer term however, China’s efforts to bootstrap its own semiconductor industry will probably bear fruit. This could make the US vulnerable to disruptions, for example in the event of an invasion of Taiwan.

  • Markets reacted positively to the prospect of Intel divesting itself of manufacturing, pointing to tensions between the respective approaches of corporate America and Congress over China. Even as geopolitical competition becomes a bi-partisan norm, parts of American industry continue to see a future in China. Apple has kept manufacturing there, while the financial industry is desperate to get a foothold.

    The fact that this tension has resolved itself almost entirely in favor of the state’s new belligerent policy suggests a shift in the relationship with capital. At a minimum, we may need to reconsider the familiar narrative of unlimited corporate power – at least when it comes to aspects of geopolitics.

    What could be an explanation? As this insightful piece on Brexit argued, as ‘national capital’ is increasingly foreign owned, its interests may diverge from the more parochial interests of the state. Does the transformation of conservative parties downwards, into vehicles for parochial nationalism, have a causal parallel in the upwards dissipation of ‘national capital’ into a global network?
Do we need to rethink this familiar image?
(See more here)

China stories part 2

(Part 1)

Today I want to discuss a podcast on the One Belt One Read initiative (1B1R).

1B1R is China’s signature international policy, made up of hundreds of billions in loans to mostly developing countries in Eurasia to build infrastructure and other projects (for a quick refresher, this piece in The Guardian).

The discussion made two really valuable points that I’ve not heard enough in the mainstream discussion on China:

Is 1B1R just cynical debt diplomacy?

There is a popular narrative in the West that 1B1R is just a vehicle for Chinese debt diplomacy. According to this script, China makes poor countries billions in unaffordable loans to build strategic infrastructure. When the country can’t repay, China uses the debt as leverage for political concessions or to seize control of vital infrastructure.

The prototypical example is the port of Hambantota in Sri Lanka. Seven years after construction began, struggling to make repayments, Sri Lanka leased the port to China for 99 years. Hambantota features as a cautionary tale in every story on 1B1R, and has been referenced by Vice-President Mike Pence.

Instead of accepting this story at face value, the book’s author actually went to Sri Lanka and talked to politicians there. It turns out they like China. The Chinese are good to do business with, move quickly, and are willing to offer loans without the intrusive conditionality that comes with World Bank or IMF loans.

Claims of debt diplomacy have always had a tinge of hysteria. Research last year showed that China often has to accept painful debt write-downs and asset seizures are very rare.

Nor are all criticisms of Chinese investment particularly admirable. Take this piece in The Guardian on Hambantota, which printed the following without comment:

Does 1B1R have a geopolitical dimension? Of course. Is this unusual for a country of China’s size? No. Might developing countries benefit from having two superpowers to play off each other? You bet.

For context, US military bases worldwide:

Source

What does Chinese empire actually mean?

The author also argued we should understand 1B1R as an “attempt to rebrand the Chinese empire so it can compete more effectively with the US.”

But what does Chinese empire mean? Should we just imagine European colonialism with a Chinese flag?

For the author the answer is a firm no. Instead, he argues contemporary Chinese international politics, like 1B1R, is an attempt to recreate itself in its own historical image. This means understanding the Tributary System, how Chinese foreign relations were organised for the two millennia prior to the 19th century.

Its an argument similar to the one made by David Kang in his landmark work:

Its an intriguing line of argument, one that privileges China’s historical experience and argues that international relations is not governed by the set of ‘universal’ laws scholars have derived from the experience of early-modern Europe and Ancient Greece.

Its difficult not to approach it with some sympathy given China’s track record for upsetting economic and political conventions.

Merry Christmas

Caught in the middle

Australia has been walking a difficult line of late. Our largest trading partner is locked in a struggle with our ideological and military partner. China’s behaviour in Xinjiang and Hong Kong has earned it rebukes from the Australian government. China has responded with punitive tariffs against some Australian exports. Both parties have accused the other of espionage. The SCMP has a nice timeline here.

Source

So it is with some interest I read Scott Morrison’s speech the UK think tank Policy Exchange. It is mostly a familiar restatement of liberal international values. There are calls for more mutually beneficial international cooperation. Morrison talked up the importance of international institutions as a way of managing conflict and creating positive sum benefits.

More interesting are the various passages where he attempts to reset China-Australia relations:

Australia desires an open, transparent and mutually beneficial relationship with China as our largest trading partner, where there are strong people-to-people ties, complementary economies and a shared interest especially in regional development and wellbeing, particularly in the emerging economies of Southeast Asia.

Equally we are absolutely committed to our enduring alliance with the United States, anchored in our shared worldview, liberal democratic values and market-based economic model.

Australia is not and has never been in the economic containment camp on China, no country has pulled more people out of poverty than China. And  Australia is pleased to have played our role in the economic emancipation of millions of Chinese through the development of the Chinese economy.

The global competition between China and the United States presents new challenges, especially for nation-states in the Indo-Pacific. Like other sovereign nations in the Indo-Pacific, our preference in Australia is not to be forced into any binary choices. 

Our actions are wrongly seen and interpreted by some only through the lens of the strategic competition between China and the United States. It’s as if Australia does not have its own unique interests or it’s own views as an independent sovereign state. This is just false. And worse it needlessly deteriorates relationships.

I see an olive branch to China.

The best case for Australia is clearly the one Morrison’s hopeful rhetoric lays out: that the superpowers will stop forcing binary choices on smaller powers, and international institutions obviate any serious conflict.

However, the speech reveals what happens if that breaks down – shared worldviews don’t create many jobs. Australia’s statement is directed at China, not the United States. It is an assurance to China that while sharing a worldview, values, and economic model with the US, we are not on “Team USA” in any strategic competition.

If, as looks likely, Biden’s administration continues to treat China as a strategic competitor, Australia might soon be asked to repeated again that: “our actions are wrongly seen and interpreted by some only through the lens of the strategic competition between China and the United States.“

Want to get outside your echo chamber?

Consider adding the Global Times, China’s major English newspaper, to your reading list. The Editorial Opinion section is especially interesting. It’s run by the Chinese Communist Party of course, but that makes it a potentially useful way to understand what the CCP is thinking, or what they would like outsiders to think they are thinking.

From an editorial on Australia-China relations:

Even apart from what it has done politically, the country is also very unfriendly to China economically. As Foreign Ministry spokesperson Wang Wenbin said on Friday, since 2018, more than 10 Chinese investment projects have been rejected by Australia, citing ambiguous and unfounded “national security concerns”. Australia has launched as many as 106 anti-dumping and anti-subsidy investigations against Chinese products, while China only initiated four investigations against Australian goods….

Australia is likely to be under less political pressures from the US on key issues with China, and whether the Morrison government will continue to play tough with China will largely steer Australia’s economic prospects.

We sincerely hope that Australia will take the opportunity to reflect on its attitude toward China on many important issues that affect the future of bilateral economic ties.

Can the Eye of Washington focus?

As reported by the ABC:

All of Hong Kong’s remaining pro-democracy opposition politicians will resign in protest of the dismissal of four of their colleagues from the city’s Legislative Council.

They did so after China’s National People’s Congress Standing Committee passed a resolution this week saying any lawmaker who supports Hong Kong’s independence, refuses to acknowledge China’s sovereignty over the city, threatens national security, or asks external forces to interfere in the city’s affairs should be disqualified.

The Hong Kong Government has disqualified four legislators — Alvin Yeung, Dennis Kwok, Kwok Ka-ki and Kenneth Leung.

Did China feel emboldened to act given the domestic turmoil in the United States?

It remains an open question how domestic turmoil in the US affects China’s calculus. On the one hand, while a hawkish position on China is now bi-partisan (perhaps Trump’s most significant legacy), political infighting absorbs the lion’s share of energy. According to this argument, China can pursue its agenda more forcefully, confident the focus of media/political attention is distracted.

On the other hand, Trump transformed US policy on China while presiding over the most polarized period of American politics in recent history. If most of Biden’s agenda is going to be hobbled, he might focus on those areas where consensus exists, and unlike some areas of foreign policy, confronting China is easily tied to domestic policy, e.g. industrial policy and jobs.

My view right now is that the promise of Sino-American relations is at risk, but not the peril. On issues like climate, there is room for constructive dialogue and cooperation. Those are also the areas most likely to be blocked domestically. This focuses attention on those issues driven by competition.