For the Central Asia states, many of which share a border with China, the most difficult issue is how to skilfully manoeuver between Beijing and Washington in order to continue economic development under powerful propagandist and economic pressure from both sides. Meanwhile, the position of Moscow remains vague, but it will most likely prefer to play its own game, hoping to win dividends by diverting the “fire” to China, writes Adil Kaukenov, Director of China Center (Kazakhstan) and a speaker of the second session of the Valdai Club Central Asian Conference.
During the global COVID-19 pandemic, one of the main issues for the further development of global political and economic processes was the US-China confrontation, which was marked by a number of scandals and heated statements, and reached the level of mutual-imposed sanctions.
However, COVID-19 only became a catalyst for a significant acceleration of these processes and the deterioration of relations began long before the coronavirus epidemic. It is worth recalling the scandal with the flagships of Chinese innovative technology Huawei and ZTE, spy revelations, the trade war and much more.
The countries of Central Asia, in their foreign policy, are trying to maintain neutrality regarding the Russia-China-USA triangle, consistently participating in all regional projects proposed by the superpowers: the Russian Eurasian Economic Union, the Chinese Belt and Road project and the US project C5+1. However, with each passing day, the projects of the global players follow a trajectory leading them towards more conflict, leaving the Central Asian countries facing a difficult choice.
Washington is categorically not satisfied with the status quo; it is extremely worried about the growth of the Chinese economy, which is rapidly stepping on the heels of American economic power.
Moreover, Chinese companies have begun to compete with American companies in the high-tech sphere, in particular, the competition between Huawei and Apple stands out in the presentation of future 5G technology and “smart technologies” for managing the infrastructure of entire megacities.
It should be noted that practically all sectors of the Chinese economy are rapidly reaching the level of competition with American industry. Cell phones, household appliances, and even the Chinese auto industry have come to the point where they can start competing in developing countries, which means that the struggle will soon begin in the most lucrative sector: the developed countries.
The main cause for concern among the Americans is that this growth and competition is taking everything in a direction that Washington cannot control. For example, the growth of Japan and the active expansion of Japanese companies also caused concern in Washington, but this was quickly allayed by the possibilities of US political influence on Tokyo.
It should be noted that the Japanese experience is largely correlated with the Chinese one. By 1968, Japan had become the second-largest economy in the world, like China is now, and the tight pegging of the yen to the dollar at a rate of 360 JPY/USD was considered problematic, just as the yuan-dollar rate is considered a challenge today.
In the 70s, under powerful pressure from the United States, Tokyo was forced to revalue the yen, which later caused a real chain reaction that led Japan to “lost decades” (失 わ れ た 10 年) from the 90s, during which many Japanese economic giants left the world markets, yielding competition to Korean and Chinese companies. Japan itself has even lost its ambitions for world economic superiority.
The issue of the revaluation of the yuan against the dollar has been a key issue in the US-China controversy since the beginning of the 2000s. Even though Chinese labour has lost its cost advantage, the yuan’s higher purchasing power allows Chinese tech giants to attract highly skilled labour, enabling China to create world-class products, as well as potentially take over technology innovation initiatives.
This is what gave Donald Trump a reason to talk about a “bad deal”, which means, essentially, that the United States, by providing its market and innovations, is nurturing a geopolitical competitor which offers its own agenda, different values and is not ready to follow instructions from the White House.
It should be noted that this point is shared not only by the Republicans, but also by the Democrats who came to power with Biden last year. They also point to the difference in values, in particular in terms of the vision of democracy, human rights and international relations. Therefore, today in the United States there is a stable consensus between the two ruling parties that relations with China should be radically revised in order to prevent the flourishing of a geopolitical rival.
Initially the Chinese leadership was happy with the dynamics of economic relations, therefore, in politics, Beijing in every possible way avoided harsh rhetoric and being dragging into any conflicts with the United States and its allies. During the first stage of the trade and economic war, one of the main messages of the Chinese establishment to its American counterpart was the desire to settle everything with financial compensation. That is, the problem in China was seen in the economic plane, that the trade balance of the US-Chinese trade is much higher towards China, therefore, this amount can simply be compensated with the purchase of American goods by the Chinese.
China acts to defend itself from American attacks, which is a vulnerable position, since defence requires a lot of energy, and most importantly, it is not clear which gap the enemy will decide to target next. On the other hand, there are no options for China to impose its own agenda, due to the fact that the United States has great political and economic opportunities. In addition, Washington has a wealth of experience in confrontation, sanctions and political pressure. China, since the beginning of the opening-up policy in 1978, has adhered to the tactics of neutrality and non-interference regarding most issues that did not concern it personally.
But Beijing’s strength is that entire sectors of the United States economy, and even individual states, depend on cooperation with China. For example, sales of Buicks in China significantly exceed sales of these passenger vehicles in the US home market. Moreover, the PRC market has become fundamental for this division of General Motors. iPhones and other Apple products are assembled in factories located in China.
Moreover, it is extremely costly to transfer such production from China to neighbouring countries, and in some cases it is simply impossible. For example, the production of clothing and the creation of high-tech products requires a large number of engineers, electricity, developed logistics and much more, which has been taking shape in China for decades. It is almost impossible to build all this infrastructure overnight, for example, in Cambodia or India.
California, home to Silicon Valley and Hollywood, is the richest state in the US; its GDP would be the world’s fifth if it was an independent country. Its economy is tightly connected with Chinese manufacturing. Before the pandemic there were 26 daily flights to various cities in China from San Francisco alone.
Another important factor is China’s permanent membership in the UN Security Council and its veto right, which excludes the imposition of UN sanctions on it. China’s status as a nuclear power guarantees its military security.
However, China’s few reliable allies remain a problem. That is, there are many sympathisers, as well as those expecting financial investments from it, but there are also a lot of Chinese rivals. Therefore, against the rather monolithic bloc of Western countries, China is in fact alone. Of course, the power of the Chinese economy makes it possible to restrain aggressive steps against it by many countries of the Atlantic bloc.
So, on May 19, 2020, the Government of China introduced anti-dumping and anti-subsidisation duties on barley imports from Australia totalling 80.5%, for a period of 5 years. With Australia being the largest supplier of barley to China, about half of the country’s exports, the increase of Chinese duties will be a heavy blow to Australian farmers.
Although the formal reason for the introduction of duties was Beijing’s allegation that Australian companies were engaging in dumping, a more real reason seems to be a retaliatory measure to the call of Australian Prime Minister Scott Morrison for an international investigation of China’s connection to COVID-19 pandemic. Beijing reacted painfully, stating that this was nothing less than a “stab in the back” from its business partner, because China is the main client for many Australian companies.
Australia has officially announced that it will not retaliate against the Chinese barley duties. Most likely, Canberra fears that in the event of a trade war, Beijing will simply block the entire Chinese market for Australian manufacturers, and there will be simply no one to replace this market. This would be extremely painful for all sectors of the Australian economy.
Against the background of the need for strong and self-sufficient allies, rhetoric in support of Russia has sharply improved in China. For example, on May 24 last year, Chinese Foreign Minister Wang Yi spoke in an extremely positive manner about relations with Russia: “against the background of unfounded attacks and slander, China and Russia rightly speak out in support of each other, rallied into an indestructible fortress in the face of a ‘political virus,’ they demonstrated a high level of strategic interaction”... “China and Russia stand together shoulder to shoulder, peace and the stability on the planet will be fully guaranteed, and international justice will be reliably protected.”
No less sympathy in China was aroused by the friendly rhetoric of the Russian leadership (which from the very beginning wanted China to defeat the epidemic), the sending of Russian humanitarian aid to Wuhan, Russian volunteer doctors and other steps. In particular, there was the emotional speech in Chinese by Russian Foreign Ministry spokeswoman Maria Zakharova: “Hold on to Wuhan, hold on to China” (武汉 加油! 中国 加油!) It gained popularity not only in the Chinese political leadership, but also among numerous Internet users who are not accustomed to support from Western politicians of the Western powers.
Moreover, Russian President Vladimir Putin, speaking at the conference of the Valdai Discussion Club, expressed the theoretical possibility of a military alliance between Russia and China, which was extremely positively received in Beijing, against the backdrop of powerful pressure from Washington.
Kazakhstan and Central Asia
The revival of the Cold War carries great risks for all developing countries, since they could become the “battlefield” where the world giants are trying to sort out their relations.
In the current confrontation between the United States and China, the situation is aggravated by the very likely possibility of creating not just an ideological war, but “technological zones”, in which it is extremely difficult for neutral countries to maintain a multi-vector policy, since the development of technology will pose a pressing need to make a choice in someone’s favour.
The clearest example is the 5G format, which is capable of managing huge amounts of data, creating “smart” cities and allowing for logistics, military technology, communications and much more.
Naturally, the formats from Apple or Huawei do not allow working with each other, respectively, having started working with one technology giant, it will be almost impossible to switch to another.
Of course, nothing is new in the modern world. If you remember, in the field of NATO and Warsaw Pact military technology, there was approximately the same dilemma in the 20th century for countries that had just gained independence and were faced with the prospect of creating a defence industry.
But in the 21st century, this gap threatens to be more comprehensive, affecting not only the sphere of state defence, but practically all aspects of modern society.
By itself, such a geopolitical choice is loaded in that other geopolitical players will perceive the pursuit of this option as the need for tough pressure, and muster all their resources to “punish” a state for a false step.
For the Central Asia states, many of which share a border with China, the most difficult issue is how to skilfully manoeuver between Beijing and Washington in order to continue economic development under powerful propagandist and economic pressure from both sides. This will require high diplomatic skill and the ability to make tough decisions.
Meanwhile, the position of Moscow remains vague, but it will most likely prefer to play its own game, hoping to win dividends by diverting the “fire” to China.