China’s Economic Challenge to the US

Tahir Mustafa

Dhu al-Hijjah 11, 1441 2020-08-01

News & Analysis

by Tahir Mustafa (News & Analysis, Crescent International Vol. 49, No. 6, Dhu al-Hijjah, 1441)

Tensions between the US and China are grabbing headlines these days. The former Indian diplomat M.K. Bhadrakumar thinks “all this began with President Donald Trump’s decision to raise a China bogey as one of his main campaign planks in the US presidential election in November.” While true, it ignores some crucial factors.

Rather than detaining ourselves with the causes of US-China tensions, let us examine Beijing’s strategy in challenging the US. The mainstream corporate media views US-China tensions through the prism of China’s Belt and Road Initiative (BRI) that encompasses more than 100 countries. The West’s cynical assessment is accompanied by incessant negative propaganda.

A comprehensive study conducted in May 2020 by the German-based Kiel Institute for the World Economy, reported: “high shares strongly indicate China’s interest in long-term… cooperation in construction projects in the BRI countries to help improve local infrastructure. In total, China invested about USD 279 billion in the BRI countries between 2013 and 2019, mainly in sectors including energy, metals, transportation and real estate. China’s particularly strong engagement in joint construction activities in BRI countries and its (less dominant) role as investor, can be expected to assist these countries in terms of their economic and societal development.”

This brings us to the question of why the Western world is so hostile to BRI? The simple answer is that it benefits all participating societies, and not merely the ruling elites. BRI projects focus on developing railroads, electric grid stations, highways and ports. These lead to tangible results and benefit all segments of society. Such work, if properly marketed, can enhance China’s soft-power appeal.

For several decades, Washington and its surrogates have been pumping billions of dollars into various countries, not because they care for their well-being but because it serves the US agenda. Egypt and Pakistan offer ready examples. Washington has been handing out billions to Egypt for its capitulation to Israel after it signed the 1978 Camp David Accords. Such largesse brought very little tangible benefit to the Egyptian people. Most of it went right back to Western banks pilfered by corrupt officials. Egypt’s infrastructure remains archaic and any new projects launched lack even basic planning. If the billions given by NATO regimes to the autocratic rulers of Egypt had been properly utilized, Cairo could have lifted the Egyptian people out of poverty long-ago.

Pakistan is in a similar situation. Billions received from the US are usually intended to “fight terrorism”. Money was dished out to corrupt Pakistani politicians to use the country as a transit route for military supplies to US troops in Afghanistan and to use Pakistan’s military bases. Funds for ‘education’ went to undermine Islamic education and promote secularism and vulgarity.

Beijing’s BRI projects are aimed at developing infrastructure, which ordinary people can use and most importantly they come with few political strings attached. It would be difficult to argue that BRI is Beijing’s political masterplan to take over the world. China is not on a mission to export Confucianism or Communism. Sure, there are economic strings/penalties which exist in all business transactions and multi-billion-dollar contracts. This is the reason why so many Western studies and analyses reviewed for this column regularly bring up the case of Hambantota, the Sri Lankan port built by China. The purpose is to present the BRI as a debt trap.

A common narrative peddled by the corporate media is that Sri Lanka was unable to pay off the loan obtained to construct the port so it was handed over to China. Umesh Moramudali, an economic researcher focusing on public debt dynamics and economic development in Sri Lanka, debunks this claim.

Moramudali explains that “it is incorrect to claim that China acquired Hambantota port because Sri Lanka failed to pay off the debt obtained to construct it. The often quoted ‘port deal’ was actually a lease agreement clearly separate from the loans obtained for the purpose of constructing the port and the money obtained from the lease was used to strengthen the foreign reserves of the country, not to repay China. There was no cancellation of debt, although the port was leased to China for 99 years. There has been no change in ownership. However, as per the lease agreement, a significant portion of port operations will be handled by China Merchant Port company, thus a large portion of the profit, if any, will be earned by CM Port.” Yet, Western sources regularly keep on bringing up the case of Hambantota port when the BRI initiative is discussed.

Another key strategy of China is to drive an economic wedge between Europe and the US. According to the Kiel Institute for the World Economy study, “in principle, the BRI should help foster trade between the EU and the rest of the world and, in particular, between the EU and the countries located between China and the EU. The reason is the reduction in transportation costs, thanks to the improvement in infrastructure, in particular transport infrastructure within the BRI area.”

The US will, therefore, find it difficult to convince others to stop doing business with China. This seems to be a carefully crafted plan by Beijing to prevent Washington from forming economically viable alliances to counter China on that front.

What makes China’s infrastructure development so attractive for developing countries is that Beijing is not interested in spreading its ideology, which it does not really have. China’s political rules are simple: you can be secular, Salafi, Shia, Islamist, socialist, capitalist, be whatever you want, just be open to doing business with us and do not threaten our territorial sovereignty. Since NATO regimes have installed despotic and unprincipled rulers in many developing countries, China’s apolitical approach makes it easy to win many of these despots over to its side. All they must do is offer opportunities to make money.

China realizes that it does not have strong military, ideological or political advantage over the US and its surrogates. Thus, it skillfully keeps its competition with Western regimes confined primarily to the economic sphere. Beijing’s semi-planned-cum capitalist economic order allows it to make strategic decisions quickly. Having constructed an economic system geared to meet the specific needs of the Chinese society, Beijing’s economic steps abroad are synchronized with what is happening at home.

Domestically, China is in urgent need to stimulate consumer demand and BRI projects facilitate that. Chinese cement, steel, and construction companies are heavily involved in BRI infrastructure projects and are benefiting from Beijing’s economic expansion abroad. Wang Jisi, President of the Institute of International and Strategic Studies at Beijing University, cited by the Jamestown Foundation says BRI “will drive the development of China’s frontier regions, thereby resolving issues of regional imbalance and instability.” Thus, BRI has a strong internal Chinese component which is meticulously planned and over which Western powers have little direct influence.

If China’s BRI initiative remains primarily focused on economics and not become political, the project can turn into a highly profitable global super project. Beijing will automatically derive political benefits in the long run. The key to BRI’s success is to keep it apolitical and focus on economics. This is something China is doing relatively well for now. However, since the US views BRI primarily as a political project, Washington will do its utmost to entangle China in political matters in BRI-participating countries. If successful, it would drain China’s resources and more importantly, undermine its image and present it as another imperialist power.

To counter BRI, the US launched its “Blue Dot Network” (BDN) in November 2019. It is seven years late compared to the Chinese initiative and appears to be poorly coordinated. In addition, it is heavily politicized, since its primary focus seems to be to retain Western hegemony. However, what makes BDN a poor competitor to the BRI is that the US needs major infrastructure upgrading at home. Its crumbling public transport system, broken healthcare, declining education system and numerous other economic woes will make it difficult to justify BDN to American citizens. They would rather see money spent on affordable housing, roads, hospitals and railways at home rather than some remote place they have never heard of so that Washington politicians could boast of America’s global power projection.

Overall examination of data when preparing this analysis shows that China’s economic success lies in its ability to use free market economic tools for state planned economy. This approach undermines Western neo-liberal dogma on economics. Beijing is raising millions of its citizens out of poverty and focusing on policies that allow the masses to benefit from China’s economic development. For instance, in order to minimize the impact of COVID-19 on its economy, Asia Times reports “China is stepping up targeted measures to facilitate fund-raising for micro and small businesses and reduce their financing costs to boost economic recovery. Financial institutions are encouraged to provide 1.5 trillion yuan (US$212 billion) worth of benefits to firms through cuts in interest rates and other methods this year.”

There is a quote attributed to Lenin, albeit falsely, that when Germany provided him a train to return to Russia to lead the revolution in order to remove it from WWI, Lenin is claimed to have said that if the capitalists want to tie the rope from which the bourgeoisie can be hanged, we will gladly accept it. Falsehood of the statement aside, it seems this is precisely what has happened between the US and China.

During the cold war, the US bolstered China as a counterweight to the USSR and turned it into a cheap manufacturing garage for Western firms. The Chinese, however, simply outdid them. It will be interesting to observe the ongoing tussle between the US and China and the multipolar world order that is emerging. As long as Muslim societies do not allow themselves to be turned into political pawns for either party, the BRI can be a lucrative economic project for the Muslim world.