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Minhaz Merchant

Minhaz Merchant is the biographer of Rajiv Gandhi and Aditya Birla and author of The New Clash of Civilizations (Rupa, 2014). He is founder of Sterling Newspapers Pvt. Ltd. which was acquired by the Indian Express group

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China Vs USA: How They Stack Up

The post-COVID battle between America and China will be fought on technology, trade and diplomacy. The outcome of the contest will determine the balance of geopolitical power well into the next decade.

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The battle lines are drawn. The defining contest of this unfolding century will be between the United States and China.

The Covid-19 pandemic has sharpened differences between the world’s two largest economies. US intelligence is investigating whether the coronavirus originated from a leak in a Chinese biological research lab or from live bats in Wuhan’s wild animal markets where Chinese buy exotic animals to cook and eat. 

China has meanwhile launched a global PR campaign taunting the US administration for being slow to recognise the danger the coronavirus posed. Several US states including Missouri and Mississippi as well as activist groups have filed lawsuits against China seeking financial compensation for the loss of human lives and damage caused to the economy due to China’s negligence and cover-up of the deadly virus that has led to nearly 3,00,000 deaths worldwide.

The US economy shrank by 4.8 per cent in the January-March 2020 quarter. Job losses have surged to more than 30 million. An economy that was in fine fettle till December 2019 is in a tailspin.

China is predictably doing much better. While the economy shrank by 6.8 per cent in January-March 2020, a quick turnaround is expected in the April-June 2020 quarter.

Has Covid-19, therefore, swung the contest with the US decisively in China’s favour? Not necessarily.

But first the numbers. China’s GDP in 2019 was $14 trillion, a third lower than the US GDP of $21 trillion. At their respective pre-COVID trendline annual growth rates of 6 per cent and 2.5 per cent, the economies of the two countries were expected to converge at around $28 trillion in 2030.

COVID could throw a wrench in those projections. While China could recover in a hockey stick curve – rising vertically after a gradual recovery – the curve could flatten for two reasons. First, the world no longer trusts China. The flight of dozens of foreign companies from China following Covid-19 to Vietnam, Taiwan and South Korea will weaken China’s economy. Japanese manufacturing companies, including automotive, are already planning to shift operations from China either back to Japan or to countries in Southeast Asia.

The second reason why China’s economy could stall is the West’s unofficial declaration of a trade war on Beijing. While the US is leading the charge to sharpen its tariff war on China, Germany, Britain and the Netherlands – traditionally wary of challenging China – have warned of Europe disengaging with China economically.

China’s economic heft has so far allowed it to swat away complaints of bullying by Beijing over trade and diplomacy. Last month, China reacted with fury against the Netherlands for re-designating its trade office in Taiwan as a diplomatic office. It threatened that in future no Chinese tourists would visit the Netherlands, a threat the Dutch shrugged off.

The disengagement with Europe could prove as costly to China as America’s new trade war. Beijing’s Belt and Road Initiative (BRI) had made inroads into Italy and parts of Eastern Europe. The new Silk Route is President Xi Jinping’s legacy project. It is designed to link China’s western provinces with Central Asia, the Middle East, North Africa and Europe. Those plans are now in the deep freeze. More than any economic loss, failure of the BRI will mean a loss of face for Xi. In a hierarchical society like China, losing face carries serious consequences. Xi remains powerful. He has sidelined all his rivals. But if the BRI fails and the economy stalls, Xi’s own position as an unchallenged leader of the Chinese Communist Party (CCP) could come under threat.

The US navy has meanwhile increased patrolling activity in the South China Sea which Beijing regards as a provocation. There is little it can do about it. China’s navy is modernising rapidly but is puny compared to America’s. It has just two aircraft carriers to America’s 20. Conspiracy theorists warn of a “war” between the US and China. That is fiction. Oceans separate the two countries. A land war is therefore impossible to prosecute. On the sea, China is no match for America and will not be till the mid-2030s. Cruise missiles are the way modern wars are fought and both Washington and Beijing know – as Washington and Moscow knew during the 40-year Cold War between the US and the Soviet Union – of the perils of mutually assured destruction.

As the West disengages with China, technology will be a casualty – for Beijing. For years China has allegedly stolen US technology through both spyware and Chinese-American scientists with access to sensitive US research. Britain is reconsidering its decision to allow Huawei to build part of its 5G network. Meng Wanzhou, the daughter of Huawei’s founder Ren Zhengfei, remains under house arrest in Vancouver, Canada awaiting extradition to the US where she could face a long jail term for technology theft and wire fraud.  

Federal Bureau of Investigation (FBI) director Christopher Wray said last month at a security conference: “The FBI has about a thousand investigations involving China’s attempted theft of US-based technology in all 56 of our sealed offices and spanning just about every industry and sector. They are willing to steal their way up the economic ladder at America’s expense. They are not just targeting defence-sector companies. The Chinese have targeted companies producing everything from proprietary rice and corn seeds to software wind turbines to high-end medical devices.

“And they are not just targeting innovations and R&D. They are going after cost and pricing data, internal strategy documents, really just about anything that can give them a competitive advantage. They are also targeting cutting-edge research at our universities. China is using a wide range of methods and techniques. And I’m talking about everything from cyber intrusions to corrupting trusted insiders. They’ve even engaged in outright physical theft. They’ve pioneered an expansive approach to stealing innovation through a wide range of actors, including not just Chinese intelligence services but state-owned enterprises, ostensibly private companies, certain kinds of graduate students and researchers, and a whole variety of other actors all working on their behalf.”

The post-COVID battle between America and China will be fought on technology, trade and diplomacy. The outcome of the contest will determine the balance of geopolitical power well into the next decade.

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