The concept of a rising China has not only captured the Western imagination but has also started to seem inevitable. However, the reality is that economics does not follow a linear path, and the decisions made by the Chinese government under Xi Jinping’s leadership are set to change its trajectory. Xi, who is regarded as the most dominant political figure in China in the past fifty years, desires for his country to surpass the United States and become the world’s leading superpower. Consequently, he is reevaluating China’s economic relations with the rest of the world, shifting its trade and investment focus away from the West and strengthening China’s economic defenses internally. China’s leadership argues that these decisions were necessitated by a hostile Washington that seeks to maintain its hegemony. This shift in China’s economic policy is part of a larger global trend where geopolitical competition and security concerns now drive economic decisions instead of the post-Cold War era of globalization.
Until now, China’s rise has primarily centered around its relationship with the West, particularly the United States. Several decades ago, Deng Xiaoping, the paramount leader of China, initiated free-market reforms that connected China’s impoverished and mostly agrarian population to global supply chains through trade and investment partnerships with the US and its allies. This led to an influx of foreign capital and technology, resulting in the production of goods for affluent American and European consumers. China’s impressive economic growth and rising incomes were made possible through cooperation with the West.
However, the relationship between Beijing and Washington has undergone a significant transformation. Both countries now perceive their economic ties as sources of risk and vulnerability. Xi is concerned that Washington may exploit its economic leverage to impede China’s rightful ascent to global superpower status by restricting crucial technology or imposing punitive sanctions, similar to the ones enacted against Russia after its invasion of Ukraine in the previous year. To safeguard China’s interests, Xi has directed substantial state support towards developing indigenous technologies and redirecting China’s economic focus towards countries like Russia that are viewed as non-threatening.
On the other hand, Washington worries that China’s dominance in certain supply chains, such as the production of rare earth minerals, can hamper US industries. There is also concern that China may exploit access to advanced American technology to bolster its military capabilities or undermine US economic competitiveness. Consequently, both the Trump and Biden administrations implemented measures such as tariffs, export controls, and promoting domestic manufacturing to limit business interactions with China.
Mike Gallagher, chair of the US House Select Committee on the Chinese Communist Party, sees these shifts as pragmatic. He believes that it is crucial to recognize and address the risks associated with engaging with China. Gallagher advocates for reinforcing economic sovereignty in collaboration with US allies instead of clinging to the hope that increased economic engagement will improve the US-China relationship.
As a result, the economic relationship between the US and China, which has been one of the most influential in recent history, is starting to deteriorate. US investment in China has been declining, with American companies investing only $8.4 billion in 2021, compared to $14.1 billion in 2017. A recent survey conducted by the American Chamber of Commerce in China revealed that 51 percent of US businesses plan to either decrease or not increase their investments in China due to the uncertain environment. European executives also display minimal enthusiasm, with many firms withholding new investments in China.
The coronavirus pandemic has affected global foreign investment, but China has been hit harder compared to other regions. According to the International Monetary Fund, the United States and advanced European economies made significantly fewer “greenfield” investments in China during the pandemic period, while investments in other regions, particularly emerging markets, remained more stable. The study also highlighted a concentration of foreign investment among countries with similar geopolitical viewpoints, leading to what the IMF refers to as the “fragmentation” of foreign investment flows. This suggests that the long-standing attraction of Western CEOs to China is fading.
Chinese companies are also withholding their investments. The US had been the preferred destination for Chinese capital, with $193 billion invested since 2005. However, Chinese investment in the US has significantly declined, with only $3.2 billion invested in 2022. Instead, Chinese firms are redirecting their investments to countries in the global South, particularly Saudi Arabia and Indonesia. The Belt and Road Initiative, one of Xi’s flagship programs, has facilitated this shift, as it aims to create trade and finance routes that also serve as channels of political influence. Additionally, Xi has deepened ties with Russia to secure energy sources and raw materials, reducing dependence on the US. Russia-China trade reached a record $190 billion last year, and Russians are increasingly using the Chinese yuan instead of the US dollar, undermining the latter’s global influence.
Washington’s stance towards China has also hardened, with both the Trump and Biden administrations considering stricter controls on exports of advanced semiconductors and technology manufacturing equipment to China. There is a growing consensus among advanced democracies to adopt a similar approach. Gallagher believes that restrictions on capital outflows to China are sensible and suggests adopting a sector-by-sector approach to prevent US money from supporting Chinese firms affiliated with the military or involved in sensitive technologies like artificial intelligence.
China’s trade with the US and Europe remains substantial, but its interactions with the developing world are growing. China’s largest trading partner is now the Association of Southeast Asian Nations, with China’s trade with the ten-member bloc reaching $975 billion in 2022. China’s share of sub-Saharan Africa’s merchandise trade has also increased significantly, surpassing both the US and EU. This shift in China’s global focus aligns with Beijing’s political interests, as it opens up new avenues for trade and finance while building political influence. The Western love affair with China is gradually coming to an end.
In conclusion, the rise of China is not a guarantee, and the decisions made by Xi Jinping’s government will shape its future trajectory. The economic relationship between China and the West, particularly the US, is undergoing a fundamental shift due to concerns of geopolitical competition and security. Both China and the US are reevaluating their economic ties, leading to a decline in investment from both sides. Chinese firms are redirecting their investments to other regions, and China’s trade focus is moving towards the developing world and Southeast Asia. This shift serves Beijing’s political interests and reflects a broader trend of fragmentation in foreign investment flows. The hardening positions of both China and the US, along with their respective allies, suggest a diminishing Western interest in engaging with China.
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
