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The West wants to stop China

The look back is helpful to understand the current US economic war against China and the current, not yet completed Re-orientation of European China policy. In line with the German Eastern policy under Willy Brandt and Egon Bahr, “change through rapprochement” could also be described as the Motto of the western China project. The aim of the project was that China would join the neoliberal Washington Consensus.

The project has failed. China’s economic and political opening of the last 30 years has not led to the rapprochement of the systems hoped for in the West and, in many cases, theoretically justified. China’s Integration into the world market and the private capitalist elements in China’s economy would eventually lead to the adoption of Western social models.

China joined the WTO in 2001. At that time, the idea was that China would merge its state-controlled economy with the model of the Western free market. But the Chinese state has not sold the dominant state-owned companies, but retained control of the commanding heights of the economy, the influx of foreign investments and through the capital market, interest rates and exchange rates.

For the dreams in the West, the term Chimerica stands, a word creation from China and America, which at the same time suggests the Association of a chimera. The term Chimerica, 2006 from the conservative economic historian Ferguson and the Economist Schularick coined, suggests a symbiosis, a merger of the economies of China and America.

China produces and exports goods and uses the revenue from them to grant us low-interest loans. In the US, these low-interest loans led to an unprecedented expansion in consumption, while China benefited from full employment and strong economic growth. The purchase of US government bonds by the Chinese central bank has kept the price of the Chinese currency low, which in turn favored the Chinese export economy.

In the former analyses, the latent conflicts were addressed in this “Hyper-economy”. But for many authors, a conflict was neither desirable nor feasible, nor in the midst of the great crisis of the West in 2008, as a result of the economic merger of the two world’s largest economies.

Disappointed Illusions

It has changed. China has long been the second largest economy in the world, adjusted for purchasing power. In many areas, China is now at the forefront of technology. China is no longer an economy in which cheap labour mainly works for Export. Domestic consumption accounts for over 50% of economic output. Germany’s economic performance accounts for less than 20% of domestic consumption. Poverty in the country is almost eradicated in China. China has launched a successful catch-up in 30 years, which is unique in world history. China did not roll over its social and economic system after the neoliberal blueprints of the West, but rather pragmatically, and with constant fine tuning, maintained the Balance between necessary world market orientation on the one hand and controlled internal development.

It took some time for the west to realize that its China dreams did not come true. Since then, the West has been rearranging itself according to the different political and economic interests. Of course, hegemon USA is more at stake in the rivalry with China, which has stood for the former, and since the fall of the wall in 1989, undisputed triumphant: it is about his world domination.

US economic war against China: it’s about future technologies

In the US, the opposition to China and China’s Containment consensus of the political elites is the goal of stopping China’s further rise. Differences may arise in tactics and methods to be applied. The consensus ranges from Democrats to Republicans to trade unions: “China’s goal is world domination, and there is a non-partisan Coalition for a Counter-Strike,” The Economist quotes a US government adviser on 13 October 2018.

Charles “Chuck” Schumer, the leader of the Democratic senators in the US Congress, demanded the temporary suspension of the reciprocal imposition of additional duties, given the ceasefire in the economic war agreed at the beginning of October between China and the US: “a Mini-Deal with China? However, there must not be concessions to Huawei. That’s what China wants the most. That would show our extraordinary weakness.”

The open exchange of blows with China, which has been released by the US, is in essence not a trade war. The duties are only a marginal phenomenon. The temporary ceasefire announced in October in the trade war, in which higher and higher customs duties were imposed on more and more groups of goods, may result in a bilateral trade agreement. The fundamental conflict remains. It’s all about future technologies, 5th Generation mobile communications (5G), artificial intelligence, Cloud and Big Data, autonomous driving, chip technology.

Do the US continue to dominate technology trends and set industry standards on the size and innovative strength of their companies? Or does China prove to be equal?

The following examples show that the US is not at all concerned with customs duties on sports shoes, furniture or television: the central battleground is the new mobile radio standard 5G. The chief financial officer of Huawei Meng Wanzhou was arrested months ago in Canada at the instigation of the US government. Because the Chinese Telekom Group has the leading in the field of mobile communications 5G unquestionably technological and on the world market.

The US government has just announced that it will provide cheap credit to the only remaining Huawei rivals Nokia and Ericsson, European corporations, so that they can compete with Huawei in financing offers. At present, it is still unresolved how such open subsidies can be made compatible with WTO rules. A consultant to the Trump government: “decades ago we gave up our supremacy in telecommunications. Now we understand that this was perhaps not the best thing for our national security."(Financial Times, 9/10/2019). The Trump government has found that no U.S. company can build more Radio Equipment for signal transmission between mobile phones and mobile base stations. The US technology companies Cisco and Oracle have explicitly rejected US government requests to enter such projects.

According to a report by the Pentagon’s Defense Innovation Board in April of this year, the US is becoming more and more marginalized in Mobile Communications:” the country that dominates 5G controls many innovations and will set the Standards for the Rest of the world. At present, the US is not that country … Chinese technology is cheaper and in many cases superior to Western rivals.“The 5G technology has multiplier effect for many other technology fields, such as autonomous driving, industrial Internet or Industry 4.0, Smart Cities, Virtual Reality etc. According to the Pentagon report, the United States has lost its leading role due, among other things, to a lack of investment. China now has 10 times as many mobile base stations as the US and has invested USD 180 billion in the mobile infrastructure over the last 5 years.

In September, Trump announced $ 20 billion in subsidies to US companies to build a mobile network 5G. Trump: “we cannot allow another country to spill the US into this Central future industry.“Trumps’ decision means that the new 5G infrastructure will be built for a frequency range of 24 to 300 GHz. This is in range and penetration inferior to the “sub-6” frequency range, however, which is used today in the world and of course also in China for the mobile radio 5G. The US military and government control most of the spectrum, the frequencies that are used anywhere else in the world for commercial purposes, including mobile communications. The Washington Post quotes a government official: “this is a race in which no one else takes part, for a 5G mobile ecosystem that no one else in the world uses.“

Another area in the US economic war is artificial intelligence. This includes self-learning Software systems, which are trained on huge data sets, so that they can, for example, recognize patterns during autonomous driving or identify faces during surveillance of public places. The U.S. Department of Commerce maintains a blacklist of Chinese companies with which U.S. suppliers are not allowed to do business without explicit permission. These include, Of course, China’s telecom companies Huawei and ZTE. Now the U.S. Department of Commerce has expanded the list. Also, the Chinese face recognition specialists Megvii, sense time and Yitu, and the voice-recognition firm iFLYTEK are now on the black list. The advanced rationale: support for Chinese Repression against Muslims in Xinjiang. This is what the killers of 4 million Muslims have been saying since the events around the WTC.

So far, the US dominance in the semiconductor industry, whose emergence in the Silicon Valley after World War II was financed mainly by the Pentagon, has been unchallenged. China’s state-sponsored semiconductor industry is still back by years. Therefore, the United States uses its position of dominance in the chip industry as a key lever in the economic war. As early as 2018, the Chinese Telekom group ZTE was able to feel it, which no longer received Chips from US companies from one day to the other and was about to be liquidated. In 2018, the US government banned the acquisition of the US chip group Qualcomm due to security concerns; Broadcom, at that time still listed on the Singapore Stock Exchange, was allegedly too close to China.

China now imports more semiconductors than oil in terms of value. Huawei alone imported components from the USA for 11 billion US dollars in 2018. In addition to specialty chips for wireless data communications, particularly to the miniaturization: Here is TSMC, Intel and Samsung dominate the world market. Only these three companies can supply high-performance Chips in 7nm or 5nm technology. The special machines for the Chip-lithography usually come from ASML from the Netherlands, the best cost 120 million US dollars per piece. Shanghai Corporation SMIC has now bought one of these machines. If China is blocked from access to the latest technology in the future, China’s catch-up in the chip industry can be thrown back for years.

The German federal government has in the past, incidentally, actively helped to hinder China’s catch-up in Chip technology. Three years ago Chinese companies wanted to take over the small Aachen machine manufacturer, AIXTRON. He builds equipment for the coating of wafers, the Chip Pizzas. After Intervention by the Obama Administration, the former Minister of the economy / the Atlantic Troll, Sigmar Gabriel conceded the explicit Ministerial approval for the Acquisition of Aixtron.

The decoupling of global supply chains and financial networks, as a US weapon

The global production and financial networks that have emerged over the last 30 years have, until recently, been resistant to state control and have served as guarantors of global prosperity and peace. The Vision of the US journalist Thomas L. Friedman in his book “The world is flat”. Now, these networks are used as weapons, on a distributed and complex battlefield. Even after 11 September, the US began to use the global, US-dominated financial industry as a weapon against so-called” rogue states”.

This is first of all about decoupling the industrial and logistical supply chains. The global supply chains with China in the center are to be dismantled. This concerns primarily the supply chains of the electronics industry. We may be facing a restructuring of the technology sector that is being split into US and China-centric supply chains. There can be rival networks with global influence. The customers in Europe, Asia, Africa or Latin America are either in the zone of influence of the US or Chinese suppliers.

“In the electronics industry, it is consensus to deduct about 30% of production from China, depending on how important the US market is … each manufacturer needs a Plan for this. Apple is the very last and slowest in relocation planning. All other plan much more aggressive …“ quoted by tech scroll Asia a Supply Chain specialist. Samsung just closes its last Chinese Smartphone plant in Huizhou in the Pearl River Delta with 6,000 employees. New Samsung factories to supply the world market are being built in Vietnam and soon in India. However, Samsung’s market share for Smartphones in China has fallen to 1%.

The decoupling of China from the global, US-dominated financial systems is perhaps even more serious in its consequences. The U.S. government is currently examining all options, China and Chinese companies from the U.S. capital markets is ruled out. One Option is that Chinese companies can no longer be listed on US stock exchanges. The Chinese Internet group Alibaba had made years ago, the largest IPO in the history of wall street. In February 2019, 156 Chinese companies, including 11 state corporations, were listed on US stock exchanges with a market capitalization of $ 1.2 trillion. A further Option, the US government is investing a ban on U.S. pension funds in Chinese companies or funds.

The decoupling also includes the limited US Visa allocation for Chinese students. The US Visa award to Chinese has halved under the Trump Administration. Background: so far, it has been an important part of career planning for the children from China’s leadership and middle class to study in the US. In some cases, graduates with a Chinese passport represented almost half of all newly recruited skilled workers in the Silicon Valley.

Success of the US decoupling strategy is questionable

In the short term, the United States forced the decoupling of the supply chains and financial flows, have a negative impact, not only on China’s economic growth and employment, but probably also on productivity: If China is cut off from international Connections, less access to other technologies and skilled workers, could suffer from China’s productivity. So the assessment of many Western economists. Chinese economists such as Prof. Xiaobo Zhang from Beijing University the long-term opportunities for China to work with other emerging countries and to develop its own technologies.

In addition, the decoupling of the highly complex supply chains takes years, especially in electronics production. In China, Global Capacity is concentrated in the electronics industry, and it is estimated to be far more than 50%. Only in Chinese conurbations can tens of thousands of workers be hired within a few weeks, e.g. for the launch of the next generation of iPhone. Shenzhen in the Pearl River Delta is also the only Cluster in the world where complete Know-how from software to Chips and Displays to manufacturing technology is available for the development of a new electronic product. Such a thing can hardly be replaced. In addition, the US overcapacity is leading to the accelerated development of networks that will pass by the US in the future. Thus, the analysis of Abraham Newman, a U.S. scientist, in a recent study on global economic networks.

An example of this is the EU-initiated building up of an international payment system, the U.S. sanctions against Iran to be imposed after the unilateral termination of the nuclear agreement by the United States. It is no coincidence that both China and Russia expressed their interest in the project.

Double-strategy of Germany and the EU: China as a Partner and as a systemic rival

Until recently, the EU considered China as a strategic Partner and primarily as a source of growth and jobs. The decoupling of China is not a strategic Alternative for Germany and the EU. Instead, the China strategy aims at even more economic integration. German-Europe wants influence and participation in China’s future projects (e.g. the project of the “new Silk Road” or Belt-and-Road Initiative (BRI) as well as China’s industrial policy with “Made in China 2025”). China is no 1 economic partner for Germany and also for Europe. Over 40% of the EU’s economic output is exported.

German-Europe wants to benefit from the rise of China. At the same time, anchoring it in the Western alliance guarantees that it does not create any dependence on China. But the new design of a China strategy, developed by the European Commission and the EU’s External Action Service, is tougher. At the same time, he regards China as a “cooperation partner whose objectives are closely in line with those of the EU, as a negotiating partner. The EU must find a balance of interests to regard China as an economic competitor in the interests of technological leadership and as a system rival that promotes alternative models of governance“.

The “Bundesverband der Deutschen Industrie” (BDI) in its paper on theses from the beginning of 2019 comes to a similar conclusion. It provides the economic, political, military and cultural hegemony of the West permanently in question. Leading circles in the economy and politics in Germany now see China’s rise as a special threat to German industry, which is spoiled for success.

Germany and China’s industrial policy

In China, specialized MERICS, warns think-tank in Berlin, explicitly against the danger caused by China’s industrialization strategy: a lack of Know-how, according to MERICS China’s Achilles heel; the Chinese government is of the essence, therefore, foreign companies to relocate in the most developed parts of their value chain to China. China’s Industrial Strategy offers great opportunities in the short term, but also great risks in the long term, especially for highly sought-after foreign companies. For China’s innovation offensive is likely to weaken the competitiveness of other countries in many high technologies worldwide, according to the MERICS people Max J. Zenglein / Anna Holzmann.

Hardly any country is threatened by the Chinese industrialization strategy as much as Germany. Because our economy is much more export-oriented than the economies of other major advanced countries. And so far, we have succeeded in maintaining a very competitive industry in global structural change, in which the automotive sector plays a central role. In this respect, we should have thought long ago about the impact of China’s ambitions on our economy. (Peter Bofinger)

According to MERICS, no other country in China’s innovation strategy is as explicit as Germany. The researchers warn that Germany’s strength in China’s innovation offensive willingly through numerous cooperations in economics and research. This could directly damage Germany’s economic foundations. China’s most important trading partner in Europe is still acting as if the two countries were only partners and not competitors. Intelligent manufacturing is a central component of the Chinese industrial strategy. For this reason, China still needs extensive technology, industrial and innovation cooperation for the time being. There was too little talk about the risks of such an engagement.

Strict cooperation criteria should therefore be developed and unwanted technology transfer avoided. MERICS researchers call Japan, South Korea and Taiwan as role models, which take a much more restrictive approach to Chinese investment and research cooperation.

China’s rise and weakness of the EU

China’s rise, however, also gives the EU, and thus especially German capital, more room than the US. Like the EU, China is committed to a multipolar international order. In purely economic terms, the EU can stand up to the US and China. Your internal market, which has a volume of 19 trillion dollars, gives it in trade negotiations, competition policy and the setting of rules and standards enormous influence.

At the interface of economic policy on the one hand and foreign and security policy on the other, the EU lacks the Will and ability to act strategically. Their member governments are lacking … in geopolitical Thinking. The EU itself has no military Power, and most of their members rely on the United States. In addition, the EU is increasingly only a consumer of modern digital technologies developed elsewhere. The result is that the EU is trapped between the US and China. It urgently needs to develop the kind of common goal and strategic ability that the French President, Emmanuel Macron, is currently almost the only one to stand for. (Legrain)

He also laments that individual EU states are increasingly under Chinese influence in the absence of a mutually agreed (and not just serving German interests) China strategy of the EU. With bilateral agreements with EU countries and the meetings with Central and Eastern European countries in the “16+1"Format, China has created a political counterbalance to the ravages of the austerity policies implemented by Germany in Europe.

German and EU measures against China’s rise

At present, Germany and France in particular are trying to build up intensified political and economic pressure against China. China is expected to meet Europe more in the upcoming negotiations on an EU-China Investment Protection Agreement. Since the EU has many times more direct investment in China than vice versa, China in the EU is at stake for the EU. Here, the EU expects further concessions, e.g. for investments in China’s financial sector. The amendment of the German Foreign Trade Act at the end of 2018, which reduced the reporting requirement for non-EU investors to 10% and was negotiated in the media as “Lex China”, creates further bargaining pressure on the Chinese side.

The EU’s draft for the Screening of investments by investors from non-EU countries is also directed against China. Long-term success could also be the EU Commission’s offer to the US to forge a single transatlantic front for Standards and patents against China (Financial Times 26. 2019) and possibly also to include data protection. If a transatlantic agreement is reached, the EU could once again score as the setter of standards in future technologies. Finally, the French Initiative to rebuild EU relations with Russia is aimed at weakening China. Here, however, France will get lost, Russia doesn’t think in Partner and competitor. Russia thinks only in partnership as Syria shows and also the many meetings with China and other Asian leaders.