The US, Europe are yet to fathom the Chinese challenge
Two recent investment and technology related developments revealed the current dilemma and contradictory impulses of the United States and Europe in dealing with the economic, technological, political and security challenges from an increasingly assertive China.
Financial Times reported on February 24/25 that US regulators “blocked the $580 million acquisition of a semiconductor testing company by a Chinese state-backed fund”. Another report, the same day, referred to Chinese carmaker Geely acquiring around 10% of “Mercedes- Benz owner Daimler for about $9 billion, becoming its largest shareholder”. Subsequently, on March 12, US blocked the $117 billion acquisition of chip maker Qualcomm by Singapore based Broadcom, citing national security concerns.
Several recent commentaries, including by Charles Lane in The Washington Post of March 1, and Briefing in the Economist of the same date, talk of how the West got China wrong. Western engagement with China, initiated by Richard Nixon and Henry Kissinger in 1971 to gain geopolitical advantage against the Soviet Union, was subsequently justified on the expectation that an economic rise would lead to political reforms and adherence to a “rules-based international order”.
Deng Xiaoping’s “hide and bide” strategy enabled China to lull western concerns till it was economically and militarily strong enough to assert its own interpretations, in the South China Sea, in the Nuclear Suppliers Group on India’s membership, and in forcing multinational companies to part with technology for limited market access. In the March/April issue of Foreign Affairs, Kurt Campbell and Ely Ratner have argued that “basing policy on a more realistic set of assumptions about China would better advance US interests”.
The US National Security Strategy document of December 2017 spoke of China now posing a challenge to US power and influence, to its security and prosperity, the earlier premise of integration into the international mainstream turning out to be false, China stealing intellectual property, distorting markets, and forcing technology transfers. The US National Defense Strategy document of January described inter-state strategic competition and not terrorism as being US’ primary concern. It spoke of China “leveraging military modernization, influence operations, and predatory economics to coerce neighboring countries to reorder the Indo-Pacific to their advantage”. In a testimony to US Congress on February 14, USPACOM commander Admiral Harry Harris described China as seeking to “supplant the US as the security partner of choice” for countries in the region.
In a late February meeting of the Stockholm China Forum in Hong Kong (bringing together a group of western scholars, officials, business and some Chinese scholars) the mood was one of anxiety and search for strategy on the part of the western representatives, and assertive confidence on the part of the Chinese.
Contrary to the Soviet Union earlier, China was now both an economic and a military challenge. Soon it will also be a technological rival: “in personal computers China had entered the game after it was over, in mobile and internet it entered halfway through, in artificial intelligence it is only 1-2 years behind the US, and far advanced in facial recognition”. Its political system enabled it to gather big data far more easily than its western competitors. The engagement strategy of 1990s and 2000s was, therefore, not seen as viable any more. The manner in which China penalised South Korean companies for their government decision on basing THAAD missiles, and compelled the CEO of Daimler Benz to apologise for an Instagram post carrying a quote from the Dalai Lama was a signal that companies took as requiring a lessening of their dependence on Chinese market, which for many today was in the range of 10-20%. Trade issues involving China, enforced technology transfers in China and strategic acquisitions by China were not amenable to WTO resolution. China was also now enhancing its influence operations overseas. There were 110 Confucius institutes in the US, and it was funding political leaders and groups more and more, as was revealed recently in Australia.
While the recognition of the challenge is now starker, there is still no clarity or agreement on a counter strategy. So far, China has exploited the competition among the US, the UK, France and Germany for Chinese trade, investment and finance. The West still has to come up with an effective response to the Chinese strategic thrust through the Belt and Road Initiative. “Free and open Indo-Pacific” so far is largely words and tentative steps in developing new networks of security.
On Thursday, Trump ordered that tariffs worth $50 billion be levelled on Chinese imports into the US. China has the power to retaliate, and is expected to raise tariffs on agricultural imports from the US following measures against Chinese steel and aluminium, which would also impact many US allies. Established global supply chains could be affected. Several US trade associations have opposed these measures.
One area where there is some convergence is on restricting Chinese strategic and high-technology acquisitions. This is facilitated by Chinese restrictions on western acquisitions and market access. But even here there is divided opinion. The Economist Briefing, for instance, concludes by opposing any reciprocity that would be contrary to western values and norms. The European Union has of late found it difficult to arrive at a consensus among its members on assessing human rights in China or its actions in the South China Sea. There is no common EU investment screening mechanism, only half its members have any policy in place, and there is concern that a EU screening mechanism could disproportionately benefit some member states. Many countries are also staunch advocates of open regimes, and not giving up their own values despite lack of reciprocity by China. In the US, however, Senators John Cornyn and Dianne Feinstein are leading an effort to strengthen CFIUS (Committee on Foreign Investment in US) screening.
Western response to the Chinese challenge is still evolving. It will weave its way through competing business and national interests, and differing political approaches to reciprocity versus preserving values and norms despite asymmetric competition.
India, in the meantime, will have to brace itself to deal with growing Chinese economic and military footprint in the Indo-Pacific. It will require fresh efforts in our immediate neighbourhood, participating actively in new security architectures in the Indian Ocean and Pacific Ocean, focusing on enhancing our economic and military strength, and working out a new framework for relations with China.
Arun K Singh is a former Indian ambassador to the United States of America
The views expressed are personal