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Since the liberalization of the Chinese economy, the country has experienced a period of immense economic growth. However, China's focus is now shifting, as reported by The Financial Times last week. A new reality has emerged, in which the country no longer focuses solely on economic growth but is setting its sights on a technologically powerful economy that is immune to American interference. This brings China into a direct confrontation with the U.S. How are both superpowers attempting to expand their influence?
Earlier this month, it was revealed that the Chinese central bank made unprecedented interventions following the release of poor economic forecasts. The goal of achieving five percent economic growth in 2024 is under pressure. As a result, the Chinese central bank lowered both its policy interest rate, the interest rate on existing mortgages, and the minimum reserves for commercial banks. Last Saturday, China announced another stimulus package by taking on additional debt to support its struggling economy.
The aim of the package is to prevent deflation while boosting consumer confidence, according to Reuters. Reportedly, over $280 billion in additional debt will be issued. More than half of that will be used to help local governments with high debt levels, while the other half will be allocated as subsidies to support low-income individuals.
However, according to the Financial Times, there is an underlying goal to these stimulus packages. China is no longer just focusing on economic growth; the stimulus package is not intended to boost consumption. Instead, China is investing in technology that will eventually create high-paying jobs and rising incomes. Additionally, these investments will provide the opportunity to create a self-sustaining economy, making the Chinese less vulnerable to foreign interference.
The extent of that interference is evident from ASML’s export restrictions. The chip machine manufacturer from Veldhoven is no longer allowed to export its latest machines to China. The conflict between China and the U.S. is not limited to the chip industry; the two superpowers are also competing for dominance in other strategic sectors. This includes data centers, undersea cables, and wiring that forms the physical basis of the internet. Traditionally, the U.S. has dominated this infrastructure, but China is catching up. This aligns with China’s strategic vision to gain control over this infrastructure as well.
A division seems to be forming. Research by The Economist revealed that five out of twelve selected Southeast Asian countries largely rely on Chinese infrastructure, including Thailand and the Philippines. Five other Southeast Asian countries are dominated by U.S. infrastructure, such as South Korea and Japan, which have opted for American technology. Interestingly, India also relies on American technology. The country even banned hundreds of Chinese apps and launched investigations into various Chinese companies. The contrast between BRICS and the G7 doesn’t seem to apply in this context. In the remaining two of the twelve countries, the balance of power is yet to be determined.
An overview of the percentage of infrastructure in Chinese or American hands. (Source: The Economist)
The management of data centers and undersea cables serves a geopolitical purpose. Both the Americans and the Chinese use the infrastructure for espionage and can disable certain services. For example, the U.S. government has compelled tech companies to spy on both allies and enemies. In 2019, Papua New Guinea discovered that a China-subsidized data center in Port Moresby was using "openly broken" encryption methods to intercept government data. While companies like Alibaba and Tencent have recently refused certain requests from the Chinese government to share data, the risk of the government gaining access to sensitive information increases as China manages more infrastructure.
Recently, Nout Wellink delved deeper into the alleged benefits of a trade war with China in a podcast with Holland Gold. Wellink stated in the podcast that the West’s current policy is heavily focused on slowing down China’s technological progress. According to Wellink, this only pushes China to develop independently of the West. Furthermore, Wellink believes it is very difficult to keep China technologically behind. Not only does China have vast resources and a large population, but it is also heavily focused on innovation and progress. The laws of physics work the same way in China as they do in Europe, so eventually, China could also be capable of producing chip machines like those made by ASML.
Should China succeed in making its economy more self-sufficient, this would pose an even greater threat. Currently, China's dependence on the Taiwanese chip industry is a significant barrier to further escalating geopolitical tensions. But if China does manage to establish its own chip industry, the likelihood of a military conflict between China and Taiwan increases: "If they are completely independent from the West in their actions and in no way suffer harmful repercussions, the degrees of freedom to do irrational things only increase," Wellink said.
Moreover, the West could also suffer economically from a trade war. Many raw materials and minerals are primarily sourced from China. Tariffs imposed by the West can easily be reciprocated, leading to higher costs on the European continent. The conflict between China and the West will continue for years. Who will ultimately win is highly uncertain, but skeptics might argue that this conflict will only produce losers.
