April 11, 2024 Special Dispatch No. 11273

In Moscow Daily, Russian Professor Discusses U.S.-China Economic Competition: 'A New Civilization Is Being Built In Which, As The Americans Fear, There May Be No Place For The U.S.'

April 11, 2024
Russia, China | Special Dispatch No. 11273

On April 7, 2024, the website of the Moscow-based daily Moskovskij Komsomolets, published an interview with Russian professor Yuri Zhdanov titled "Prof. Zhdanov Explained The U.S. Fear Of China: 'A New Civilization Is Being Built.'"[1] The interview covers the economic competition between the U.S. and China, green energy technologies, China's increasing trade with Russia amid Western sanctions on that country, the possible ban on TikTok in the U.S., China's economic difficulties, American tariffs on Chinese goods, U.S. Treasury Secretary Janet Yellen, accusations of Chinese efforts to place malware in the systems of American infrastructure, and other related topics. Zhdanov says: "China is creating a fundamentally different economic model – in essence, a new civilization is being built in which, as the Americans fear, there may be no place for the U.S."

Photo: Global Look Press

Following is a translation of the article:

"Beijing Has Expressed Serious Concerns About A Bill Backed By The White House And Currently Brought Before Congress That Would Allow The U.S. President To Ban Popular Social Network Tiktok In America If Its Chinese Parent Company Bytedance Does Not Sell The App"

"Americans try to pressure Beijing not to help Russia evade sanctions

"American analysts are concerned about another surge in economic competition with China. And this time they are not just calculating losses, but fear the literal destruction of some sectors of their industry. Professor Yuri Zhdanov, Doctor of Law, Honored Lawyer of Russia, told why the U.S. fears economic collapse.

"– Yuri Nikolayevich, the fierce economic war between the U.S. and China is nothing new. Nevertheless, these countries are not tearing up relations with each other, and on April 4, the U.S. secretary of the treasury Janet Yellen even arrived in Guangzhou for a five-day visit. What prompted her to fly across the ocean?

"– The reason was the Chinese economic stimulus program, which, according to U.S. officials, could hinder U.S. economic growth.

"– Could this program really hinder growth?

"– The Americans probably have good reason to think so. On the eve of her visit, Yellen accused China of 'flooding' markets for renewable energy production by heavily subsidizing products such as electric cars, lithium-ion batteries and solar panels as Beijing tries to solve its economic problems by increasing production of export goods.

"U.S. officials say China's discounted exports threaten to wipe out competing industries in other countries. During the trip, Yellen, who was chairman of the Federal Reserve of the United States from 2010 to 2014, will travel to Beijing to meet with the governor of China's central bank, Pan Gongsheng, Chinese Vice Premier He Lifeng and former Vice Premier Liu He, a key economic advisor to Chinese President Xi Jinping.

"Yellen plans to 'clarify the global economic implications of China's excessive manufacturing capacity, which is undermining manufacturers in the United States and firms around the world,' a spokesman for the Treasury Department told reporters.

"– Does China agree with this view?

"– No, of course not. The Chinese government has dismissed the concerns as protectionist ones and accused the United States of using similar subsidies.

"Yellen's remarks have been called hypocritical. Beijing pointed to the Biden administration's tax incentives related to electric vehicles, which exclude many Chinese-made cars.

"Spokesman for the Chinese Ministry of Foreign Affairs Wang Wenbin said that China had welcomed Yellen's trip as a chance to 'properly resolve differences' and 'build consensus.' But he also dismissed complaints about China's subsidies for emerging and green energy industries.

"Speaking at the daily press briefing, Wang wondered 'whether the United States is really concerned about 'excessive manufacturing capacity'' or whether the United States is simply upset that its businesses are losing out to China in competition because of the 'international division of labor.' He said, 'As for who is engaged in non-market activities, the fact is clear. The American side has taken a series of measures to suppress China's trade and technological development. This is not 'risk reduction' but risk creation. This is a typical non-market practice.'

"– What specific measures by the U.S. has China called 'non-market practices'?

"– For example, Beijing has expressed serious concerns about a bill backed by the White House and currently brought before Congress that would allow the U.S. president to ban popular social network TikTok in America if its Chinese parent company ByteDance does not sell the app.

"Here's another touch: Xi Jinping hosted U.S. representatives in Beijing in late March to persuade them to invest in China. But back in August last year, Biden issued an executive order that instructed an interagency committee chaired by Yellen to closely monitor U.S. investments in China related to high-tech manufacturing."

"China's Support For Russia In The Conflict In Ukraine Is Another Issue That Comes Up During The Meetings. As The United States And Its Allies Have Imposed Sanctions On Russian Officials And Entire Sectors Of The Russian Economy, Such As Banking, Oil And Industry, Trade Between China And Russia Has Increased"

"– Yet the dialogue continues?

"– Yes. The trip by the secretary of the treasury followed Biden and Xi's first phone conversation in five months on April 2, designed to demonstrate a return to regular dialogue between the leaders of the two powers. The leaders discussed Taiwan, artificial intelligence, and security issues.

"Yellen emphasized that the United States is not interested in severing relations with China.

"China's support for Russia in the conflict in Ukraine is another issue that comes up during the meetings. As the United States and its allies have imposed sanctions on Russian officials and entire sectors of the Russian economy, such as banking, oil and industry, trade between China and Russia has increased. Which is also stressing the Americans out.

"– Why aren't Americans happy about exporting clean energy?

"– They are losing competition! A top priority for Yellen is to convey the Biden administration's deep concern that a glut of heavily subsidized green technology exports from China is distorting global markets.

"Yellen, during a visit to a solar panel factory in Georgia in late March, said that the growth of Chinese exports of electric cars, batteries and solar technology is problematic at the time when the United States is spending huge sums trying to develop these industries. She argued that China had followed the same pattern it used when it had flooded world markets with cheap, state-subsidized steel and aluminum, hurting U.S. manufacturers who had been unable to compete.

"Yellen suggested that the United States could take steps to ensure that money spent under the Inflation Reduction Act would not be undermined by China's practices.

"– Are those are the very concerns about wiping out entire industries?

"– Among other things. China has focused on factory production to prop up its so-called 'sputtering economy.' Its exports, measured in dollars, rose 7 per cent in January and February compared to a year ago. The rise in exports has also infuriated European Union officials, and last month the bloc announced it was preparing to levy duties, i.e., import taxes, on all electric cars coming from China.

"China has denied claims that its economy faces difficulties and is overly reliant on exports. But it has set an ambitious economic growth target of about 5 per cent for this year, and whether it is achieved will depend largely on strong demand for goods made by Chinese factories – electric cars, solar panels and consumer electronics.

"– Actually, raising tariffs is a perfectly logical and expected response.....

"– And, to all appearances, they will continue to rise. The Biden administration has maintained tariffs on Chinese goods worth more than $300 billion. The levies, first imposed by the Trump administration, remain a significant source of tension between the two countries.

"Yellen took office saying the tariffs were taxes for consumers and said Trump's levies were not well designed. The White House is weighing the possibility of easing some tariffs hitting consumers in the U.S. and imposing new ones targeting clean energy exports from China.

"And another round of tariffs on the U.S. solar industry could occur this summer, when the two-year pause announced by President Biden in 2022 expires.

"China has its own grievances against America's trade policies, and last week it submitted a complaint to the World Trade Organization alleging that the Biden administration's policies to subsidize electric cars are discriminatory.

"– Are China and the U.S. continuing to invest in each other's businesses?

"– Both sides say they welcome foreign investment, but their policies remain hostile. U.S. companies operating in China have complained over the past year about raids on their offices and persecution by Chinese authorities. Yellen, who is meeting with U.S. business leaders in Guangzhou, is seeking clarity on the scope of China's anti-espionage law, which foreign firms believe will lead to additional scrutiny by the government.

"In turn, China's leaders are seeking to change the view that the country is no longer a suitable place for foreign investors to put their money. In March, Premier Li Qiang said the government was lifting restrictions on foreign investment to make the country a 'favorite destination' for overseas funds. And Xi Jinping met a delegation of U.S. business leaders and said China remained committed to economic reform.

"However, on the same day as the meeting with Xi Jinping took place, China's Ministry of State Security warned the public about the intelligence risk posed by foreign consulting firms, i.e. the type of advisory organizations that foreign firms rely on when operating.

"The Biden administration has also sought to limit the flow of money into China, including a ban on new U.S. investment in key technology sectors that could be used to bolster Beijing's military capabilities. It has also limited China's ability to benefit from the Inflation Reduction Act, the U.S. Climate and Energy Law.

"– Besides all this, American sanctions against China are also working?

"– This is a favorite 'trick' of the Americans. As secretary of the treasury, Yellen oversees the U.S. sanctions program, which in recent months has increasingly targeted China.

"The Chinese have for years been accused of trying to place malware on America's electrical grids, defense systems, and other critical infrastructure, as well as stealing the electoral rolls of 40 million people.

"Yellen has repeatedly urged Beijing not to help Moscow evade U.S. sanctions. In a speech last year, she expressed alarm about China's 'borderless' partnership with Russia and called it 'essential' to ensure that China does not provide material support or assistance to Russia to circumvent sanctions.

"The Department of the Treasury is also increasingly focused on Hong Kong-based firms, which have also been accused of helping Russia and Iran circumvent U.S. sanctions.

"China Is Creating A Fundamentally Different Economic Model – In Essence, A New Civilization Is Being Built In Which, As The Americans Fear, There May Be No Place For The U.S."

"– What are the sanctions on China?

"– Typically, technology bans. The United States has imposed extensive restrictions on the sale of advanced computer chips, chip-making equipment and related products to China, saying Beijing has used the goods to develop advanced weapons and surveillance systems that are contrary to U.S. national security interests.

"China continues to resent these restrictions. After the White House revised rules on exports of U.S. artificial intelligence chips and chip-making equipment in late March, China criticized the United States, saying it was arbitrarily changing the rules and creating more obstacles to trade.

"– But could this discourage businesses from cooperating?

"– It could. The Economist's experts, in an article titled 'The mind-bending new rules for doing business in China. Xi Jinping is sending mixed messages to Western bosses and investors' wrote: 'For years foreign companies were desperate to get into China, and faced formidable bureaucratic obstacles in their way. Now many are getting out. Over the past 12 months several foreign law firms have closed some or all of their Chinese offices… Some global investment banks are pruning their Chinese staff. So are a few large accountancies and due-diligence groups. In 2023 foreign direct investment in China fell to its lowest level in 30 years.

"President Xi Jinping and the Communist Party are well aware of these problems. And they care. At least that was the message prominently broadcast at the China Development Forum (CDF) in Beijing on March 24-25 and repeated a few days later at the Boao Forum, China's answer to Davos. The mood at both gatherings was clearly better than last year, when it was spoilt by an alleged Chinese spy balloon that flew over America and then was shot down on President Joe Biden's orders. Many Western corporate bigwigs who stayed away have returned. More than 80 foreign executives arrived in Beijing, including many more Americans. In Boao, a senior official promised that China would facilitate the flow of capital in and out of the country.'

"– And yet you're talking about an albeit complex and strained but natural competitive economic relationship. I find the lamentations of American officials about the destruction of industries exaggerated. What do Americans really see as a global threat to themselves?

"– China is creating a fundamentally different economic model. In essence, a new civilization is being built in which, as the Americans fear, there may be no place for the U.S.

"The Economist published an interesting article (31.02.2024) 'How Xi Jinping plans to overtake America'. It analyses China's economic actions in detail and at length: 'Chinese government officials are looking for ways to strengthen the country's economy. Its productive forces have relied for years on labor mobilization and capital accumulation. According to the Asian Productivity Organization think tank, the country's labor force grew by 100 million between 1996 and 2015. Its capital stock rose from 258 percent of GDP in 2001 to 349  percent two decades later. Since the global financial crisis of 2007-2009 much of this capital accumulation has taken the form of new real estate and infrastructure.

"In its quest for a sophisticated yet autonomous production system, China has long employed many useful strategies. The Ministry of Education, for example, has recently approved a new program to train students in high-tech semiconductor science and technology. According to the Centre for Strategic and International Studies think tank, China's expenditures on clearer industrial policies, including subsidies, tax breaks and cheap loans, amounted to 1.7  percent of GDP in 2019, more than triple the percentage spent by America."

"What China Really Wants Is To Lead The Next Industrial Revolution"

"'What China really wants is to lead the next industrial revolution,' says Tilly Zhang of consultancy Gavekal Dragonomics. This will require modernizing traditional industries, breaking foreign grip over existing technologies and blazing a new trail in the industries of tomorrow. While the central government's ambitions are impressive and even alarming, it will not be able to succeed without the help of local authorities, who lack money, and private entrepreneurs, who lack confidence.

"In introducing the concept, Xi Jinping said that the test of the new productive forces would be to improving the 'overall productivity of the factors of production.' This refers to an increase in output that cannot be attributed to an increase in measurable resources such as capital, labor and human capital.

"According to Xi Jinping, new productive forces will arise from the application of science and technology to production. The phrase is a signal that China's technological advancement must be even more ambitious than today and more closely integrated into economic production. China's leaders have pledged to make a 'nationwide' effort to increase technological self-reliance. The central government budget released in March increased expenditures on science and technology by 10 percent, to 371 billion yuan ($50 billion), the largest percentage increase of any unit.'

"– And that's why the Americans are blocking China's access to its technology in every way possible?

"– Apparently, yes. The Economist writes: 'Advances in digital technology, the Internet of things, green technology and artificial intelligence (AI) promised breakthroughs in all areas of the economy. Rather than opting for a mix of emerging industries, China's new strategy focused on this cluster of mutually reinforcing technologies. China aimed to become a 'world power' in innovation by the middle of this century. In e-commerce, financial technology, high-speed trains and renewable energy, China is at or near the technological front. The same is especially true in electric vehicles, whose success helped China become the world's largest car exporter last year. In a list of 64 'critical' technologies identified by the Australian Institute for Policy Studies think tank, China leads the world in all but 11 ones, based on the share of the most influential entries in those fields. The country ranks first in 5G and 6G communications, as well as biomanufacturing, nanomanufacturing and additive manufacturing. It also leads in drones, radar, robotics and sonar, as well as post-quantum cryptography.

"China has also made good progress in the broader dimensions of the country's innovation 'ecosystem'. The Global Innovation Index published by the World Intellectual Property Organization brings together some 80 indicators covering infrastructure, regulation and market conditions as well as research activity, number of patents granted and number of citations.

"The economic impact of these achievements is more difficult to measure. China's list of 'strategic emerging industries' has changed constantly since its introduction in 2010, making it difficult to track progress. Chinese statisticians estimate that strategic emerging industries accounted for 13.4  percent of GDP in 2021, up from 7.6  percent in 2014, but below the original 2020 target of 15  percent. By comparison, value added from property construction and services (excluding links to the mining of steel, iron ore and other such industries) was around 12 percent.

"The country's innovative activities now seem to be split into three parts. China is determined to replicate 'stifling' technologies that the rest of the world may try to deny. The second goal is to invent technologies that the rest of the world has yet to create. In January, the Ministry of Science and Technology, along with six other ministries, published a list of 'industries of the future,' many of which are even more innovative than the strategic emerging industries of the past. They include photonic computing, brain-computer interfaces, nuclear fusion, and digital doubles – digital simulacra of patients that doctors can monitor for diseases that their real-life counterparts might have. China's government is encouraging laboratories and research institutes to spend more than half of their basic research money on scientists under the age of 35, believing they are more likely to make the breakthroughs the country needs.

"China's leaders hope that futuristic industries will contribute indirectly to the country's technological sovereignty by providing it with 'bargaining chips' in the coming technological battles. If America threatens to cut off China's access to vital resources, China can respond in kind.'

"– Indeed, China's success with electric vehicles has clearly demonstrated this. What is China's third goal?

"– According to the authors of the article, the third goal is to modernize existing industries. They quote Wang Yong of Peking University: 'Even the most traditional agriculture can form new productive forces if it utilizes revolutionary technologies.' He is referring to automated planting or breeding using scientific data.

"In two sessions this year, Chinese Premier Li Qiang outlined the country's 'major tasks' for the coming year. First on Li's list was to 'modernize the industrial system' and develop 'new-quality productive forces'. Expanding domestic demand, necessary to overcome deflation, ranked only third.

"– Is economic rivalry exacerbated by military confrontation?

"– The one only contributes to the other. Yellen's visit to China precedes the visit to the United States by Philippine President Ferdinand Marcos Jr. and Japanese Prime Minister Fumio Kishida scheduled for April 11, which the White House is announcing as the first trilateral meeting between the three countries.

"In early April, the trio announced joint naval exercises in the South China Sea amid the ongoing dispute between the Philippines and China over the Second Thomas Shoal.

"A delegation of U.S. lawmakers led by Senator Jeanne Shaheen, a New Hampshire Democrat, has also recently returned from a trip to meet with officials in the Philippines, Vietnam, Japan and South Korea.

"Shaheen stated on April 4 that 'The threatening maneuvers and militarization of islands in the South China Sea all motivate the continued cooperation we have with countries in the region. It has a significant impact not only in terms of potential military mistakes that could be misinterpreted and provoke conflict, but also in terms of trade and commerce and the ability to navigate these waters safely and it also disrupts trade.'

"Basically, that's true. Except who is making a dangerous mess in a region very far from the US?"


[1], April 7, 2024.

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