How economic brinkmanship is not a solution post-Covid world wants

Discussing the US’ response to the Tiananmen Square massacre of 1989, former foreign Secretary Shyam Saran in his book How China Sees India and the World notes: “Deng [Xiaoping] was also convinced that sheer profit motive would persuade Western companies invested in China to persuade their government to eventually relax the sanctions. He reckoned that China was too large and a growing market to be ignored. His assessment proved right.”

And, we know despite the sanctions imposed on China, Senior Bush did send a secret mission under his National Security Advisor Brent Scowcroft in July 1989 “to assure Deng of American interest in continuing to forge a strong relationship with China”.

Three decades have passed since then, China today is the second largest economy with a nominal GDP size of $17.7 trillion, the largest manufacturer, the country makes up 28.4 per cent of the global manufacturing output, certainly enjoys an envious position in the global supply chains, and a leader in critical technology and innovation (as per ASPI’s Critical Technology Tracker, China’s global lead extends in 37 out of 44 critical technologies fields spanning defence, space, robotics, energy, the environment, biotechnology, artificial intelligence, advanced materials and key quantum technology areas).

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China has been an economy that has seen, in forty years, from 1978 to 2018, a recorded average GDP growth rate of 9.5 per cent, lifting 300 million people from poverty, and with epic per capita income rise from $100 per annum to $10,000 per annum, this is unprecedented in the history of mankind!

But recent data shows the Chinese economy faltering its path, defying expectations to rebound after three-years of “Zero Covid” policy, the “global economic powerhouse” has slipped to deflation, the official consumer price index, a measure of inflation, fell by 0.3 per cent last month from a year earlier.

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Also, according to the National Bureau of Statistic (NBS), retail sales in July grew 2.5 per cent year-on-year, which was 3.1 per cent in June. Further, industrial output expanded 3.7 per cent (YOY) last month, compared to 4.4 per cent in the month preceding it.

Additively, China’s exports fell by 14.5 per cent in July (YOY), while the imports dropped 12.4 per cent. In June alone, the overall foreign trade growth fell about 6 per cent.

China has also stopped sharing its youth unemployment data after the unemployment rate among the youth reached a high of 21.3 percent in June.

This produces a grim picture, particularly when the country known for debt-diplomacy has a debt to GDP ratio of 280 per cent. Thus, the state has little room to provide stimulus to the extent expected.

Also, Evergrande, once China’s top property developer, with $330 billion in debt, posting a combined loss of $8.1 billion for the year 2021 and 2022, has become poster child of country’s property crisis, where Goldman Sachs has already said that the recovery of the sector is likely to remain sluggish.

Further, strict regulations of the tech-sector by China, has aggravated unemployment, loss of revenue or shut-shops in the concerned sector.

These data are so frightful that many in the West have started contemplating that the forty-years of boom is over. “Economists now believe China is entering an era of much slower growth, made worse by unfavourable demographics and a widening divide with the U.S. and its allies, which is jeopardising foreign investment and trade. Rather than just a period of economic weakness, this could be the dimming of a long era,” said The Wall Street Journal.

Ever since the ‘Trade War’ began in 2017 just months before the beginning of Xi’s second term, the Economic Brinkmanship followed has adversely affected both the parties. Amid the insecurities of the “superpower” towards the rise of China competing for the global hegemony in the sector stretching from economy to culture, it cannot be denied that an assertive China under the leadership of Xi Jinping, dreaming of becoming the most powerful and influential country by 2049 while celebrating 100 years of the PRC establishment cannot go unnoticed. When a 2019 defence white paper of China states, “The world is undergoing great changes unseen in a century but time and momentum is on our [China’s] side,” this raises the eyebrows of those powers often susceptible towards the larger geopolitical implications of China’s rise.

And, American response to the war in Ukraine and further ‘pushing’ of Russia into the China fold, has certainly made the world move towards the bipolarity, something that China is now not very wary of since the time it has managed to overcome 2008 financial crisis and escalation of Xi as the paramount leader in 2012.

But as the author writes it, Indian rupees have touched the lifetime low, ending at 83.15 per dollar on 17 August 2023, with reports emerging that the “concerns over Chinese economy prompt investors to cut exposure to emerging market’s currencies”. Further, the US economy is also struggling with supply chain issues, layoffs and inflation. The Chinese economy, as aforementioned, has been facing a crisis of confidence. While the economies of the Global South will certainly not be welcoming to the chicken game played by the two largest economies of the world, particularly in the backdrop of the Russia-Ukraine war.

As shown in the recent article published in The Economist, “Given that most countries are desperate for the investment and employment the trade brings , America has been unable to convince its allies to reduce China’s role in their supply chains… Ironically, then, the process driving America and China apart in trade and investments may actually be forging stronger financial and commercial connections between China and America’s allies. Needless to say, that is not what President Biden has in mind.”

After three years of pandemic and one and a half years of Russia’s invasion of Ukraine, it hardly be in the interest of any power to follow the policy of economic brinkmanship, if in 1989, China and the US had to find out a way, both the powers are much more interconnected today, and for the other emerging economies like India, to have a more dominant position in supply chain has to be through domestic incentive to manufacturing, critical technology and innovations, and India has that potential without merely being benefitting by the ‘decoupling’ of West from China.

Also, the time and tide of the modern global order ask for more cooperation than confrontation; the “world is big enough for both the United States and China to thrive,” as US Treasury Secretary Janet Yellen said during her China visit this July. The similar was the tone when Blinken visited Beijing to ensure that competition “does not veer into conflict”.

Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost_’s views._ Read all the  Latest News,  Trending News,  Cricket News,  Bollywood News, India News and  Entertainment News here. Follow us on  Facebook,  Twitter and  Instagram.