US Tech War On China
Washington has tightened its tourniquet around China’s technology sector. When Chinese President Xi Jinping met US President Joe Biden last month at the Asia Pacific Economic Cooperation (APEC) forum in San Francisco, he was noticeably conciliatory. Gone was the “wolf diplomacy” aggression that Xi had made part of China’s foreign policy.
The reason: China’s star has dimmed. Foreign firms are not yet fleeing China because they are still too heavily invested in it. But while decoupling is not an option, de-risking is increasingly a necessity for global firms operating in China.
Beijing’s tough new laws governing foreign firms have soured the mood even as China’s economy slows. Foreign direct investment (FDI) in China in July-September 2023 recorded, for the first time since 1998, a nett outflow of $11.8 billion.
The broad signals from the West are negative as well. Italy recently announced that it was dropping out of Xi’s signature global infrastructure project Belt and Road Initiative (BRI). The news prompted a furious response from Beijing which accused the West of smearing BRI.
But it was Xi’s brief meeting with Biden in San Francisco that revealed China’s growing vulnerability. The New York Times noted: “Xi voiced his longest and loudest protests about the cut-off of the fastest computer chips, which Biden responded would help the Chinese military. The two leaders were at fundamental odds on the issue: What Xi sees as economic strangulation, Biden sees as an issue of national security.”
China’s official media was quick to hit back. It pointed out that “China’s development is driven by innovation, and stifling China’s technological progress is nothing but a move to contain China’s high-quality development and deprive the Chinese people of their right to development.”
Official estimates put China’s GDP growth in 2023-24 at 4.9 per cent on a low base. But with the real estate sector – which accounts for over 30 per cent of China’s economy – in deep crisis, average annual growth beyond 2024 may dip to three per cent.
Till last year, analysts were predicting that China would overtake the US as the world’s largest economy by the early 2030s. Now many economists believe China is headed for the sort of long-term economic ennui that Japan slipped into in the 1990s.
As a result, Japan’s economy has stagnated. In 1990, Japan’s GDP ($3.13 trillion) was over half as large as the US economy ($5.96 trillion) and growing faster. Nissan and Sony dominated US marketshare. Experts believed Japan’s economy would overtake America’s by 2000.
History can be a cruel leveller. By the early 1990s, Japan’s growth had stalled to nearly zero. Thirty years later, in 2023, its economy ($4.23 trillion) is barely one-sixth America’s ($26.90 trillion).
China is unlikely to meet Japan’s fate. But like Japan in the 1990s, it too is an ageing country with a shrinking population. History doesn’t always repeat itself. But China’s demographic vulnerability has been exposed by America’s tech war.
As Nitin Pai, co-founder and director of think tank The Takshashila Institution, wrote in Mint, “Tech is where China hurts the most. Cutting off access to cutting edge semiconductors and production technology is a severe blow to the Chinese tech ecosystem, potentially setting it back by as much as a decade. The US can impose export controls, sanctions and manpower restrictions to contain China’s tech industry. Beyond restricting some rare earth exports, Beijing has little to retaliate with.”
Geopolitics and geoeconomics
The US-China tech war has geopolitical implications. With 2024 being an election year in the US, Biden and his likely challenger, former President Donald Trump, will compete to tighten the screws on Chinese technology.
Much too will depend on the Taiwan general election due on January 13, 2024. If the anti-China Democratic Progressive Party (DPP) retains power, Beijing’s plan for a peaceful reunification with the island that lies just 100 miles off the mainland will face a setback. Will China mount an amphibious military invasion of Taiwan as it has threatened to do if reunification negotiations don’t work? The grinding wars in Ukraine and Gaza might dissuade Beijing from launching a full-scale assault till its economy stabilises. Victory for the pro-China Kuomintang (KMT) will greatly boost China’s ambition to work towards a blueprint for a peaceful takeover of the rebel island.
India will need to nuance its position in a rapidly changing world. The US has been privately unhappy with India’s assertive leadership of the Global South. For Washington, there are only binaries: us and them.
The Global South does not fit into this matrix. The US needs India on its side to help police the wide arc between the Gulf of Aden and the Malacca Strait. But an assertive, independent-minded India grates on the Washington bureaucracy and its retinue of neo-cons. They have deep ties with the military-industrial complex (MIC).
The US has so far pumped $260 billion of military aid – five times India’s annual defence budget – into Ukraine’s war with Russia. The money has not gone directly to Kyiv but to US defence contractors like Lockheed Martin, Raytheon Technologies and General Dynamics. Ukraine gets the hardware. US firms get the money.
India’s neutrality over Ukraine continues to annoy Washington. The US has defended the proscribed terrorist Gurpatwant Singh Pannun instead of prosecuting him. Whether or not Pannun is a CIA asset as widely reported, he serves Washington’s aim to keep India guessing.
The economic war on China consumes US attention. But the outcome Washington most fears is India developing silently over the next decade into an economic powerhouse like China.
A report released last month by leading brokerage house CLSA predicted that India’s economy, at $45 trillion, will surpass America’s GDP in 2052. The report has caused disbelief and annoyance in the warrens of Washington’s deep state.
