Why Should We Fear China?

 

In a recent visit to South Africa, a good friend was asked by a business associate there if one should fear China. Apparently, this South African gentleman had read many negative media reports on China. 

Upon his return, my friend took pain to compose the following to help explain the truth to his associate. He has shared the composition with me. The concerns are very well explained and I have obtained his greenlight to share it with readers as well.

 

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This question requires more than a simple answer of "you need not fear" or "you should fear".

This is because we live at a time when a massive information war is being waged on China, conducted principally by the USA and some of her allies.

As a start, we need to have a clear understanding of how the world we live in is organised and the sources of information which influence our views, thinking and perspectives.

I believe you are aware that worldwide only about half a dozen news agencies in the US and Europe are the primary supplier of news/information to most of the world's English media. (Reuters, Associated Press, Bloomberg, AgreeFrance-Presse, UPI, and BBC, etc). However increasingly the monopoly power of these news agencies is being challenged by social media.

One interesting example. If you follow the western English media, how many countries do you think have sanctioned Russia over its invasion of Ukraine? You would be forgiven if you think most countries have sanctioned Russia. 

This is the actual answer: No African country, No country from the Middle East, No South American country. In the whole of Asia only three countries (Japan, S. Korea, and Singapore). So only the USA, most (not all) European countries, Canada and three from Asia.

Beyond official and commercial sources, the American CIA is a major and very powerful player in spreading information and influence, directly and indirectly. It was recently reported that the CIA has a budget of USD1.6 billion to "manage news and information" on China. Among others this money is used to support media organisations and reporters around the world on their reporting on China. To put it mildly, to spread disinformation about China.

The world is now at an inflection point. American hegemony and dominance is giving way to a multi-polar world, with emerging powers ranging from China to Russia to Brazil and India. However, this is a development America is unwilling to accept and therefore the risk that America will go to war to protect its hegemony is real.

China due to the size of its population and economy (which is already larger than the US based on purchasing power parity), is therefore viewed by American leaders as its most serious rival and even enemy. This is despite China's protests that it has no intention to displace America. China's per capita income is still not even a quarter of that of the American's. However, the US still feels threatened and continues to take actions to retard China's progress or growth. It has stopped the exports of advanced semiconductor chips to China and also prevented other countries from doing so. It also does not allow The Netherlands, a sovereign nation, to export advanced chip making machines to China. And also sanctions many Chinese companies in the name of national security.

The Information War.

Based on the English mainstream media, these are some of the recurring themes when they report about China. It would take many pages to discuss each of these topics. But I will briefly touch on each. If you are still interested after reading this email, the rest you need to read by yourself:

1.  China wants to disrupt the existing global order.

But what is this "existing global order" which is being threatened? It is, of course, one in which America (and her allies) dominates and controls. Most international institutions set up after WWII were and still are dominated by the US and European countries. The UN, IMF, World Bank etc. No head of any of them can be appointed without the approval of America. The World Bank head is always an American and the head of the IMF is always from France. Even the Asian Development Bank (ADB) is dominated by the US which always appointed a citizen of its close ally, Japan. No Chinese has ever been President of the ADB, even though the Chinese economy has long surpassed Japan's and is a few times larger than that of France.

However, when any of these institutions are no longer considered useful or no longer follow the wishes of the US, the US starts to abandon them. For example, the US has withdrawn from the WHO and stopped appointment of members to the Dispute Settlement Panel to WTO to prevent hearing of cases brought against the US.

2. China bullies its neighbours in the South China Sea and threatens freedom of navigation.

There are real territorial disputes over areas of the South China Sea, not just involving China but also between Vietnam and Philippines or Vietnam and Malaysia. Most of these disputes resulted from former colonial powers arbitrarily drawing boundaries or territory seized during war e.g., the Diaoyutai islands were seized by the Japanese and supposed to be returned to China after WWII, but it did not happen.

There are also constant accusations that China will threaten freedom of navigation in the South China Sea. This is very strange. China is the world's largest trading nation. Virtually all her trade is by sea via the South China Sea. Why would China want to restrict navigation in the South China sea when it would be the first to suffer if there is any disruption?

3. China subsidizes research and development of its industries which give them an unfair competitive advantage.

Every country subsidizes research and development, but they go under different names and labels. In America, the government gives all kinds of research grants to universities and industries. Many American innovations came from military research. 

Boeing is probably one of the most subsidised companies in the USA. Likewise, Airbus is heavily subsidized by European governments.

4. Chinese companies sell their products overseas at below costs (" dumping"). 

Every time an American industry cannot compete, the easiest thing to do is accuse the foreign competitor of dumping. It used to be Japan but now the focus is on China.

Many complaints against China of dumping to the WTO have proven to be not true under proper scrutiny.

As you know, in manufacturing, you should continue to produce so long as your marginal revenue is higher than your marginal costs, even though your marginal revenue is below total costs. This is because your fixed costs are sunk costs. This we learn in our introductory economics course.

One huge advantage Chinese companies enjoy is their massive market and scale. Economies of scale which no other country can match. In the 1950s and 1960s America was in this position.

But later American companies decided to outsource production to other countries because it was more profitable to do so. And most moved their production to China, with her well educated and disciplined labour force. Now American politicians accuse China of stealing American jobs!

China's new energy vehicles are one such example which enjoys economies of scale. Few countries will be able to compete. Of course, China is also way ahead in new energy vehicles technology. Other examples are solar panels and cellular technology.

If all the accusations of dumping (selling below costs) by Chinese industries are true, China should be bankrupt by now!

5.  Unfair Trade Balance.

For the last 30 - 40 years or so, companies in many developed countries decided it was more profitable to have their products manufactured in China while they concentrate on designs, marketing and promoting their brands. China's lower labour costs, disciplined & better educated workers were able to produce at much lower costs.

Brands like Apple totally outsource their production overseas. It is estimated that if Apple were to make phones in the US, it would have to be sold at about USD3,500 compared with about USD1,500 based on production in China. China did not force Apple and others to manufacture in China. They went voluntarily.

The outsourcing of production over the decades has resulted in the hollowing out of manufacturing in the US and parts of Europe. There were negative consequences. Partly because of this and inequitable income distribution, the American middle class have not done well in the last 20-30 years. This is the main reason they voted for Trump.

However, one should note that the US and Europe had increasingly focussed on export of services instead of goods. America and the UK enjoy huge service export surpluses.

6. China lends money to developing countries which they cannot afford to pay back and thus place them in debt traps.

In any report in the western mainstream media, it is obligatory to accuse China of "debt trap" whenever there is a report that China is involved in funding some infrastructural projects in Africa, Southeast Asia, or South America.

The term "debt trap" was first used by an India writer and now used repeatedly by the media, even though several studies by American think tanks have confirmed there is no truth in this.

It is of course true that some of the countries which borrowed from China to build infrastructures were unable to service their debt but the same is true of those who borrow from the World Bank or commercial banks. Much of the infrastructure, such as roads, ports or railway lines are economically beneficial but may not provide near term financial returns. This is not unusual.

One point of difference is that most loans granted by China are to finance infrastructure projects. Much of the loans from the US are reportedly to buy American military wares.

A report by Bloomberg on 18 March 2022 stated:

Over the past two decades, China has built large infrastructure projects in Africa, making Western powers uncomfortable amid wider concerns about Beijing's investments across the continent. However, a deeper look shows that accusations of so-called debt trap diplomacy turned out to be unfounded.

7. China is ruled by a communist dictatorship and its population has no rights or freedom.

Politically China is definitely ruled by the Chinese communist party but economically it is as capitalist as you can get.

There are no western "liberal democracy" type elections, but political leaders are selected through a meritocratic system which has been in operation for thousands of years, interrupted only during wars and civil unrest.

There may be no elections, but leaders go through a tough selection process based primarily on merit, performance, and accountability. More than half of the top dozen Chinese leaders are highly trained engineers.

For most of its over 2,000 years history China has been ruled by emperors who are held accountable by the Chinese people to meet basic needs; availability of food, peace, and security. The concept of western style "democracy" is alien to Chinese culture whose dominant influence comes from the teaching of Confucius (respect for authority which in turn must take care of the needs of the people, centrality of the family, importance of education, filial piety, etc). Soldiers are among the lowest ranked in Confucian culture. Chinese do not like wars and have low respect for soldiers.

As one leading political scientist likes to point out, pre Covid, each year 150 million Chinese citizens travel overseas for vacations, and they all return to China. If China is such a terrible, repressed society you would have expected many not to return.

America and some European countries have always claimed their form of governments, "liberal democracy" is what the rest of the world must follow because only their form of government will result in economic growth and development. China's economic success is not supposed to have happened because it is ruled by a communist party. Thus, China is a threat for offering a different path for development.

8. China is destroying the culture of the Tibetans and violating the human rights of the Uyghurs (Muslims) and use child labour in Xinjiang.

For a very long time the US and some of her allies have made every effort to stir up the Tibetans (province of Tibet) and Uyghurs (province of Xinjiang). Why so? Is America so concerned about these people? 

There are constant claims China is committing genocide in these two provinces. 

To date, no evidence has been provided to support those accusations.

Tibet and Xinjiang are sparsely populated provinces with minority citizens. Combined they cover 30 % of China's land area. They are also rich in mineral resources. Xinjiang is a major producer of cotton and the centre of China's solar panel industries. The Uyghurs are Sunni Muslims, and some were influenced by extremist groups from central Asia. There used to be terrorist attacks but has since been curbed. Numerous leaders of Muslim countries have visited Xinjiang and not a single Muslim country has supported accusations of genocide. 

An important fact. When China had its one child policy, the minority races, like Uyghurs were exempted. And in fact, the Uyghurs are the fastest growing race in China. How could this be if the Chinese govt is carrying out genocide against them?

China believes America hopes to cause some Chinese provinces such as Tibet and Xinjiang to separate and cause China to collapse like the former Soviet Union.

9. China's economy is going to collapse soon.

Every few months a segment of the western English media will predict the imminent collapse of China's economy. The Economist magazine is most famous for this.

I read The Economist magazine from high school until about 5 years ago. What often are passed as analysis are nothing more than wishful thinking or simply a desire to demonise.

I am still waiting for the collapse of China's economy.

10.  China Intellectual property ("IP") 's theft.

Since my generation's school days, we were taught that if a country has no freedom (wrong to begin with, as it is always a matter of degree) and democracy, its citizens will not be creative and cannot innovate or invent new things. So, this fits very neatly into the narrative that China, a communist country, with no freedom, will have to steal intellectual properties because it is not able to create them. This does make one think from whom China steals its 5G or her EV technologies, where it is way ahead of everybody else?

What is true is that at times in return for market access China had required technology transfer from foreign companies or set up factories in China. Many developing countries do so. It is not theft but part of a bargain, an agreement. This is a practice of even the US, requiring TSMC to set up factories in the US to be allowed to continue exports from Taiwan.

Based on many reports, China now in fact is ahead in several new technologies. New energy vehicles, solar energy, 5G cellar technology, quantum computing, etc. You cannot be ahead by stealing.

It has been widely acknowledged that Chinese scientists are ahead in several areas of scientific research and publications. How is this possible? China, with 1.4 billion people has a huge talent pool, supported by relentless emphasis on education. Many reports suggest that China produces 8 to 10 times more engineering graduates than the USA each year and more than 50% of the World's.

11.  China is aggressive and could cause wars.

Since 1949, China has been involved in two brief border wars. By the way, China has a land border with 14 countries. 

The first war was with India over territorial disputes due to the arbitrary border line drawn along the Himalaya mountains by the British (India has a similar dispute with Pakistan over Kashmir). This border dispute is still not settled. 

And then in 1979, the Chinese army moved about 20 kilometres into the northern part of Vietnam (but completely withdrew after only one month) to punish Vietnam for invading Cambodia, a close ally of China. I have no time to go into the details but please read up if you are interested.

Chinese people do not like wars. This is not to say there were no wars in China, which usually took place when an emperor lost his legitimacy because his citizens' needs were not met. China, however, very rarely invades neighbouring countries despite her immense power compared with neighbours for many centuries. As mentioned earlier Confucian culture abhors wars.

12.  Risk of WWIII.

America became the dominant economic and military power after WWII, with the Soviet Union as a potential competitor. However, the economy of the Soviet Union was nowhere close to that of the US. The Soviet Union went into an unsustainable arms race with the US resulting in its collapse. Thereafter the US became the undisputed sole superpower.

However, since the turn of the millennium (2000) China's rapid economic growth has inadvertently led it to challenge American economic leadership. Economic power underpins military powers, even though China spends not even half of the US in defence. Increasingly the US views China as a rival and an enemy and therefore must be contained or defeated. Its development must be stopped or slowed down. America does not want another country which can challenge its supremacy, even though China has consistently made clear that it has no interest to challenge US supremacy. Nonetheless America took actions to slow or retard China's progress. A blatant hostile action was to make Canada arrest the daughter of the founder of Huawei, Meng Wanzhou, in 2021 based on some spurious charges. Since then, there had been a string of sanctions on Chinese companies under the cover of “national security”.

To China, recent American/ European containment attacks are a painful reminder of its "Century of Humiliation" in the hands of foreigners. In1839, the first opium war started when China tried to stop British imports of opium into China. The British declared war and with their superior weapons China was easily defeated and had to agree to massive war reparations as well as cede over the control of Hong Kong.

A second opium war started in 1856, this time involving the British and French which again led to China's defeat and further concessions and unequal treaties. Thereafter China was reduced to a semi-colony, with many parts of China under foreign control. For example, Macau under the Portuguese and Shandong area under Germans. China's government was forced to legalize opium in China.

Given this history, it is quite impossible for the Chinese government to give in to American unreasonable demands. This is clearly demonstrated in the way China reacted to Trump's tariffs.

Trump demanded the Chinese President to call him or China to contact the US to initiate negotiations. It did not happen. In the end it was the Americans who had to reach out to China first. Not a surprise to me at all.

I expect America to continue to treat China as a rival and an enemy. Moreover, if the US is unable to resolve the country's economic problems and control the growth of huge debt (USD 36 trillions), in desperation it may see war as a means to wipe the books clean. A war between America and China is likely to be the end of mankind.

This is my greatest fear, and it should be yours too.

Should South Africa fear China?

Let’s now turn to your country, South Africa.

1. Militarily, I do not think South Africa should fear China.

2. Economically, in terms of manufacturing, I think it will be very tough for South Africa to compete with China. However, it would make a lot of sense for South Africa to encourage Chinese companies to set up factories in South Africa to manufacture for the markets in Africa or elsewhere.

3. China is also potentially a huge market for South Africa's tourism as well as agricultural products, including wines.

4. China also has been very successful in bringing 800 million people out of poverty in a few decades; perhaps with some lessons to be learnt.

5. China's infrastructures development is probably second to none, a number of Asian countries are trying to emulate.

This is how I see China. Some are opinions. Many are not and can be substantiated.

Sorry, rather lengthy but not easy to give a short answer.