Chapter 3: Trump and the U.S.-China Economy Relations
3.2 The U.S. Perception of Xi Jinping’s Economic Policy
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3.2 The U.S. Perception of Xi Jinping’s Economic Policy
The year 2018 marked the beginning of Xi Jinping’s second term as the President of the PRC and the fortieth anniversary of Deng Xiaoping’s “reform and opening-up” policy.
Although the two leaders shared similar objective to create a revolutionized and modern China, they have navigated the country in different ways: Deng’s taoguang yanghui strategy aimed to increase the Chinese national capability incrementally; Xi, however, launched a drastic reform when he emerged from the 1st Plenary Session of the 18th CPC Central Committee as the paramount leader of China.
So far President Xi Jinping’s reform has not led China towards further economic and political liberalization, but has instead increased centralization. During his first term in office, President Xi focused on consolidating personal political power through an anti-corruption campaign that ousted thousands of officials.22 Starting with his second term, he took further steps to eliminate the presidential term limits and restructure the party and state institutions which amplified the policy and decision-making power of the communist party while reduced that of the State Council.
President Xi Jinping’s increased personal political power within the CPC and his move to tighten party control over the Chinese society gave him firm footing to adopt more ambitious economic policy at home and abroad. Domestically, the CPC installed party presence in the private sector, including the foreign businesses that are operating in China.23 Internationally, the PRC has actively expanded its economic influences by leading multilateral institutions and cooperation initiatives. President Xi’s policy has reflected the
22 “Visualizing China’s Anti-Corruption Campaign,” ChinaFile, August 15, 2018, accessed December 26, 2018, http://www.chinafile.com/infographics/visualizing-chinas-anti-corruption-campaign.
23 Catherine Tai, “China’s Private Sector Under Siege,” The Diplomat, December 22, 2018, accessed https://thediplomat.com/2018/12/chinas-private-sector-is-under-siege/.
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underlying intentions to attain economic dominance in the Indo-Pacific region and beyond.
Under his leadership, the PRC is no longer “keeping a low profile and bidding time,” but is actively making use of its economic clout to set new rules of conduct to its neighboring countries. These individual-level and state-level factors have paved the way for the PRC’s rise to become an economic great power which has in turn reshaped the international order.
Offensive realists have cautioned that should China continue in the trajectory of rapid economic growth and expansion it will eventually be regarded as a threat to the U.S. global leadership. Their predictions were proven valid when President Trump’s administration identified China’s economic policy as a long term strategic threat and condemned its behaviors on various occasions. In his 2019 State of the Union speech, President Trump accused China of targeting and violating the intellectual property rights of U.S. industries and he called for it to make a “real, structural change to end unfair trade practices, reduce our chronic trade deficit, and protect American jobs.”24 A White House report also claimed that China’s spectacular economic growth was achieved “in significant part through aggressive acts, policies and practices that fall outside of global norms and rules.”25 Specifically, the report categorized Chinese economic aggressions into the following types.
1) Protect China’s Home Market from Imports and Competition.
2) Expand China’s Share of Global Markets.
3) Secure and Control Core Natural Resources Globally.
4) Dominate Traditional Manufacturing Industries.
24 United States, The White house Office, Remarks by President Trump in the State of the Union Address, February 5, 2019,
https://www.whitehouse.gov/briefings-statements/remarks-president-trump-state-union-address-2/.
25 United States. The White House, How China’s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World, June 2018,
https://www.whitehouse.gov/wp-content/uploads/2018/06/FINAL-China-Technology-Report-6.18.18-PDF.pdf.
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5) Acquire Key Technologies and Intellectual Property from Other Countries, Including the United States.
6) Capture the Emerging High-Technology Industries That Will Drive Future Economic Growth and Many Advancements in the Defense Industry.
The “China Threat” is not a political propaganda that the Trump administration trumped up, but is, in fact, a growing consensus within the U.S. government. For example, on a Judiciary Committee hearing on December 12, 2018, Republican Senator Chuck Grassley warned that the U.S. media has been distracted by the Russian interferences and have been neglecting “a greater, more existential threat: China’s efforts to overtake the United States as the world’s preeminent superpower in all phases of society.”26 Democrat Senator Elizabeth Warren,27 while often disagrees with President Trump on many fronts, have also agreed that the U.S. needs to take a hardline stance against China. During her visit to Beijing in 2018, she said that “After years of mistakenly assuming economic engagement would lead to a more open China, the U.S. government was waking up to Chinese demands for U.S. companies to give up their know-how in exchange for access to its market.” Based on the current American perceptions of the “China threat” and the CCP’s actual economic strategies and behaviors, the author analyzed how President Xi’s economic policy threatens the United States from geostrategic, intellectual and technological, and structural aspect.
26 Jennifer Zeng, “Communist China Poses Greatest Threat to US and World, Senators Told,” The Epoch Times, December 17, 2018, accessed on December 20, 2018,
https://www.theepochtimes.com/senate-told-communist-china-poses-greatest-threat-to-us-and-the-world_27387 98.html.
27 Michael Martina, “Senator Warren, in Beijing, Says U.S. is Waking Up to Chinese Abuses,” Reuters, April 1, 2018, accessed on July 22, 2018,
https://uk.reuters.com/article/uk-usa-china-warren/senator-warren-in-beijing-says-u-s-is-waking-up-to-chinese-a buses-idUKKCN1H80X0.
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1. Geostrategic Threat
Since President Xi Jinping took office, he has embarked on ambitious economic plans to expand the PRC’s influence across Asia, Africa, and Europe. One of the most conspicuous economic projects known as the “One Belt One Road” (OBOR), short for the “Silk Road Economic Belt and the 21st-Century Maritime Silk Road,” was first unveiled by President Xi Jinping during his visits to the Central and Southeast Asian countries in September and October in 2013.28 The “Silk Road Economic Belt” aims to revitalize the trade, infrastructure, and transportation networks along the ancient Silk Road; the “21st-Century Maritime Silk”
Road is a complementary initiative that intends to foster collaboration and navigation across contiguous bodies of water from the South China Sea, Indian Ocean, and to Europe through the Suez Canal. Since the OBOR is a trans-continental program that aims to bridge multiple land corridors and sea routes, its official English translation was later changed into the “Belt and Road Initiative” (BRI) to prevent misinterpretation of the word “one.”
On March 28, 2015, the PRC’s National Development and Reform Commission (NDRC) issued the Vision and Actions on Jointly Building the Silk Road Economic Belt and 21st
Century Maritime Silk Road which laid out the principals, framework, and mechanism of the
Belt and Road Initiative. According to the NDRC, “China is committed to shouldering more responsibilities and obligations within its capabilities, and making greater contributions to the peace and development of mankind.”29 It also designated the five key areas that BRI members cooperate on, which includes trade and investment, financial integration,28 Jiao Wu and Yunbi Zhang, “Xi in Call for Building of New ‘Maritime Silk Road’,” China Daily, October 4, 2013, accessed Dcember 26, 2018,
http://www.chinadaily.com.cn/china/2013xiapec/2013-10/04/content_17008913.htm.
29 “Vision and Action on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road,”
National Development and Reform Commission of the People’s Republic of China, March 28, 2015, http://en.ndrc.gov.cn/newsrelease/201503/t20150330_669367.html.
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infrastructure construction, policy coordination, and cultural exchange. However, the priority of the initiative is to increase the facility connectivity between the countries along the Belt and the Road.
The PRC also provides the much-needed funds for BRI development projects to help address the issue of “infrastructure gap” shared by countries across the regions. The funds are disbursed via its several state-owed financial and banking institutions, including the Silk Road Fund, the China Development Bank (CDB), and the Export Import Bank of China (EXIM Bank). In 2013, President Xi also proposed to establish the Asian Infrastructure Investment Bank (AIIB).
The extent and inclusiveness of the Belt and Road Initiative per se and its related financial, economic, and political institutions have given China enormous sway over the world economy and also provided the footings for China to challenge the American leadership in global economic governance. The PRC oversees the BRI infrastructure development projects through the Leading Group for Advancing the Development of One Belt
One Road, which is a coordination and resolution agency that was established directly under
the its State Council.30 In March 2019, 152 countries and international organizations signed cooperation documents with the PRC on BRI-related projects.31 The members collectively account for thirty percent of total global GDP, sixty percent of population, and seventy-five percent of energy reserves.3230 “Belt and Road Basics,” Hong Kong Trade Development Council, http://beltandroad.hktdc.com/en/belt-and-road-basics.
31 “152 Countries, Int’l Organizations Sign Belt & Road with Deals with China,” The Financial Express, March 4, 2019, accessed March 16, 2019,
http://thefinancialexpress.com.bd/economy/global/152-countries-intl-organisations-sign-belt-and-road-deals-wit h-china-1551686061.
32 “Belt and Road Initiative,” The World Bank, March 29, 2018,
https://www.worldbank.org/en/topic/regional-integration/brief/belt-and-road-initiative.
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By providing public goods, funds, technological supports, and China-centered economic institutions, the PRC gains an even greater influence over Eurasia and the importance of American presence in the region is likely to diminish. For example, in the U.S.-led Asian Development Bank (ADB), the U.S. and Japan each held 12.8 percent voting right, whereas the PRC held 5.5 percent of total voting power.33 By contrast, the PRC owes 26.8 percent of total voting power within the AIIB, in which neither the U.S. or Japan are member states.34 Through President Xi Jinping’s geo-economic strategy, China is rapidly closing the gap between itself and the U.S. in terms of their relative economic power.
Yet from the perspective of offensive realism, the greatest concern for America is that the PRC is harboring underlying intentions to make use of its economic loans, aids, and institutions to gain foothold in strategically critical ports, waterways, and land bridges in vulnerable countries around the world. China’s tremendous economy is a powerful leverage that can be used as “carrot and stick” to help it gain regional dominance. There are numerous cases indicating its intentions to increase geostrategic influences around the world; the author took the Hambantota Port Development Project in Sri Lanka as an example.
In October 2007, the EXIM Bank of China signed a 15-year loan agreement with former Sri Lankan President Mahinda Rajapaksa, providing USD 307 million for the construction of the Hambantota port.35 The PRC made additional requests that the port was be built by the China Harbor Engineering Company (CHEC), which is one of its largest state-owned enterprises. Yet since the Hambantota port opened in 2010, it had difficulty competing with
33 “ADB Annual Report 2017,” Asian Development Bank, April 2018, https://www.adb.org/documents/adb-annual-report-2017.
34 “Members and Prospective Members of the Bank,” Asian Infrastructure Investment Bank, March 1, 2019, accessed March 30, 2019, https://www.aiib.org/en/about-aiib/governance/members-of-bank/index.html.
35 Axel Dreher et al., “Aid, China, and Growth: Evident from a New Global Development Finance Dataset,”
AidData, October 2017, accessed April 4, 2019,
http://docs.aiddata.org/ad4/pdfs/WPS46_Aid_China_and_Growth.pdf.
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the larger port in Colombo. Determined to push ahead with the project, President Rajapaksa turned to the PRC in 2012 for another loan of USD 757 million. Sri Lanka’s debts to China snowballed throughout President Rajapaksa’s administration, and his decisions to participate in BRI projects met growing domestic oppositions. When President Rajapaksa was reported to have received large sum of funds from Beijing for his 2015 presidential campaign, he lost public support and was voted out of office.36 However, the new government led by President Maithripala Sirisena cannot terminate the loan agreements with the PRC, and after two years of negotiations, it signed a 99-year lease agreement with the Chinese Merchants Holdings Company in July 2017 and gave it control of 85 percent of shares of the Hambantota Port along with an additional 15,000 acres of land around the port to build an industrial zone. The Hambantota port was officially handed over to China in December 2017.37
The case of Hambantota port raised serious security concerns for the U.S. and its allies, and especially for India. Due to its geostrategic importance, gaining control of the port gives the PRC direct access to the Indian Ocean and critical commercial and strategic waterways in the proximity. Although Sri Lankan government has specified in the final agreement that the port is prohibited from military use for foreign entities without its consent, it had already allowed Chinese submarines and warships to dock at the port in Colombo since 2010.38
Besides Sri Lanka, President Xi Jinping’s Belt and Road Initiative have ensnared others in similar “Debt Traps.” The Center for Global Development evaluated the sovereign debt
36 Maria Abi-Habib, “How China Got Sri Lanka to Cough Up a Port,” The New York Times, June 25, 2018, accessed April 27, 2019, https://www.nytimes.com/2018/06/25/world/asia/china-sri-lanka-port.html.
37 Ankit Panda, “Sri Lanka Formally Hands Over Hambantota Port to Chinese Firms on 99-Year Lease,” The Diplomat, December 11, 2017,
https://thediplomat.com/2017/12/sri-lanka-formally-hands-over-hambantota-port-to-chinese-firms-on-99-year-le ase/.
38 Shihar Aneez and Randga Sirilal, “Chinese Submarine Docks in Sri Lanka Despite Indian Concerns,”
Reuters, November 3, 2014, accessed April 2, 2019,
https://www.reuters.com/article/sri-lanka-china-submarine/chinese-submarine-docks-in-sri-lanka-despite-indian -concerns-idINKBN0IM0LU20141102.
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sustainability of the sixty-eight countries that had hosted BRI-funded infrastructure projects in 2018 and found that of the twenty-three countries that were suffering from sovereign debt distress, eight of them—Djibouti, Kyrgyzstan, Laos, Maldives, Mongolia, Montenegro, Pakistan, and Tajikistan—will be further bogged down in debt crisis by their participation in the BRI.39 There are concerns that China will attempt to bargain for control of geopolitical or strategic territories in these states in return for writing down or eliminating their debts, and particularly for those where Beijing has expressed more explicit military intentions. For instance, the PLA Navy officially opened the first overseas military base in Djibouti in August 2017 which is considered as China’s first step to establishing a blue-water navy that can operate globally.40 As John R. Bolton, the national security advisor to President Trump, have claimed, “China uses bribes, opaque agreements and the strategic use of debt to hold states in Africa captive to Beijing’s wishes and demands.”41
There are myriads of cases supporting the argument that China has been using its economic clout to gain geostrategic interests abroad, yet due to space limitations the author can only offer a general view of how it threatens the U.S. global economic leadership. From the perspective of President Trump’s principled realism, the BRI and its related economic cooperation plans in emerging markets throughout the world are, in essence, part of a grand
39 Scott Morris, “China’s Belt and Road Initiative heightens Debt Risks in Eight Countries, Points to Need for Better Lending Practices,” Center for Global Development, March 4, 2018, accessed December 3, 2018, https://www.cgdev.org/article/chinas-belt-and-road-initiative-heightens-debt-risks-eight-countries-points-need-b etter.
40 “Djibouti—China Naval Base,” Global Security, accessed January 3, 2019, https://www.globalsecurity.org/military/world/djibouti/forrel-prc-base.htm.
41 Mark Landler and Edward Wong, “Bolton Outlines a Strategy for Africa That’s Really About Countering China,” The New York Times, December 13, 2018, accessed December 28,2018,
https://www.nytimes.com/2018/12/13/us/politics/john-bolton-africa-china.html.
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geo-economic strategy which “offers the appearance of an attractive path to development,”
“But in reality… often involves trading short-term gains for long-term dependency.”42
2. Intellectual and Technological Threats
In January 2019, Huawei, the largest smartphone manufacturer in China, was charged by the U.S. government for stealing critical intellectual property and trade secrets from American company T-Mobile.43 This is not the first time that Chinese firms were alleged of industrial espionage and infringement of American intellectual property (IP) rights.
According to Keith Alexander, the former Director of National Security Agency,
“intellectual-property theft costs America up to $600 billion a year, the greatest transfer of wealth in history. China accounts for most of that loss.”44
In August, 2017, President Donald Trump authorized U.S. Trade Representative (USTR) Robert Lighthizer to formally initiate an investigation of China’s policy and practices related to forced technology transfer and intellectual property theft that damages American commerce. 45 U.S. Secretary of Commerce Wilbur Ross claimed that the Trump administration is committed to achieve a fairer trade relations and trade war is only a means to goal and not the goal per se.46
42 Krishnadev Calamur, “Tillerson to Latin America: Beware of China,” The Atlantic, February 3, 2018, accessed March 26, 2018, https://www.theatlantic.com/international/archive/2018/02/rex-in-latam/552197/.
43 Julia Horowitz, “US Unveils its Criminal Case Against Huawei, Alleging China Giant Stole Trade Secrets and Violated Iran Sanctions,” CNN, January 29, 2019, accessed January 31, 2019,
https://edition.cnn.com/2019/01/28/business/huawei-charges/index.html.
44 Dennis C. Blair and Keith Alexander, “China’s Intellectual Property Theft Must Stop,” The New York Times, August 15, 2017, https://www.nytimes.com/2017/08/15/opinion/china-us-intellectual-property-trump.html.
45 “USTR Announces Initiation of Section 301 Investigation of China,” Office of the United States Trade Representative, August 18, 2017,
https://ustr.gov/about-us/policy-offices/press-office/press-releases/2017/august/ustr-announces-initiation-section . 46 “Trump Isn’t Going to Stand for China’s Theft of IP: Wilbur Ross,” YouTube video, 5:23, posted by “Fox Business,” December 4, 2018, accessed December 5, 2018, https://www.youtube.com/watch?v=iK-KjSkwu8o.
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3. Structural/Institutional Threat
The PRC is regarded as an example of practicing “State Capitalism.” In this system, governments use various kinds of state-owned companies to manage the exploitation of resources that they consider the state’s crown jewels and to create and maintain large numbers of jobs. They use select privately owned companies to dominate certain economic sectors. They use so-called sovereign wealth funds to invest their extra cash in ways that maximize the state's profits. In all three cases, the state is using markets to create wealth that can be directed as political officials see fit. And in all three cases, the ultimate motive is not economic (maximizing growth) but political (maximizing the state's power and the leadership's chances of survival). This is a form of capitalism but one in which the state acts as the dominant economic player and uses markets primarily for political gain.
Xi Jinping further constricted the agenda of Chinese economic reform. For example, on the 40th anniversary of China’s reform and opening-up in December 2018, President Xi Jinping asserted that “No one is in a position to dictate to the Chinese people what should or should not be done,” and that “What should be and can be reformed, we will resolutely
Xi Jinping further constricted the agenda of Chinese economic reform. For example, on the 40th anniversary of China’s reform and opening-up in December 2018, President Xi Jinping asserted that “No one is in a position to dictate to the Chinese people what should or should not be done,” and that “What should be and can be reformed, we will resolutely