The Post-COVID-19 Sino-American Duopoly

Article by:
Dr. Arslan Chikhaoui,
Executive Chairman of the Consultancy and Studies Center, NSV
& Co-founder of ABBC

The Covid-19 crisis may well bring about an era of deep change in international alliances, although these shifts will take some time. China has tried to seize the momentum since largely recovering from the epidemic, with the twofold aim of turning its weaknesses into strengths by reorienting the narrative of its performance in the crisis and taking advantage of the problems encountered in Europe among allies, for instance. One thing is certain, however: Beijing is likely to try to exploit the many areas of tension and division in order to continue to advance its broader vision of becoming the center of the international system by the time of its centenary Global China 2049 Initiative. The Covid-19 pandemic is thus turned into an opportunity for China, in which it will attempt to develop and consolidate its strategic positioning throughout the world. Beijing has, therefore, developed a proactive scientific and health diplomacy as a complement to its economic diplomacy.

Henry Kissinger recently stated: “The coronavirus pandemic will change the world order forever. When the Covid-19 pandemic is over, institutions in many countries will look as if they have failed. It is not a question of whether this judgment is correct from an objective point of view. The reality is that after the coronavirus, the world will never be the same again. The effort to deal with the crisis, however great and necessary, should not prevent the urgent launch of a parallel initiative to ensure the transition to the new post-coronavirus order. Leadership is managing the crisis largely at the national level, but the disruptive effect of the virus on societies knows no boundaries…The pandemic has become an anachronism, reviving the walled city at a time when prosperity depends on global trade and the free movement of people.”

Former French Prime Minister, Jean Pierre Raffarin, declared that: “The coronavirus and its morbid context reinforce the tension of the Sino-American duopoly, already engaged in commercial, technological and political competition. This will cause a shock to the Chinese economy and more uncertainty on the American side. And since the Chinese response is perceived in the United States as a humiliation, the latter will in turn want China to suffer the price. This tension will mark the next fifteen years even if Donald Trump is not reappointed at the end of 2020. The position against China is gaining a strong consensus in Congress. In this context, we see everywhere the logic of propaganda developing, which is counterproductive”.

Finally, the former French Foreign Minister, Hubert Vedrine, emphasized that: “The United States is now trying to stop China’s rise to hegemony. This is a radical change in policy compared to the last decades. And it has an impact on the whole world, including Europe. We know that Europe believed, perhaps more naively than others, that globalization was a win-win situation. It is struggling to realize that it must become a power that can command respect. We must do so in relation to the United States, with whom we are allies but with whom we must not align ourselves, especially as their policy of unilateral sanctions is iniquitous. But we must do so in relation to China as well; we need to seek balanced relations, and therefore ensure that China does not abuse its new power. All this depends on us, and on our will. European countries must be able to command respect for each other, not have to endure or choose, and to assert their positions. Again, this presupposes a genuine strategic, military, industrial and technological will.”

In light of these statements by personalities who are both influential and knowledgeable about international relations in general, and China in particular, it seems clear that the post-Covid-19 uncertainty and China’s ambition to assert itself as a new power on all fronts worry leaders in many countries. China will want to position itself as a post-Covid-19 leader. Indeed, China is winning the health battle over Covid-19 and is recovering quicker than Western countries. It wants to set itself up as a solid challenger for a new world order by relying on the concept of the four self-confidence factors decreed by Xi Jinping in 2016: confidence in one’s own system, one’s own path, one’s own theories, and one’s own culture.

As the pandemic continues to rage in the West, Beijing has glorified the effectiveness of Chinese crisis-management and stressed the weaknesses of Western countries. The aim is to project the image of a model China. This communication of persuasion has touched the hearts of Chinese citizens because it speaks to the pride of the country and its image in the eyes of the world, in a very emotional context linked to public health.

In the current crisis, China is putting into action its scientific diplomacy in the fight against the pandemic to promote its services, products and training programs, as it did around the ‘New Silk Road’ through its trade diplomacy. It will spare no effort to position itself as the country leading the way out of the crisis and will offer, in particular, emerging and developing countries medical and paramedical, industrial, logistical, technological, economic and, by correlation, financial solutions to revitalize their economies. In some countries, Chinese companies have already started to propose solutions to fight Covid-19.

China will not be able to impose itself universally and will undoubtedly face opposition from some countries in the coming years. Many, however, will strengthen ties with China, such as Algeria, Italy, Serbia, Pakistan, Cambodia and others that have communicated positively about China’s assistance and crisis management. Beijing has termed these “iron-strong friendships.” As for the relationship between China and Russia, the strategic rapprochement observed over the past seven years does not seem to be jeopardized by this pandemic.

In the post-Covid-19 world, Beijing will certainly emphasize the superiority of its system of governance. This will involve military demonstrations and celebrations throughout the country, with a glorification of Xi Jinping and the Communist Party. These celebrations will highlight Chinese technologies (military equipment, satellites, drones, robots, etc.) which have been at the center of China’s investments for several years. The technological tug-of-war between Beijing and Washington will undoubtedly continue, and not only so around 5G communication technology. Indeed, at the end of March, China announced, as part of a post-Covid-19 economic recovery plan, massive investments for the development of technologies, including the 5G network, data centers, smart cities, connected objects, and block-chain technology for storing and transmitting information, etc.

On the geopolitical level, Taiwan will become the crystallization point for Sino-American tensions in the post-Covid-19 era. The great revival of the Chinese nation led by Xi Jinping involves the recovery of Hong Kong, but also, in the long run, of Taiwan with the idea of correcting the errors of history. Hong Kong has returned to the Chinese bosom, except that unrest remains strong, and Beijing would like to go further in the political integration of this territory. As for the situation in Taiwan, it is seen as an anomaly that needs to be rectified, a priority for Beijing, all the more so as Washington’s policy of support for this state has gone quite far with President Trump, which is greatly bothering Beijing.

For several years now, Xi Jinping has been saying that he wants to lead reforms in world governance. Chinese diplomacy will undoubtedly redouble its efforts to seize the new institutional opportunities that will present themselves. The political determination to restructure global governance is so strong that it will endure whatever economic difficulties China may face. By way of illustration, prominent Chinese scholars have repeatedly argued that the Bretton Woods system established after World War II is obsolete and that it is time to turn the page on a Western-dominated world. The post-pandemic era will undoubtedly generate calls for new mechanisms and common, global, and more effective rules. Beijing will raise these questions and will try to create multilateral forums dedicated to the post-health crisis, with the theme of sharing the Chinese experience and its model of governance. It could also create new institutions, similar to the Asian Infrastructure Investment Bank (AIIB) founded in 2014.

China has begun to make proposals, under the banner of the fight against the coronavirus, for new bilateral and multilateral cooperation mechanisms and has called on the BRICS (Brazil, Russia, India, China and South Africa), as well as developing countries, particularly in Africa, to jointly reform global governance. China is unlikely to succeed in promoting a consensus-based world organization. International organizations will increasingly lose credibility, as some of them will no longer be able to bring the world’s two leading economic powers to the same table due to the intense Sino-American rivalry. Every American withdrawal from an institution fuels suspicions that America is passive while China is undermines it. Europe could contribute through multilateral activism to reverse this trend, but it would be very difficult and time-consuming.

China offers initiatives to all, from the AIIB to the New Silk Road, including the allies of the United States. While Beijing cultivates secrecy about the extent of its partnerships and excludes signing formal alliance treaties, Washington is waits for clarification from its allies. In this battle to reorganize the world order, China poses itself as a challenger in the sense that it has an interest in maintaining strategic ambiguity and in proposing its initiatives to as many people as possible, some of whom will accept them.

Analysts agree that we’ll see a bi-polarization of the world, but it will be more of a pole configuration of relatively permeable countries than of fixed and clearly defined blocs. Unlike the former USSR, China appears to be a rallying power by wanting to widen its circle of countries known as the “circle of friendly countries”. The aim is to gradually change the balance of power with the West and be supported in its positions by a large number of countries in international organizations. For instance, in October 2019, China succeeded in bringing together some 50 countries within the United Nations to defend its anti-terrorist policy in Xinjiang, after some 30 other states had called for an investigation into the internment camps of the Uighur population.

Wang Zhenying, President of the Shanghai Gold Exchange (SGE), recently advocated the creation of a new international reserve currency. He intends to counterbalance the US Dollar (USD), whose value he predicts will decline in the long term. According to financial observers, this statement is legitimate because the USD has already lost 98% of its value against gold since the creation of the US Federal Reserve (FED) in 1914. Washington uses the USD and the extraterritoriality of US law as geopolitical weapons. In other words, countries that do not respect the economic embargoes decreed by the United States expose themselves to reprisals. Mr. Wang believes that “the dollar is a weapon for the US, but a source of insecurity for other countries.” These words echo those of the former Governor of the Central Bank of China, Mr. Xiaochuan, who wants an international reserve currency disconnected from individual nations.

The fact that the President of the European Monetary System (EMS) advocates a new international reserve currency is not without significance. This suggests that China wants to put the Gold Standard back into international trade, i.e., an international monetary system in which states pay for their gold imports. The use of gold would have the advantage of suppressing speculation on the foreign exchange market. Russia and Turkey have suffered in recent years with the collapse of the value of their currencies under the blows of American banks. It is impossible to destabilize a country by the exchange rate when international trade is settled in gold. The gold standard was abandoned by the United States in 1973. This was the blow that brought the end of the international monetary system after World War II. In China’s eyes, the resurrection of the Gold Standard would prevent the United States from running a trade deficit without the value of the USD collapsing. Indeed, the value of the USD is artificially supported by the fact that the rest of the world has to buy it to purchase oil. The fact that oil is sold exclusively in USD forces all central banks to hold most of their reserves in USD which are eventually return to the US pool. To put it plainly, the US can afford to run a trade deficit because the dollars it spends end up coming back in through debt, preventing the USD from depreciating in the process.

Today, threatened by a common enemy – the Coronavirus – the United States and China are far from being reconciled. Worse still, the Sino-American conflict is escalating. The economic slowdown is reducing China’s need for imports. The price of oil has fallen drastically, as American shale oil is no longer a profitable alternative to Saudi crude oil. The reduction in the influx of Chinese tourists and students to the United States is brings down imports of services, including tourism and training. As the November 2020 US presidential elections approach, we are likely to see excessive and even inflammatory statements by President Trump justifying the announcement of new measures against Beijing. The outgoing President will first want to mobilize his electorate against a competing Democratic candidate.

Sino-American trade is not only limited to imports and exports. The turnover of the American subsidiaries established in China was 164 billion USD in 2018, according to the latest estimate of the National Bureau of Economic Research. In the same year, US exports to the Chinese market were around 109 billion USD. However, the Covid-19 health crisis caused a drop in the sales of American subsidiaries in China in the first quarter of 2020. Starbucks, for example, is forecasting a 50% drop in sales in China, its largest market outside the US, for the current year. General Motors, which sells more cars in China than in the US, has seen its joint-venture with Shanghai Automotive Industry Corporation’s sales plummet by 92% in the first quarter (Q1) of 2020. French car maker, Renault, for its part, sold only 633 cars in China in Q1 of 2020, compared to 19,000 in the same period in 2019. As a result, Renault has decided to withdraw from its joint-venture with Dong Feng.
Many informed experts point out that the Covid-19 pandemic will have contributed to the decoupling of the US and Chinese economies. But neither China nor the United States are winners in this war, which has added consequences to the collapse of world trade caused by the Covid-19 health crisis. Technological rivalry is at the center of tensions between the United States and China, which has the ambition to evolve from ‘a country that manufactures in China to a country that designs in China’. To achieve the objectives of the “Made in China 2025” plan, the country is investing in Research and Development (R&D), to which it devotes 2.1% of its GDP. By closing its market to Google, Apple, Facebook, and Amazon, Beijing has been able to build its own national champions (e.g., Ali Baba, Baidu, Tencent, Xiaomi). In the field of artificial intelligence, China is almost at the same level with the United States, and the containment of the population due to the Covid-19 epidemic has led to great progress in facial recognition and the tracking of people. Moreover, in a telecommunications market shaken by the introduction of 5G, China is making its mark with the company Huawei, which is becoming a key player. Despite its inclusion in the Entity List, the Chinese manufacturer has increased its purchases of American components by 8 billion USD in 2019 and its turnover has increased by 19%. The American strategy to contain Huawei is clearly a failure. However, while the Chinese telecommunications giant has won a battle, it has not yet won the war, according to many observers. The alternative is not a network built by a competing equipment manufacturer, but a disaggregated system based on a virtual network that operates in the Cloud and replaces traditional dedicated network equipment. In geopolitical terms, it should be noted that the Cloud is an area in which very important players are American (Google, Amazon, Microsoft, and Oracle). On 8 April 2020, the launch by the Japanese company Rakuten of a first virtual network has aroused great interest in the telecommunications industry. The absence of Huawei in the working groups around this technology is to be seriously considered.

According to experts, the Chinese soft-power offensive has benefited from the American withdrawal and President Trump’s “America First” policy. Well before the appearance of Covid-19, the Trump administration had proposed major cuts in the budget allocated to international aid (-21%). On 14 April 2020, President Trump announced the suspension of American financial participation in the World Health Organization (WHO), to which the United States is the largest contributor. As part of the stimulus package, the US Government is planning a USD 274 million increase to the initial USD 2.2 trillion budget for USAID and the Centers for Disease Control and Prevention (CDC). The United States retains two advantages. The first is the popularity of its university system, which attracted one million foreign students, 300,000 of whom were Chinese. The second advantage is the US Dollar, which continues to be both a refuge and a weapon.

Chinese authorities are rewriting the history of the coronavirus epidemic, overcoming their initial suppression and their pressure applied upon the WHO to delay the declaration of a pandemic state. They attribute their success to the efficiency of the Chinese political system, compared to the inefficiency of Western governments in general, and in passing, have overlooked the successes of two Asian countries in managing the epidemic: South Korea and Taiwan. One can remain doubtful about the scope of these offensive communication actions but still commend the initiatives of Ali Baba founder Jack Ma to supply medical equipment to many countries, which gives him an international standing comparable to that of Bill Gates.

Most informed observers agree that the only way for China to emerge from this health crisis as a winner and to put behind its careless attitudes at the beginning of the epidemic would be to win the race to develop a vaccine. In the future, Chinese influence would increasingly focus on the BRICS and emerging and developing countries, in particular, on the African continent, while the United States would reconnect with its allies in Europe where issues (Brexit, Iran, the Middle East, Libya, etc.) of divergence and even tension would nevertheless persist.