THE SINO-AMERICAN CONTEST: SMALL YARD, BIG WORLD

In recent times the China story has been flagging – the miracle is now enveloped by considerable malaise. A pronounced tilt to the Marxist-Leninist left, a long period of slowing growth, ballooning debt (287% of GDP), rising unemployment, a real estate crisis (400 sq/mi of vacant housing), palace politics, purges, a party-market standoff, the taking down of big tech, botched handling of the pandemic, the flight of FDI and endless bouts of military cleansing have characterised the downward spiral. The number of people over the age of 60 in China, exceed the entire population of the USA. In the coming decades, therefore, China may be more nursing home than an economic powerhouse.

There are now indications of China making strategic readjustments for a new era: measures to re-invigorate Chinese statecraft, tweak its domestic & global calculus and course correct, perhaps from a realisation that China had overreached. Not a return to ‘hide and bide’ but a rollback somewhat, of ‘loud and proud.’

So, what are these measures? What is their larger purpose? What are their implications for India and the wider world? Will they work?

Xi’s foremost priority is of course to kickstart long-term economic growth in an attempt to arrest the constant predictions of THE GREAT FALL OF CHINA. The trip to San Fransisco to participate in APEC last November, meet with business honchos and the confabulation with Biden, was to reassure the world that he wishes to lower geopolitical temperatures and risk, to rekindle investor confidence. Each time a PLAAF aircraft crosses the median line in the Taiwan Straits it of course demonstrates CCP’s resolve towards ‘reunification’ but it also encourages investors with billions of dollars to move to other equally attractive options. So, Xi has been persuaded to dial down the aerial incursions, ships and balloons, with a view to invite economic activity back in. The resumption of the Sino-US military to military dialogue will hopefully lead to physical deconfliction and mitigate the risk of conflict, at least for a while.

A New Development Concept (based on twin postulates) has also been formulated to replace the ‘reform and vigorously pro-market model’ of earlier years. The first is a derivative of the dual circulation economy—it seeks to make the Chinese economy less dependent on international trade & capital flows and be driven more by domestic consumer demand and the lure of its large market. The second seeks to create a more securitised economy, whereby, while the economic impulse will continue to be market-driven, it will be under a firm political leash. So, the role of SOEs will be re-prioritised, private firms will be constrained, crucial data and informational flows will be controlled by the government and not by Alibaba & Tencent. Chinese strategists and ideologues are increasingly of the view that China now has considerable wealth; wisdom lies in converting many of the economic surpluses into new metrics of hard power. Chinese companies and youth, it has now been decreed, buoyed by Xi Jinping’s thought, must spend less time on creating world-class video-games and focus more intently on achieving breakthroughs in the critical technologies of the future (less TikTok, more quantum & hypersonics).

The CCP is conscious of the fact that while China’s industrial capacities are considerable, they were designed for a different era: the 12% gross margin (value add) must now be utilised to break chokeholds in strategic areas and become ascendant in the critical domains that will power Globalisation 2.0 – AI, Robotics, Synthetic Biology, Advanced Chips, EVs, Wind, Solar, Critical Minerals like lithium, etc. To make this transition a shock therapy is needed, a therapy that cannot be induced by the private sector. The CCP has therefore intervened and committed to an investment of USD 1.4 trillion till 2025, in these new domains where true strategic advantage lies.

In this new phase, the battle for business, commerce and influence will also shift to a new theatre – the Global South. Herein, China is looking for a new bargain. It is no longer content being a peripheral stakeholder (provider of labour and markets) – it now aspires to be the driver. Small Yard – Big World (becoming the lead in futuristic, niche technologies and leveraging them across the world, particularly in the Global South) is China’s new playbook to counter the West’s Small Yard – High Fence strategy (prowess in niche technologies to be shared and leveraged only between a few). How all this plays out in the real world, how the re-set fares against the equally vigorous forces of de-coupling & de-risking, whether it ends up killing the animal spirits all together, is another matter and will of course be closely watched.

We have also seen a visible roll back of wolf warrior diplomacy – acknowledgment perhaps that the USA-led pushback along with allies and partners had perhaps begun to work. In the business of advanced chips for example, the Chinese are beginning to realise that merely throwing billions of dollars means nothing – the technology is greatly evolved, the supply chains are far too complicated and internationally intertwined to be replicated easily. A significant attempt to mend fences with Australia is another pointer in the direction.

So, the contest is not cooling off, it is in fact heating up with a re-drawing of battle-lines. In the last phase (hide and bide), China surged ahead, because the USA was lulled into complacency, it was in fact asleep at the wheels. A premature plunge into ‘loud & proud’ ruined much of the advantages that had accrued to the Chinese juggernaut, de-railing somewhat, its peaceful rise. China now knows that in the renewed contest it faces an awakened, far more competitive West. So, it is trying to re-fashion its strategy in smarter ways. In the meantime, Kissinger’s Cold War 2.0 has moved well past the foothills, perhaps, even the mountain passes. It is now far closer to the dangerous peak.

Xi used to say that the ‘Pacific is big enough for both (USA & China) of us.’ At San Fransisco he said that the ‘Earth was big enough for both of us.’ So, China’s ambitions are expanding, its desire to transform the international system growing – it is also perhaps giving the Americans a subtler message: ‘We are not the Soviet Union. See our power and call a truce – stick to your part of the Pacific and between us we could slice up the world’.