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No.16 2019/04/10

New Cold War Between the US and China: China’s Response

Bonji Ohara (Senior Fellow, The Sasakawa Peace Foundation)

Introduction

 The game between the two major powers, the US and China, is now shifting from so-called “soft areas” such as public diplomacy to “hard areas,” which include the economy and security. Moreover, the economic conflict between the two, known as the US-China trade war, has expanded into international society. As a result, the new Cold War between the US and China is becoming increasingly structuralized.
 The term “Cold War” refers to international conflicts in which economic statecraft, diplomacy, and information and intelligence are utilized instead of the direct use of military force. More specifically, it is used to refer to the structure of confrontation in the post-World War II period during which the US-led liberal capitalist camp and the Soviet Union-led communist/socialist camp competed with one another. Although the US and China have thus far managed to avoid military conflict, the friction between these two countries is exacerbating economic relations – specifically, trade – and security issues. This current situation is what is being referred to as “the new Cold War” in this paper.
 In this paper, the phrase "increasing structuralization of the new Cold War between the US and China" refers to the situation in which division in the global market occurs not as a result of the logic of market mechanism, but rather due to politics, which indicates that the formation of block economies centered on the US and China is sure to involve other countries.
 The impact of US pressure is now being seen in Chinese domestic politics, and we have begun to see some changes in China’s policies toward the US and economic policies. Whether the changes can ease the tension of the new Cold War between the US and China is also an important question for Japan. If the structure of this new Cold War becomes fixed, many other economies, including that of Japan, may suffer enormous harm.
 Driven by such problematic conditions, this paper analyzes the situation of the structuralizing of the new Cold War between the US and China, and examines China’s response to it.

 

1 US pressure and the decline in Xi Jinping’s authority

 With increasing US economic pressure on China since 2018, Chinese economic damages under US pressure has gotten apparent. In April, for example, ZTE faced the prospect of bankruptcy when the US banned American firms from selling hardware and software to ZTE crop. Furthermore, as US-China trade tensions to impose tariffs intensified, the trade war between two countries became a reality for China, which she had tried to avoid by showing some worrying trade war restraint.[1]
 Following these circumstances , unconfirmed reports questioning the responsibility of Vice Premier Liu He – a confidant of Xi Jinping entrusted with economic and US policies – circulated in China in July.[2] Furthermore, at the Beidaihe conference in early August, Chairman Xi Jinping’s difficulties became apparent.[3] The Beidaihe conference is an unofficial conference in which the leadership of the Chinese Communist Party (CCP) and its senior members discuss personnel matters and important policy question in Baidaihe in Hebei Province, a well-known summer retreat. It was reported that the primary topic of discussion at the 2018 Baidaihe conference was the intensification of the China-US trade war and how it should be handled.
 It was reported that "within the Party, those supporting an all-out confrontation were a tiny minority and the majority was in favor of making peace."[4] If that was the case, it could mean that the Xi Jinping government’s hardline attitude towards negotiation with the US was rejected. The rejection of the Xi government’s policies can also be seen in economic policies.
 Premier Li Keqiang, whose control over economic policies had been appropriated by Chairman Xi Jinping when he occupied the number two position in the CCP, started to make his presence felt.[5] It was Vice Premier Liu He who engineered a piece in the People’s Daily expressing a negative view of Premier Li Keqiang’s economic policies in May 2018. Almost at the same time as the Vice Premier came under fire, Premier Li started to push his own economic policies. He directed the implementation of active financial policies and encouraged financial institutions to supply enough funding for infrastructure development. These, however, are incompatible with the economic policies of the Xi Jinping government which is keen on reducing debt.

 

2 China’s engineering of a Cold War

 The US, which has maintained pressure on China, understands that it was China that started the Cold War with the US.[6] China believes that the US will obstruct its development and that one of the means that it could use for this purpose would be an exercise of military power. However, China also understands that at present it cannot win a war against the US. Consequently, China has been employing means other than military power, to avoid a military clash with the US.
 China has been exercising public diplomacy as a way to employ its soft power to influence public opinion in the US in order to ease the sense of alarm against China and to avoid obstructing China. For example, from January to February 2011, China rented the largest screen in New York’s Times Square and showed videos more than three hundred times a day as its way to improve China’s image.[7] Since then, China has engaged in a variety of PR activities in Times Square.[8]
 In February 2012, China Central Television (CCTV) began broadcasting in the US in an effort to impress upon American society that she owns an active news media agency.[9] China first began to engage in soft power diplomacy with Japan and the US at the beginning of the 1970s – as can be seen in the case of the so-called “panda diplomacy” – but it was in the 1990s that China started to use soft power actively as a part of its public diplomacy.
 Despite this, however, there has been a backlash against China’s public diplomacy in the US. Confucius Institutes, one of the symbols of China’s public diplomacy, were established in several collaborating universities and other institutions, starting in 2004. However, the Confucius Institutes are now being removed from the US. There is also growing alarm over the Chinese funding of think tanks in the US.[10] Despite China’s efforts, a sense of alarm against China has intensified in the US, and, China’s soft power has become to be referred to as “sharp power” as a result. The Chinese consequently began to curtail public diplomacy efforts.[11]

 

3 "Made in China 2025" stirred the US

 While the main reasons that the US is now more alarmed about China’s “sharp power” could be found in the economy and national security, the US Congress began to harden its stance towards China as a reflection of the attitudes of US businesses.
 "Made in China 2025," Xi Jinping’s pet project that was announced by the State Council on May 19, 2015, listed ten key industries for growth: 1. Next-generation information technology; 2. High-tech, digitally-controlled industrial machinery and robots ; 3. Aerospace and space equipment; 4. Ocean engineering and high-tech ships; 5. Advanced railway equipment; 6. Green energy and green vehicles; 7. Power equipment; 8. Agricultural machinery; 9. New materials; and 10. Bio-technological medicine and high performance medical equipment.[12]
 The US has become even more alarmed by "Made in China 2025." In a TV interview with CNBC on December 12, 2018, the US Secretary of Commerce, Wilbur Ross, clearly expressed a sense of alarm regarding China, stating that China had been trying to present “Made in China 2025” as non-threatening, but raising concerns over misappropriation of US intellectual property.[13]
 What is most troubling is that China appears to be working toward bringing the next-generation mobile communication system (5G) under its control. If China is able to control the 5G network using Chinese-made electronic devices, it may be able to control global information flows. To the US, this represents a threat to its supremacy in national security. However, it is more likely that US businesses became alarmed because the control of 5G would make China an economic threat.
 5G is considered indispensable to IoT communication technology, the major pillar of the fourth industrial revolution. In other words, whoever controls 5G controls the next industrial revolution. Countries that started an industrial revolution, including the UK and the US, have established hegemony around the world. One of the reasons for this is that in addition to the economy acting as a source of power, technology – including IoT – can be used for military purposes.
 "Made in China 2025" starts with the sentence "Manufacturing is the main engine of the national economy, and it is the basis upon which to establish the country, the vessel to develop the country, and the foundation to make the country strong. Since industrial civilization started in the mid-eighteenth century, the history of the rise and decline of powers in the world and the struggle of the Chinese nation has testified that without strong manufacturing, the rise of the state and nation cannot be achieved."[14] From the US perspective, the expression "the rise and decline of powers in the world" can be seen to suggest that China is trying to overturn its "humiliating century" to realize a great revival of the Chinese nation, in order to replace the US as the major global power.

 

4 The US structuralizing the US-China Cold War

 While it was China that has exercised the Cold War, it now appears that it is the US that attempts to structuralize the new US-China Cold War. The National Defense Authorization Act, which was enacted with the signature of President Donald Trump in August 2018, stipulates that governmental institutions will be banned from procuring products from five Chinese companies, including Huawei, a major Chinese manufacturer of communication equipment, and ZTE, as well as a major manufacturer of monitoring cameras, from August 2019.[15] From August 2020, governmental institutions will be obliged to cease trading with companies using products of these five companies.
 The attempt to remove Chinese-made devices from the markets of the US and its allies is aimed at dividing the global market into two. The message is that anyone wanting to trade with the US must cut ties with China. The FY2019 National Defense Authorization Act contains the Export Control Reform Act (ECRA), which strengthens export regulations, and the Foreign Investment Risk Review Modernization Act (FIRRMA). The US has, in other words, moved to legally regulate economic activities such as trade and investment in order to prevent technology leaks to China.
 An attempt to divide the global market by political and legal means can be seen as a move to structuralize the new US-China Cold War. The US is not only trying to remove Chinese-made electronic devices from the markets of the US and its allies, but is also attempting to make use of the energy resource market. On March 12, 2019, US Secretary of State Mike Pompeo called on the oil industry to pursue diplomatic aims in Asia and Europe, and to cooperate in placing sanctions on countries that are the "bad guys" of the world.[16]
 Secretary of State Pompeo has said that shale oil and natural gas, which has been found to be abundant in US territories, would "strengthen the US position in diplomacy." The US, when it emphasizes that "we need to compete by promoting investment, encouraging partners to buy from the US and punishing the bad guy," is thinking of Venezuela, Iran, Russia, and China.
 Secretary of State Pompeo also criticized China as "preventing energy development in the South China Sea through intimidation measures," and argued that Southeast Asian countries could not access proven reserves worth 2.5 trillion dollars. It can be argued that the US is using economic measures to deal with the diplomatic and national security problems that it has with China.

 

5 China’s response

 In response to these developments in the US, China is shifting from hardline attitudes toward the US to more conciliatory ones. It was Vice Premier Liu He, a confidant of Xi Jinping, who led China's hardline US policies. Vice Premier Liu He has promoted the Party’s economic policies with an emphasis on economic structural reform and has objected to economic policies put forward by Premier Li Keqiang, who argued for the expansion of investment in infrastructure.
 It has been reported that criticism of allies of President Xi Jinping, including Vice Premier Liu He, began to emerge in China and that the authority of Premier Li Keqiang has begun to recover.[17] The instability of Chinese domestic politics was laid bare in the immediate aftermath of the opening of the National People’s Congress (NPC) that took place from March 5 to 15, 2019. Economic policies that focused on reducing debt and realizing economic structural reform were presented despite not necessarily being congruent with the policies of the upper echelons of the CCP, which are dominated by Chairman Xi Jinping.
 In its opening section reflecting on 2018, the governmental activity report delivered by Premier Li Keqiang on March 5 stated that "due to economic and trade friction between China and the US, some companies' production and management were adversely affected." Ordinarily, the report would emphasize the government’s successes. On this occasion, however, a negative, albeit moderate, evaluation was included.
 Taking into consideration that Chairman Xi Jinping has been obstructing Premier Li Keqiang and had taken exclusive control of economic and US policies, we can see this sentence as a critique of Chairman Xi Jinping; namely that there have been some errors in his economic and US policies. This suggests the possibility that Premier Li Keqiang, who had been contained, has recovered his domestic authority to the point that he is able to criticize Chairman Xi Jinping and present his own economic policies.
 The governmental activity report then described the economic goal of 2019 as one for which "the proportion of financial deficit in GDP should be 2.8 percent, which is an increase of 0.2 percentage points from the 2018 budget, and set the 2019 financial spending at just over 23 trillion yuan, an increase of 6.5 percent.” At the same time, the report announced tax cuts for large companies, an average cut of 10 percent in electricity bills, and a reduction in communication charges for small and medium companies. At the same time, it announced a huge reduction in social insurance contribution and stated that companies' tax contributions and social security contributions would be cut by just under 2 trillion yuen (equivalent to 33 trillion yen) over a year. Furthermore, it promised to invest 800 billion yen (about 13 trillion yen) in railways and 1.8 trillion yuen (about 30 trillion yen) in road and maritime networks. It also stated that more would be invested in infrastructure, such as transport and anti-disaster measures. The development of next-generation information infrastructure will be strengthened by an investment of 577.6 billion yuen (about 9.5 trillion yen), an increase of 40 billion yuen as compared to the previous year. These are extremely large economic stimulus measures.[18]
 The governmental activity report delivered by Premier Li Keqiang on behalf of the State Council appeared to deny the CCP’s – in other words, Chairman Xi Jinping’s – economic policies. Furthermore, the "strong country" stance in reference to the US was subdued in the report. There was no mention of "Made in China 2025," the plan to develop high-tech industries targeted by the US and 5G, in the report.
 This does not mean, however, that China has given up on economic growth. In the 2019 NPC, the term "5G" was not used. However, "the next-generation information infrastructure" could only possibly refer to 5G infrastructure, because the term “next generation” indicates the fifth generation. It appears that China is trying to return "to keeping a low profile." However, keeping a low profile means hiding one's abilities, not changing one’s intention. To circumvent US pressure, China is choosing its words very carefully, but still presents substantial policies for development.
 While China is trying to circumvent US pressure, it continues to make efforts to remove pressure from the US. The major element in these efforts is military buildup. China has been boasting of the development of stealth bombers and ultra-supersonic weapons domestically and abroad.[19] When considering their cruising range and the use of mid-range ballistic missiles, we can conclude that the aim is to attack US troops that may invade China.
China has also built a large number of naval vessels, including an aircraft carrier, and tested a submarine-launched ballistic missile (SLBM), the "Ju Lang (JL) 3," in the Bohai Sea in late November. These represent efforts to deter the US from exercising its military power. While the expressions might have changed, China’s behavior itself does not show any change.

 

Conclusion

 President Trump is about to start a new Star Wars. On August 9, 2018, US Vice President Pence delivered a speech at the Ministry of Defense and announced that the US Space Command, the creation of which was announced by President Trump, would be established by 2020.[20] The Space Command, if established, would be the country’s sixth military force following the army, navy, air force, marines, and coast guard. As the stated aim of establishing this new military branch is to counteract the strengthening of military capabilities in space by China and Russia, it is clear that the intention is for the US to engage in an arms race in space with China and Russia.
 The US has withdrawn from the INF Treaty to make clear its intention to counteract China’s mid- and semi-mid-range anti-ship ballistic missiles and ultra-supersonic weapons. Furthermore, the US has excluded China from the Rim of the Pacific Exercise (RimPac) and is supplying weapons to Taiwan.
 The new US-China Cold War is about to shift from soft to hard. China’s soft power has been branded sharp power and has been removed; as the trade war intensifies, the economic problems have started to manifest problems of national security. This has now developed into an arms race. An arms race is also a competition for economic power. The two countries are opposed to each other and have divided the market into two, but they continue to avoid direct military confrontation and compete in weapons development and military buildup. This is indeed a Cold War structure.
 However, unlike in the 1980s, international economic activities, including trade, have become more complex. Furthermore, the US-Soviet Cold War adversely affected the US economy in relation to the SDI initiative. The new US-China Cold War, while it could contain China as intended by the US, could also have an extended adverse effect on Japan and other allies.
 This is not the only reason why it is difficult to predict the course of the new US-China Cold War. There is the possibility that President Trump may strike a deal with China before expanding the new Cold War. At present, the US Congress and businesses are increasingly becoming hardliners against China. When President Trump assumed office, China understood President Trump as its number one enemy. However, China has also come to understand that President Trump will conclude a deal if it benefits him. Ironically, President Trump could become China's savior.
 After the Trump administration ends, it may become difficult to change the US hardline attitude towards China. This suggests that China has to make a deal with the US while President Trump is still in office. Conventionally, it is said that time sides with China, but when taking into account President Trump’s term in office, China may not have much time left.

(Dated Apr 7, 2019)

1“‘Trade war will harm both’: Mr. Xi’s speech at Davos making his presence felt”, Nikkei, January 18, 2017, http://www.nikkei.com/article/DGXLASGM17HAT_X10C17A1FF2000/?n_cid=NMAIL001 (Last accessed on January 19, 2017.)

2“The Xi government shaken by friction with the US: Premier Li’s presence is felt – China”, Jiji Press, July 28, 2018, https://www.jiji.com/jc/article?k=2018072800310&g=int (Last accessed on July 29, 2018.)

3See, for example, “In the run-up to the Beidaihe conference: ‘Xi Jinping’ has disappeared from the slogan: A propaganda minister fired”, The Sankei News, July 31, 2018, https://www.sankei.com/world/news/180731/wor1807310025-n1.html (Last accessed on July 31, 2018.) “Debating the trade friction with the US at ‘the Beidaihe conference’ in China?”, NHK NEWS, August 5, 2018, https://www3.nhk.or.jp/news/html/20180805/k10011563991000.html (Last accessed on August 6, 2018.)

4“In the run-up to the Beidaihe conference: ‘Xi Jinping’ has disappeared from the slogan: a propaganda minister fired” , The Sankei News, July 31, 2018, https://www.sankei.com/world/news/180731/wor1807310025-n1.html (Last accessed on July 31, 2018.)

5The Xi government shaken by friction with the US: Premier Li’s presence is felt – China”, Jiji Press, July 28, 2018, https://www.jiji.com/jc/article?k=2018072800310&g=int (Last accessed on July 29, 2018.)

6“China aims to ‘replace the US as the superpower’ according to a high ranking CIA official”, CNN, July 23, 2018.

7“新华社租用纽约时代广场最大广告位", NetEase Newspaper, July 28, 2011, http://news.163.com/11/0728/00/7A0SM6890001124J.html (Last accessed on April 1, 2019.)

8See, for example, “新媒:纽约时代广场中国元素多 宣传性质各不相同”, Xinhua, July 23, 2015, http://www.xinhuanet.com/world/2015-07/23/c_128050808.htm and “中国旅游形象宣传片登陆纽约时报广场”, Xinhua, November 15, 2016, http://www.xinhuanet.com/world/2016-11/15/c_1119916062.htm (Last accessed on April 1, 2019.)

9“CCTV华盛顿新闻中心开始运营” Voice of America Chinese February 26, 2012, https://www.voachinese.com/a/article-20120206-cctv-america-launches-on-feb-6-138821169/797900.html (Last accessed on April 1, 2019.)

10For instance, Kuwahara, Kyoko “The deadlock in China’s manipulation of US public opinion: Can Japan make use of this?” WEDGE Infinity, September 20, 2018, http://wedge.ismedia.jp/articles/-/13996?page=3 (Last accessed on April 1, 2019.)

11Details of the development can be found in Kuwahara, Kyoko “The world that has been made a fool of by China’s sharp power: China’s public diplomacy now attracting criticism (Part 1)”, WEDGE Infinity, November 1, 2018, http://wedge.ismedia.jp/articles/-/14382 and “The world that cannot resist China’s sharp power, ‘economic co-operation’: China’s public diplomacy now attracting criticism (Part 2)", WEDGE Infinity, November 2, 2018, http://wedge.ismedia.jp/articles/-/14383 (Last accessed on April 1, 2019.)

12The Government of the People’s Republic of China, “国务院关于印发 《中国制造2025》 的通知”, May 19, 2015, http://www.gov.cn/zhengce/content/2015-05/19/content_9784.htm (Last accessed on April 1, 2019.)

13“UPDATE 2-Beijing eases back on 'Made in China 2025' amid trade talks with U.S.”, CNBC, December 12, 2018, https://www.cnbc.com/2018/12/12/reuters-america-update-2-beijing-eases-back-on-made-in-china-2025-amid-trade-talks-with-u-s.html (Last accessed on April 1, 2019.)

14The Government of the People’s Republic of China, “国务院关于印发 《中国制造2025》 的通知”. May 19, 2015, http://www.gov.cn/zhengce/content/2015-05/19/content_9784.htm (Last accessed on April 1, 2019.)

15“H.R. 5515 - John S. McCain National Defense Authorization Act for Fiscal Year 2019”. Congress.gov, August 13, 2018, https://www.congress.gov/bill/115th-congress/house-bill/5515/text (Last accessed on April 1, 2019.)

16“The US Secretary of State calls on the oil industry to work together in pursuing diplomatic aims”, REUTERS, March 13, 2019, https://jp.reuters.com/article/pompeo-oil-industry-idJPKBN1QU092 (Last accessed on March 18, 2019.)

17“The Xi government shaken by friction with the US: Premier Li’s presence is felt – China”, Jiji Press, July 28, 2018, https://www.jiji.com/jc/article?k=2018072800310&g=int (Last accessed on July 29, 2018.)

18“政府活动报告-2019年3月5日在第十三届全国人民代表大会第二次会议上”,2019”, Xinhua, March 5, 2019, http://www.xinhuanet.com/politics/2019-03/05/c_1124194454.htm (Last accessed on March 6, 2019.)

19See, for example, “央视罕见直接明说:轰20轰炸机研发已手得重大进展”, Sina Military, October 9, 2018, http://mil.news.sina.com.cn/china/2018-10-09/doc-ifxeuwws2281617.shtml (Last accessed on April 1, 2019.)

20“Establish ‘Space Command’ by 2020 – competing with China and Russia – some problems in realization – US Vice President”, Jiji Press, August 10, 2018, https://www.jiji.com/jc/article?k=2018081000225&g=use (Last accessed on August 11, 2018.)

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