Can China Become a Super Power?

The USA has multiple issues with China in the areas of technology, intellectual property, etc. Aggravating these issues, a trade war has started, contrary to the economic predictions done by pundits. Both countries are playing a lose-lose game by applying tariffs on their imports. The USA is hell-bent on pressurizing China to yield. At this outset will it become a stumbling block for China’s ambitions? Our guest writer, Rajesh, T. V. – who is a Business and Economic Journalist – shares his thoughts on the subject.

Will the Ambition of China to Become a Superpower by 2025, be Cornered by the US?

Two ambitious plans projected by China to transform the economy from labour-intensive and low-skilled manufacturing jobs to sophisticated and cutting-edge technologies are the Medium to Long–term plan and the 12th Five-Year plan. It is proposed to develop strategic and emerging technologies which will leapfrog China to become the global leader in science and technology.

The leading element of the project is the “Technology Transfer”, which includes the acquisition of foreign companies and technology through mergers and acquisitions, boosting research and development initiatives to encourage foreign collaboration in mainland China, and accelerating massive investments in research and infrastructure

According to the United States Trade Representative (USTR) January 2018- 2017 report to the Congress on China’s WTO Compliance, USTR identified four categories of importance which will be the subject of its inquiry : transfer of technologies and intellectual property to Chinese companies, deteriorating the U.S. companies of the ability to set market-based terms in licensing negotiations with Chinese companies, intervention in markets by the acquisition of U.S. companies and assets by Chinese companies to obtain intellectual property, and supporting unauthorized intrusions into U.S. commercial computer networks.

Based on the report on review under section 301 of the Trade Act of 1974, ordered by President Donald Trump and the suggestions provided by experts, The US Treasury Department has been given instructions to formulate restrictions on Chinese investments that advance aggression on American Technologies which is ‘investment in disguise’, serves the china’s strategic military ambitions. “Technology Transfer” is likely to cease in the coming years and it will be a threat to the Chinese ambitions.

Recent orders by the USA to apply tariffs on 1300 different products exported by China, is a follow-up of tariffs already imposed on steel and aluminium imports. Table-1clearly shows that there is a huge trade deficit (imports greater than exports) with China for the previous three years starting from 2015.

Table-1a (All figures are in millions of U.S. dollars on a nominal basis)

U.S. trade in goods with China
Year	Exports	Imports	Balance
2017	130,369.50	505,597.10	-375,227.50
2016	115,602.10	462,618.10	-347,016.00
2015	115,932.00	483,188.70	-367,256.70

Table-1b (All figures are in millions of U.S. dollars on a nominal basis)

U.S. trade in goods with Norway
Year	Exports	Imports	Balance
2017	5,298.50	5,029.90	268.70
2016	3,924.40	4,408.40	-484.00
2015	3,570.40	4,760.30	-1,189.90

Source: United States Census Bureau

Table-2 shows the Year-to-Date Deficits, which the US has with its trade partners. This is one of the reasons why Mr Trump embarked on a new protectionist policy. The USA is having the worst trade deficit with China.

Table-2 (in billions of USD)

US Year-to-Date Deficits with its Trade Partners
Rank	Country	Deficit
1	China	-36
2	Japan	-5.7
3	Germany	-5.4
4	Mexico	-4.1

Source: https://www.census.gov/foreign-trade/statistics/highlights/toppartners.html

From Table-3, if you take the top 15 countries which make up around 78 percent of imports to the US, China comes in the first place with around 23 percent of imports. These imports from China are helping the US economy in multiple ways. Manufacturers receive cheap raw materials from China which will help them to increase the profits and also to decrease the price thereby helping consumers. This will decrease the inflation in the economy.

Table-3 (in billions of USD)

Year-to-Date Imports by US
Rank	Country	Imports	% of Total Imports
	Total, All Countries	203.5	100.00%
	Total, Top 15 Countries	160.1	78.70%
1	China	45.8	22.50%
2	Canada	26.3	12.90%
3	Mexico	25.9	12.70%
4	Japan	11.3	5.60%
5	Germany	9.8	4.80%

Source: https://www.census.gov/foreign-trade/statistics/highlights/toppartners.html

The decrease in imports from China due to tariffs is likely to escalate costs still further for the consumers and businesses in US and inflation is likely to breach the Federal Reserve’s (Central Bank of US) inflation target in the coming months

According to the Federal Reserve and U.S. Department of the Treasury, foreign countries held a total of 6.3 trillion U.S. dollars in U.S. Treasury securities as of December 2017. Of the total 6.33 trillion held by foreign countries, China held 1.19 trillion U.S. dollars in U.S. securities.

From Table-4, the data published by US Department of the Treasury, it is clear that the Chinese residents held around 1,168,155 million dollars worth of US Treasury Securities as on January 2018. China’s position as America’s largest creditor gives it some political and economic leverage. Any changes in the Chinese debt position can inevitably create ripple effects in the US economy.

Table-4 (Millions of USD)

U.S. Treasury Securities Held by Foreign Residents in January 2018.
Country	Total US treasury Securities	Long-term US securities	Short-term Securities
China	1,168,155	1,164,534	3,621

Source: http://ticdata.treasury.gov/Publish/slt3d.txt

Can China contain a trade war better than USA?

Firstly, in China, the one-party rule makes little room for criticism and under the guise of a trade war, patriotic waves can be sent through the censored media to the citizens to make them united under one pack. Mr Xi, who is the President of China, has absolute powers both over the party and the media. So the information that is coming out of the media may not be true. On the contrary, Mr Trump must seek out the grievances of the consumers and has to find a cost-effective solution for the American companies in the backdrop of the decrease in exports from Chinese companies.

Secondly, the Chinese government can act as a bulwark by tuning the state-owned banks to facilitate and support the industries suffering from tariff related problems. Its State enterprises also have the wherewithal to tolerate the losses for a long term. Losses can be contained by suppressing the businesses and people. But in the case of USA, the losses of American companies will directly impact the economy, increase in – unemployment, inflation and unemployment benefits, etc. There will be hundreds of voices across the country to put a death knell to Trump’s protectionist policies.

Thirdly, China has targeted 120 American products like soybeans, pork, fruits, nuts and wine, in retaliatory tariff, this will be disastrous for the American agricultural sector. China is the second biggest customer for US agricultural products, the US Agricultural Department had already predicted lower farm incomes. A lot of American agricultural farmers have started opposing President Trump’s protectionist policies, a backlash from the community, who are influential enough to turn the tables in the next election. But in China, the opposition is repressed and crushed and so any form of negative information is subdued.

Both countries have to buck up the diplomatic relationships and sought out their issues as early as possible. Breaking the deadlock between China and US is the need of the hour. China may be better than the US in adapting to a trade war is a partial view which is created by the censored media and the reality may be different. China’s ambitions to become a superpower will be hampered. The need of the hour is to negotiate and create a win-win situation.