China-US Rivalry of the Century amid Great Changes

Since the global financial crisis in 2008， frictions between China and the United States have been growing， as the backlash against globalization is on the rise. Such frictions， emerging during the Obama administration， became fully public during the Trump administration. After the Biden administraation took office， the China-US relations， though more “diplomatic” in appearance， have seen the inherent divisions widening. The China-US conflicts have become an integral part of the entrenched China perception of the Deep State. With the evolution of the international landscape accelerated by COVID-19， the interactions between China and the United States are being shown more visibly than ever to the world.

China vs. US on key fronts

By comparing China and the US in COVID-19 response， economic recovery， education， science and technology， domestic governance and global governance， it seems fair to say that the scale of competition is increasingly tilted toward China.

In COVID-19 response， the disappointing outcome in the US contrasts starkly with the situation in China， which has effectively controlled the virus by containing the increase of infections and deaths. The American government， on the other hand， has fallen short of leading the country in tackling the disease head-on. China has also taken an active part in international cooperation by lending support to the COVAX Facility and the World Health Organization （WHO）， proposing to make COVID-19 vaccines a global public good and providing vaccines and PPEs to other countries. Those moves speak volumes about China’s ever growing soft power.

In economic recovery and development， the US has also been dwarfed by China. The year 2020 witnessed a 27.4% increase in China’s trade surplus over the previous year， a surge in its foreign exchange reserve and a 2.3% rise in its GDP， a sharp contrast with the shrinkage of 4% and 10% of the US and EU respectively. When the Cold War ended in the early 1990s， the share of China’s and America’s GDP in the world economy was 3.86% and 20.6% respectively. Fast forward to 2018， the share of the US was reduced to 15% while that of China surged to 18.6% in purchasing power parity （PPP） terms. China’s economic size will probably outstrip that of the US by 2030. China now stands as the No.1 exporter and holder of foreign exchange reserve， and the only major economy with no massive foreign debt. China has also amazed the world by achieving its set goal of eliminating absolute poverty as scheduled， despite COVID-19.

In education， the gap is quickly narrowing down. The US remains a bellwether in basic science， from the perspective of research institutions led by national labs and private universities. Still， America’s investment in those fields has almost been halved compared with the Reagan era. Only 5% of university students in the US are studying engineering， while the number in China is 1/3. China is cultivating a new generation of university students in a large scale. As education always features prominently in the Chinese civilization， science and innovation are regarded as key factors in realizing socialist modernization by 2035. Over the years， China’s educational prowess has surpassed America’s in areas critical to scientific innovation including engineering， computer science and mathematics. The number of scientists and engineers cultivated by China is six times that of the US， outnumbering the sum of the US， the EU， Japan and ROK. The number of doctorates of China in STEM （Science， Technology， Engineering and Mathematics） is twice of America’s.

In high-tech areas， the competition is fierce. China is doing great in artificial intelligence （AI）， 5G， digital currency and encryption. China’s COVID-19 response epitomizes the might of the fourth industrial revolution as represented by big data and AI. China and the US are major rivals of each other in quantum computer， dubbed as the “Holy Grail” in the 21st century. 150 unicorn companies with a market value of over 1 billion US dollars have emerged in China， accounting for 46% of the world total. The number in the US is 107， or 33% of the world total. Those achievements are largely attributed to the hefty input of China and its orderly opening up to foreign capital.

In domestic governance， China has shown its edge. The fourth scientific and technological revolution featured by the great leap of AI and ICT is impacting the existing labor relations in capitalist countries including the US. Despite a surge in productivity， employment and per capita income in those countries have either stagnated or shrunk. With social wealth rapidly concentrated， the top 1% richest are getting still richer. Although the scientific and technological revolution is a natural product of human activities， the nation must play its due role in the social sphere. That is exactly what China has done forcefully. It has launched a host of massive infrastructure projects in remote provinces with relatively low ROI in the short term. Though such strategies may have lowered China’s potential GDP growth， their significance should never be underestimated in eliminating poverty and bridging regional wealth gap.

In global governance， the international order， put in place after WWII under the leadership of the US and consolidated when America’s dominance was unrivaled， is being shaken. Developing countries， accounting for over 50% in global GDP， are underrepresented in major international organizations such as the IMF and World Bank. China is now promoting the reform on the system and approach of global governance. Always a champion of multilateralism， China proposes to reform the existing international system， so that it can evolve into a multi-polar system that is more balanced and compatible with current international economic relations. Compared with the US， China better appreciates the role played by international organizations such as the WTO and WHO， and international agreements including the Paris Agreement. The Trump administration saw America distance itself from those international institutions. While the Biden administration tried to tinker with the relations， some damage could be hardly undone.

Consequences of America’s bias and containment policy on China

Up to now， America’s prejudice toward China has been based on two wrong claims.

The first is China will never outrun the US， for it will be a pure fantasy for China， which was nothing but an agricultural nation not long ago， to achieve such feat. After all， China’s GDP was only 5% of America’s back in the 1980s. Although such an assertion could be somewhat justified in 1980， how come some people in the US are still clinging to this view today？ Since the US is well-informed by all intelligence and research resources and supported by international organizations such as the World Bank and IMF， the only reasonable explanation is their ideological prejudice and selective blindness.

The other claim is that China’s development can hardly be sustained. It is believed that the political system centering on the Communist Party of China will be an insurmountable obstacle for China’s development. Without adopting the western political system， there will be no scientific innovation to speak of in China. It is alleged that， no country， China in particular， can develop itself without embracing the liberal market economy and democratic system. Such claim is as wrong as the first one. What the US has failed to realize is， the Communist Party of China is nothing like the Communist Party of the Soviet Union.

The global financial crisis back in 2008 did not take place in China as American elites expected. Rather， it broke out in western countries， which changed the mindset of some Americans， at least to some extent. Still， the deep state in the US has drawn the conclusion that China’s rise must be contained or slowed down， otherwise America’s dominance would be at stake. Results on the ground have turned out that， instead of oppressing the development of China， the US has laid bare， more than ever， its own vulnerabilities and plight.

First， in national defense， the huge US military spending has not only failed to establish an edge over China， but has brought China and Russia even closer more quickly than it could have been. Any rational strategist is well aware that the consequences of an all-out war between China and the US are unthinkable. Therefore， America’s paranoid pursuit of expenditure expansion cannot be explained simply in military terms. In the last decade， in the absence of a formidable adversary， the US defense spending has increased from about 1/3 to 1/2 of the world’s total， exceeding that of all other countries in the world combined. The US defense budget is not based on its judgment of national security， but is the product of complex and systematic lobbying by domestic military-industrial contractors. Since the US military industry is cleverly spread across key constituencies， whether these companies can get orders is always one of the top priorities of legislators.

China， a military power believing in asymmetric warfare， pursues a national defense policy defensive in nature. China has developed a variety of advanced defensive weapons， including missiles. A US aircraft carrier battle group costs about $13 billion， and its daily overhead amounts to $6.5 million when on mission. In comparison， China’s Dongfeng 26 ballistic missile， which can supposedly sink an aircraft carrier， costs only tens of millions of dollars.

It is worth noting that there is no more significant geopolitical development today than the growing comprehensive strategic partnership of?coordination between China and Russia. Ironically， it is exactly America’s maximum pressure on Russia and containment of China that have played a key role in bringing the two countries closer to each other.

Second， in the financial sector， the hegemony of the US dollar is encountering new challenges. As a global currency， the US dollar has an irreplaceable position in international trade and settlement. This has also made the dollar a weapon of retaliation and a tool of extortion for the US against other countries. The US has imposed long-arm jurisdiction and sanctions at every turn against foreign banks and companies that do business with countries such as Iran， Venezuela and Cuba against America’s will. But the dollar’s irreplaceability cannot be maintained forever. In fact， it is being challenged by China and others.

The battle over the dollar’s hegemony centers on the Society for Worldwide Interbank Financial Telecommunication （SWIFT） mechanism， whose mission is to enable the flow of funds between countries， banks and businesses. Major countries， China included， are still unable to circumvent this dollar-only transfer mechanism. In 2015， China began trialing an interbank transfer model called the Cross-Border Interbank Payment System （CIPS）， which could be considered a new alternative to SWIFT.

In addition， the People’s Bank of China has been developing and testing digital currencies for more than five years. China’s sovereign digital currency， or digital CNY， is advancing rapidly and can be used in China’s domestic market as well as for foreign trade and investment. The digital CNY is now the leading digital currency issued by central banks around the globe and is expected to have a significant impact on the international monetary system in the future.

Third， the US strategy to contain China by establishing Quadrilateral Security Dialogue （QUAD）， a mechanism comprising the US， Australia， Japan， and India is hardly effective. QUAD， which has paved the way for the US to establish an “Asian NATO”， is an important tool for President Biden to counter China. The development of this mechanism， however， is not that smooth. Australia and India， which long advocate Non-Aligned Movement， once withdrew from QUAD at the beginning of the 21st century since they would prefer to have economic cooperation with arising China. When Donald Trump took office， he revived and reinvigorated the mechanism to gang up against China. President Biden then takes up Trump’s unfinished business and keeps undermining China’s economic attraction and touting Atlanticism to Japan， India and Australia.

Some scholars liken QUAD to a “mini-NATO” and regard it as a product of destructive “selective multilateralism”. China urges countries concerned to avoid forming closed and exclusive cliques and instead contribute more to regional peace， stability and prosperity.

Fourth， the US strategy of “decoupling” will in the long run decouple itself from the rest of the world. In 2019， around 100 countries worldwide traded and invested more with China than with the US， and this number is still growing. China has thus gained a greater strategic advantage. The Trump administration believed that economic decoupling is the best way to contain China， and it’s better for the US to rally as many allies from Europe and Asia as possible. Therefore， actions like cutting global value chains and imposing a technological blockade on China have been taken. Although the Biden administration strives to contain China more on the diplomatic front， it will still retain some of its policies of trade protectionism and technology embargo.

Despite pressure brought by “decoupling”， China promoted the signing of the Regional Comprehensive Economic Partnership （RCEP） in November 2020. The agreement， which entered into force on the first day of 2022， is viewed as a testimony to China’s expanding regional influence. The RCEP members account for one third of the world’s population and 29% of the world’s economy， evenlarger than the USMCA and the EU. China has described the agreement as “a victory for multilateralism and free trade”. In response to “decoupling”， China also signed the Comprehensive Agreement of Investment （CAI） with the EU one month after the signing of RCEP， amidst US pressure to distance Europe from China. The signing of CAI indeed reflects the EU’s economic dependence on China.

The great complementarity between China and its economic and trade partners is the main obstacle to America’s decoupling. In addition， the US economy has also born the losses in its own production chain as a result of “decoupling”. The US and China will continue to fight and talk. But all indications have shown that， the US will probably turn out decoupling itself from the world.

Fifth， the US has launched a technology blockade on China on the grounds of “5G dispute”， while China is gradually shoring up its weaknesses. Huawei is recognized as a leader in 5G， which is essential to the development of information and communication technologies such as artificial intelligence， cloud storage and the Internet of Things. Since countries that are first to apply these technologies will have a head start in the fourth technological revolution， China certainly has a big edge. Huawei， therefore， has naturally become a key target of the US.

The US blockade on China in the field of semiconductors， the so-called "chip war"， is part of its “technology decoupling”. With an aim to undermine China’s technological innovation capabilities， the strategy has a great impact which cannot be underestimated. In response， China strives to meet its demand for semiconductors through localization and expansion of foreign cooperation. China’s 14th Five-Year Plan emphasizes the importance of investing more in semiconductors， the Internet of Things， integrated circuits and biomedicine， as well as building a more comprehensive domestic supply chain. China is making every effort to improve its domestic chip research and development.

Sixth， China has announced to foster a new development paradigm with domestic circulation as the mainstay and domestic and international circulations reinforcing each other to deal with the great geopolitical uncertainty in the future. In the coming years， geopolitical uncertainty will be the biggest challenge for China. Economic and even military tensions between the US and China will persist， if not intensify， and the COVID-19 pandemic will continue to have an impact on trade and investment. To meet these challenges， China in 2020 proposed to foster a new development paradigm and made it the core of its 14th Five-Year Plan. Increased reliance on the domestic market is essential for China to fight against anti-globalization and mitigate geopolitical tensions. The new development paradigm aims to “better link the domestic and international markets to make economic growth more resilient and sustainable”. This means that the domestic circulation will play a fundamental role with the supplement of the international circulation. China will remain open to the rest of the world and is committed to revitalizing global trade at a time when the US has opted for protectionism and unilateralism.

China-US competition，

a rivalry of two systems

Neoliberalism， which came into being during the Reagan administration， has laid the groundwork for the decline of the US. The financialization of the economy as a result of neoliberalism is the culprit that kills the dynamism of the capitalist system itself. Credit and finance gradually become obstacles instead of driving forces of production. The pursuit of limited government， uncontrolled liberalization of the labor market and profit-seeking leads to a rapid accumulation of wealth for those at the top of the social pyramid. Companies only want and can only make a quick buck， bringing more difficulties to R&D activities. That’s why the US is trying to prevent other countries from using Chinese 5G technologies even if it is unable to provide alternatives. The biggest problem with this system is the widening gap between rich and poor. Joseph Stiglitz， the Nobel laureate economist and advisor to the Clinton administration， admitted that 40 years of neoliberal practices have severely weakened the role of the state and public health policies， making the West helpless in the face of the pandemic.

The three consequences of neoliberalism， i.e.financialization of the economy， widening wealth gap， and erosion of democracy， are prevalent in all capitalist countries. Even as the richest country with strongest military power and technological capability， the US is no exception. This also explains why the US and China have different development momentum.

China’s strength lies in its unswerving pursuit of the path of socialism with Chinese characteristics. This path， under the leadership of the Communist Party of China， is one that not only follows the law of the market but also gives play to the role of the government. Having the government control land， money and capital is a way to pool all the political， cultural and economic forces， and an alternative to the inherent Western understanding. Market mechanism and macro-regulation complement each other in China. Meanwhile， China has long been open to foreign investment and regarded it as a means of wealth accumulation. Having said that， China has never attracted foreign investment at the cost of relaxed regulation over manufacturing and the financial sector.

To address problems such as unbalanced regional development and large urban-rural income gap， China is taking firm measures to strengthen regulations on financial oligarchy and speculation including halting the IPO of Ant Financial Services and tightening control on the real estate market. The 14th Five-Year Plan and the Long-Range Objectives through the Year 2035 embody the strengths of China’s system， which will help the country to attain a steady growth with a balanced economic structure.

The Chinese civilization， which has lasted for thousands of years， is distinct from Western ones. China has never had a religion in the eyes of the West， but there is no shortage of philosophical thoughts and beliefs. China’s current system is a combination of Marxism and traditional Chinese culture， and a system that benefits all mankind. As the leading core of China’s development， the CPC has always adhered to the people-centered development philosophy， which is also the fundamental political guarantee of all development achievements China has gained since 1949. Without the CPC， China would not be what it is today. The 2008 financial crisis led to an accelerated transformation of the international landscape. In the next five years， China may experience some historical changes. But no matter how the situation evolves， China will eventually realize its vision of socialist modernization as long as it follows the current path. Meanwhile， the American hegemony is doomed to end.

Dilma Rousseff is Former President of Brazil