In most of the minds, China has long remained the “world’s factory” — a place with cheap labor, a large set of competencies, and a willingness to integrate into any production process. Indeed, it’s true to a great extent. More sophisticated observers have noticed Beijing’s scale in building high-speed highways and the oddities with empty new buildings. The latest trend has been the trade war with the United States that has thundered in the media headlines and Xi Jinping’s proclamation of a course of relying on the domestic market. What is happening to China’s economy and why are its companies increasingly turning inward? Keep reading this blog to understand the whole situation and determine the impact of the History of America on these dynamics!
China’s Economic Evolution
The Chinese economy is leaving the “catch-up” sector of economies. The Chinese middle class has formed: from 2013 to 2019, its number grew from 270 million to 490 million people, and by this year it has exceeded half a billion. Many Chinese families have their own savings, and even more substantial than in Western countries: the savings rate in China is one and a half times higher than in Europe and almost twice as high as in the United States.
Today, we are looking at a classic medium-developed country, which, in order to make the final leap into the first world, needs to perform the last, most difficult maneuver: at the next technological transition, choose a specialization and occupy a worthy, highly profitable niche in the world market. But there is a nuance: 1.4 billion people live in China, which means it will occupy not one niche, but all.
The Strategic Shift and Rising Tensions
After Deng Xiaoping’s reforms, which shifted enterprises to the principle of profitability and opened China to international trade and foreign investment, Beijing has long adhered to the “hide your capabilities” policy. From the beginning of the reforms until Donald Trump came to the US presidency, it has never clashed with the world’s economic hegemon. The strategy of Chinese companies, fully consistent with the party line of the Chinese Communist Party (CCP), was aimed at maximum cooperation. And for a long time, this brought mutual benefit to both countries: American companies moved their production to China, preserving priority niches in the value chains.
For example, if Levi’s jeans arrived in the early 2000s, then at the end of the decade, in 2010, Intel opened its first plant overseas – and China began to comprehend the production of chips.
All intellectual property rights belong to the parent companies in America, which guarantees them the main share of the profits from sales. In the 2000s, US corporations doing business with Chinese partners were estimated to have generated between $200 billion and $500 billion in net profits thanks to this division of labor. This relation of cooperation and profit is a noteworthy part in America Country History.
The “Made in China 2025” and Its Fallout
However, nothing lasts forever under the sun, except for the struggle for a place, and even Chinese patience comes to an end. By the mid-2010s, Beijing realized that the strategy of legal and not-so-legal borrowing of technologies had exhausted itself. Of course, China had done something similar before, but the public and radical turn was the “Made in China 2025” strategy adopted in 2015. Its key goal was to increase the share of domestic high-tech components in production from 40 to 70%.
The goal of the program corresponded to China’s long-term course on building a truly sovereign country – Beijing’s dream after a long period of crisis that began after the defeats in the Opium Wars. Since then, the country, which had recovered and taken a high position in the global economy, still remained strategically vulnerable. The share of national added value is too low, and the resource-oriented economy is sensitive to cyclical changes.
The United States Responds
This strategy caused great displeasure in the United States, whose technology companies saw the potential for the emergence of real competitors in the face of Chinese companies on the global market. Having briefly united interests with the military-political elite, the American economy elected Donald Trump as the first person, who tried to fight the Dragon plan through prohibitive tariffs and restrictions for overseas companies.
In 2017, the president officially recognized China as the “main rival” in the US National Security Strategy and began to act. The loudest story was with Huawei: the company was directly accused of industrial espionage and sanctions were imposed against it.
This marked a substantial flash in the American History of Us, where an intertwinement was developed between economic and national security concerns.
The Huawei Controversy
The US authorities have had complaints about Huawei since at least 2018. That was the period when the US intelligence conglomerate issued a warning to American citizens and companies, not recommending them to use Huawei technology and telecommunications equipment. The argument cited was the threat of alleged espionage, theft of data on technologies and users, and cyberattacks.
At the end of that year, Washington sent requests to allied countries not to use the company’s products.
In 2019, the US Department of Justice formally charged Huawei with industrial espionage and breach of contract with US operator T-Mobile. The Chinese company attempted to challenge the charges in court, and the Chinese Foreign Ministry called what was happening “groundless oppression” of business.
The Aftermath and Adaptation
Soon after, President Donald Trump personally intervened in the process, declaring a state of emergency in the United States to protect information infrastructure due to a threat to national security. After that, American companies began to massively sever all ties with Huawei. In response, the management of the Chinese giant announced pressure on its employees from US intelligence agencies and serious losses. The company gradually began to lose access to the technological base, which is 60% foreign patents.
After two years of bans and restrictions, which were finally formalized in a federal law signed by Joe Biden, Huawei managed to replace more than 13 thousand components with Chinese analogues. The company then began producing smartphones on its own base. Huawei also managed to maintain its equipment export. The company’s products are now supplied to developing countries, primarily to the Middle East, Indonesia, Russia and Turkey.
The current situation in America is backed by a long history, which Spencer M. Wertheimer has narrated in his book “Secession – Dividing The States.” Whether it’s the Chinese Immigration Act, economic strife, or global geopolitical shifts, the author has depicted a multifaceted picture of tension and cooperation, giving a wake-up call to the urgent need for a reckoning in America. Grab your copy!