The new AUKUS alliance among USA, UK and Australia is a message to China that USA fully intends to stay a Pacific power and will challenge China's plans to dominate the South China Sea. This follows US attempts to create a new line of alliances stringing Israel, Saudi Arabia, UAE, India, Taiwan, Japan, and Australia. Militarily this is a formidable alliance but unlikely to deter China.
Interestingly China has chosen to battle in a complex and, in the long run, a more winning sport--economic dominance. The world and China know that United States can militarily beat anyone in the short run. The world also knows, without public support, even a despised political force like the Afghan Taliban can defeat the mighty US military and its allies.
In the war for economic dominance, China is towering over the United in many different fronts. It has positive economic relationships with 200+ countries and many of them, including the United States, owe huge amounts of money to China. In fact, China is the US's second largest foreign creditor, owning more than $1.1 trillion of US debt.
Increasingly European Union (minus UK) is directly negotiating with China and volume of trade with China is increasing at a faster rate than with the United States. In fact, the nuclear submarine deal of the United States with Australia resulted in the latter cancelling its submarine order with France. This action, termed "backstabbing" by the French Foreign Minister, has damaged USA's economic relationship with entire Europe. This has also presented a unique opportunity for both China and Russia to further broaden its economic relationship with European Union countries.
In Africa, China has bilateral trade agreements with all the mineral rich countries for industrial essentials like copper, zinc, and diamonds. China is building roads and ports in various African countries funded by soft term loans but, more importantly, these are designed and built with China-made materials under supervision of Chinese engineers and managers.
In South America, Brazil's biggest trading partner is China. China's presence is being increasingly felt by other South American countries and Latin America also. These countries are both benefiting from cheaper Chinese goods and loans on easy terms. There is an interesting pattern to Chinese predatory trading policies which are usually followed by more demanding broader economic relationship negotiated and dictated to highly leveraged poor countries.
Asian countries, however, are less dependent on China and some are a little weary of its giant neighbour. However, China has its friends. It has a strong long-term relationship with Pakistan, under the radar economic relationship with Iran and soon Afghanistan. China also has close ties with anti-democracy generals of Myanmar and almost every other country which are opposed to India, Israel, or USA. Through the trade relationships and management agreements, China has taken effective control of key ports in both Pakistan and Sri Lanka.
The power and growing influence of China can almost be visualized by the new superhighways being built by the Chinese as a modern version of the old "silk road" of trading--only in this case it is longer and wider with trucks replacing horses, camels, and mules. World's longest roadway will soon be the one starting in China and ending on the tip of South Africa, rivalling the 19.000 mile long Pan-American Highway from Alaska to South America.
With China getting richer, cost of labour drawn from an aging labour force has also gone up. Neighbouring countries like Bangladesh and Vietnam have benefited from businesses being outsourced away from China. However, China is also investing heavily in many countries to increase its political and economic range of China's investment varies from food delivery service in Bangladesh to Waldorf Astoria Hotel in New York.
Demand for COVID-19 vaccines has given China another interesting weapon in the battle for political leverage. While United States and most of Europe have understandably focused on vaccinating their own people, China's Sinovac vaccine have been made available to most less developed countries in Asia, Africa, and Latin America. Almost 1.5 billion vaccine doses have already been delivered to 100+ countries. This is a tremendous boost to China's image and "soft power". India, which has the biggest drug manufacturing facilities, became a non-factor because of its inability to manage the delta variant's sweeping effect on its billion plus population. It is interesting to note that the world's two most populous countries--China and India--are considered the source of COVID-19 and its worst variant Delta.
While China's economic focus is both domestic and international, USA is and increasingly focused on policies bringing jobs home through protectionist policies and huge subsidies. Biden's Build Back Better is a plan of massive government spending on improving economic infrastructure with a social agenda. It does very little to make America competitive vis-a-vis China and is unlikely to prevent China from becoming world's largest economy. Trend line and most current economic data suggest China is winning on the economic front. Strong economies can easily ramp up its military power through massive spending. Strong military power cannot by itself do the same on the economic front. Russia is the best example of that and the same will be true for the United States. The writer is professor & founding dean, The Graham School of Management, Chicago, USA
