Monday, 16 September 2019 12:47 GMT

How China chose to weaponize a setback

(MENAFN - Afghanistan Times) By: K. Abdullah

Many nowadays appear to have lost their ways into the
chaotic dynamics of the US-China relationship. Those focusing on the tariffs
and the conflict points that are making up most of the stories today find
themselves in a difficult situation in making sense of it all. They see only
the chaos, the uncertainty and the ever growing tensions.

There are still those awaiting a trade deal to be struck
between the two countries and they seem to be on a wrong course. China,
however, still defines the conflict 'trade dispute' as opposed to the common
term used 'trade war', and it so appears that the Chinese might be right.

It is not about the trade, nor would the resolution of trade
disputes relieve any of the two giants. It is a war at a larger scale where the
trade dispute is merely an accessory used by the US. The US may not have found
China any weaker and more vulnerable than it has at this very moment. It,
therefore, makes sense for US to capitalize on the opportunity.

Many, unaware of the Chinese economic realities, would
object to this assessment. China is going through a transition, the transition
that its nation longed, for over half a century. And now as the Chinese dream
is the closest it has ever got to be realized is when it could slip away from
its grip and lost forever.

In 2013 when Xi came to power the roadmap for a fundamental
economic reform has been laid out. China, already very late at this point,
needed a change that would shake the system while still requiring to maintain
the order. China could no longer continue to function as the factory of the world,
to name a few basic reasons: its 'One Child Policy' would have eventually led to
a persistent decline in its factories' workforce; the improving healthcare led
to prolonged life for the retirees; and the new generation was raised to work
at the office desk and not on the factory floor.

All this meant lowering production and increasing spending. Then
China, as it is always monetizing every trend, has started to monetize the
losses to come. It launched a reform that would transition the country from
industries and exports dependence to the services and consumption dependency. Aiming
to turn up as a winner in a game it was losing. Nevertheless, this process is
more delicate particularly in the case of China.

Soon after, lowering GDP growth figures and records of
appreciating Chinese Yuan have emerged. The very signs of a healthy transition
that some confused with a weakening Chinese economy. Chinese also required automation
to replace cheaper labor. They needed technological advancement and innovation
to become the new Chinese specialty, whereas their capital markets would have
had to allow for the Chinese manufacturing to move to other developing countries
without giving up on the profits.

The US, still threatened by the Chinese agenda, couldn't
have let the opportunity go in waste. Therefore, they had to disrupt the
process. And contain China in a transitioning phase for so long that the
Chinese would have depleted their resources on a cause that they would eventually

The Chinese have wrapped up their ambitious plans for
globalizing the Chinese Yuan in 2016. After its economy and its ambitious
reforms have endured the worst during late 2015 and early 2016. It was a clash
of the West and East which left both wounded at the end. China, however, seemed
to have given up, to the very least, on the globalization of Chinese Yuan.

Now that the US has gone aggressive yet again, the Chinese
seem to have given up on the reform altogether and readied for the battles
ahead. The Yuan has weakened and the imports are slowing as the exports are
gaining momentum. Meanwhile, the prices are increasing in China and the
producers are holding back. If the existing trends persist it would have to be
at the cost of the reform itself.

However, even as China might have let go of the Chinese
dream, at least for now, it is biting back the US. The US is expecting a
recession and this time it won't just be a recession, it might as well grow
into an economic depression which means a long-term devastating downturn in the
US economy. The Chinese policies are seeming to be helping make certain the
downturn comes and to come soon.

A depression is being mumbled about at a period where the
risks seem to be accumulated with the State and at the Corporations. If the
depression comes about, the US might default on the $22 Trillion debt. The
Corporate bubble would burst. The Capital Markets would experience historic
meltdown. And then everyone will have to gather around the table to set new terms
for the global rule.

On the other hand, if the US managed to avoid cyclical
economic downturn for this period and the pressure on China kept rising, the
Chinese might have to commit to severe austerity or opt for coming to the table
to make compromises. In both cases the Chinese system will become too exposed
to foreign influences.

So, will the Chinese then allow for the foreign vote in its
internal matters? China seems to be determined not to. But China would've
entered mid-income trap by then which seems to be the objective US is pursuing,
knowing a mid-income trap for China would mean total devastation, hence, the
Chinese submission.

Nevertheless, it will certainly be a brutal spectacle, and
we will get to witness it all.


How China chose to weaponize a setback

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