Upon deeper analysis, the very recent 2013 Report to Congress of the US-China Economic and Security Review Commission reveals interesting conclusions. In a meticulous catalog of facts, it delineates a new and perhaps worrisome direction of the relationship between the two countries, and offers legislators unheard of recommendations. There is no aspect in which contradictions are not found, but the greatest development is that frictions between the two countries are prevailing over the benefits of cooperation. The climate is trending toward pessimism, defense, and immediate and direct protection of the American identity. The document opens noting that the two bastions of the Chinese model—sustained exports and heavy public investments in infrastructure—are becoming weaker. Consequently, annual GDP growth oscillates between 7.5 and 8%, far from the exceptional 10% average of the preceding three decades. Therefore, the new administration must face a novel situation, but from here—the document affirms—uncertainties and problems begin. On one hand, secretary Xi seems inclined toward gradual, prudent and necessary reforms. On the other, a revision of the political system—which should instigate and ensure the other reforms—has been postponed sine die with the confirmation of the State’s role in the economy and, in any case, with Beijing’s directive. The third plenum’s recent conclusions seem to confirm this dichotomy. Attempts to give breath to internal consumption to compensate for the international crisis, which has reduced commercial activities don’t seem to have taken off. As a consequence, after the acute phase of the global crisis, Chinese exports have regained vigor and the country’s balance of trade is again largely in the black. This has entailed an increase in reserves, which reached the astronomical sum of USD$3,660 billion last September.
Washington’s worries are tied to two new records. The first is the scope of its trade deficit with Beijing: USD$315 billion in 2012, a number never before reached. Equally, 2013’s deficit over the first seven months—USD$178 billion—is without precedent. Accusations are immediate: China continues to manipulate the renminbi’s value, keeping it artificially low; furthermore, it follows a mercantilistic policy, tensed to mortify the competition by supporting export and through easy access to credit independent of market conditions. Agriculture remains a crucial sector in the US, even in relations with China. In this case the trade surplus is inverted, for a value of USD$21 billion in 2012. In any case, US farmers’ expectations were partially disappointed. After China’s entry into the WTO, it was expected that different productivities—enormously in favor of the US—would create an export boom. Instead, China focused on acquiring huge quantities of raw food materials, which didn’t sufficiently value individual producers. Furthermore, there are complaints regarding a series of regulatory measures penalizing purchases from the US, such as meat, based on political motivations and not supported by scientific analysis. On the contrary, Chinese exports don’t have the requisite safety demanded by the US FDA. After understanding that measures on behalf of Chinese authorities were insufficient, the report requires more stringent controls for the entrance of Chinese food products into the US. Beijing’s investments in the US are still at modest levels (USD$219 billion over USD$175 billion in 2012). Regardless, worrying factors exist. First of all, the official number is underestimated because it doesn’t include the enormous flows from Hong Kong and other financial centers. Furthermore, the Chinese will to diversify the composition of investments from financial to portfolio is important. While the former are essentially welcomed because they buy US public debt, the second generate perplexities because they entail the transfer of industrial assets to a power seen as a direct competitor to US international hegemony. Uncertainties increase especially for strategic sectors, which are exactly the sectors Beijing wants: energy, communications, informatics, and technology. This fear exceeds traditional anxieties: job loss, poor product quality, and defending the national identity. Instead, the report faces a crucial theme: Beijing’s ambition to acquire strategic competencies via state-owned enterprises, independent of purely commercial aspects.
The report highlights the ambiguous nature of the attempt: masked by the guise of economics—that provides for payment with the enormous resources at its disposal—China’s goal is to bridge the still large gap with US industrial and military superiority for political purposes. This is the motive that generates unprecedented recommendations. Their framework is to review the boundaries between economic convenience and national security. In some cases, the first could draw economic benefit from Chinese investments (income or employment); the second must prevail in case of superimposition. For this reason, controls must be extended to greenfield investments from China in addition to acquisitions. These should be scrutinized by the Committee on Foreign Investments in the United States (CFIUS), the intergovernmental agency responsible for evaluating foreign direct investments in the US (mergers, acquisitions, take-overs, greenfield), avoiding threats to security, free competition, non-discrimination, and property rights. The potential economic value of agreements with local administrations (even at the state level) is recognized, but everything must be subordinate to federal control. One of the proposed instruments is the detailed inventory of foreign economic interventions. On an annual basis, priority structures should be surveyed, simultaneously with respect to transparency, integrity, and competition rules. Obviously, every violation should be sanctioned. The document deals with other highly important issues: cyber security, energy, international affairs, China’s financial sector and all of its possible repercussions. The delineated arguments alone reveal a souring of US attitudes toward China. The concept of a competitive but non-hostile nation is fading, where economic possibilities could obscure its political ascent. Instead, China doesn’t seem to be containable and the fear of yielding shares of global supremacy emerges with force in the document’s concerns. Similarly, Beijing will need to revise its strategy. The image of a “peaceful rise” is no longer accepted in Washington, where political-strategic control has never sacrificed economic primacy before. Inevitably, Europe could be an obligatory alternative, because the military and political apparatus in Brussels seems infinitely weaker than Washington, and China could easily take advantage of this weakness and divisions between countries.
