China Learning to “Live without the U.S.”

No. 2019-11 (April 2, 2019)

Dr. Lee Seong-hyon

Director, Center for Chinese Studies, the Sejong Institute

sunnybbsfs@gmail.com

In mid-March, I flew to Hawaii to give a talk at the invitation of the Indo-Pacific Command. From Hawaii, I then flew to Beijing, to meet with Chinese government officials, think tanks, journalists and business people. For a week, I was able to get a sense of the latest update on the U.S.-Chinese trade war. Interesting is the atmosphere in China.

In the wake of the trade war, China's economic growth last year dropped to 6.6 percent, the lowest level in 28 years. However, the atmosphere in China was not as bad as one would expect. I saw a much calmer composed China.

"We believe that the worst moment of the U.S.-China trade war has passed," said a Chinese media executive. "Don't get me wrong. I am not saying the situation has improved. But now we are certain that the U.S. will continue with the 'anti-China' (fan hua) crusade.”

“The trade situation has deteriorated. But at least the predictability of how Washington would act has improved.” As a result, uncertainty has decreased. It's psychological, he said. China's stock market fell 20 percent in 2018, the first year of the trade war, due to the fear of uncertainty in the U.S.-China relationship, he said. “Now, we are certain where things are going from here.”

Chinese companies have quietly started looking for markets other than the U.S. Strangely, it gave China a new 'sense of direction' and a new sense of goal.

Chinese people are accepting the reality of deteriorating U.S.-China relations and there is a collective psychology to adapt to a new environment and survive.

China is likely to accelerate its search for ways to survive without the United States market. In the words of one person, I could feel a kind of determination. "We survived the Cultural Revolution in which we killed each other inside China. We can make the struggle with America an opportunity to make China stronger."

Huawei, China's largest communications equipment company, has become a symbol of the U.S.-China trade war. In early March, Huawei filed a lawsuit against the U.S. government, in a dramatic about-face. Everyone knows that Huawei's doing so will make it harder to enter the U.S. market. But it still did. What is Huawei's calculus?

In fact, Huawei’s move is not about the United States. Huawei has already given up on the American market, as one Chinese industrial insider said. Its aim is actually the European market. Unlike the U.S., Europe is less restrictive about Huawei's advances and many decisions about 5G are still yet to be made.

Huawei's strategy is seen attempting to "shake the plate" by suing the U.S. government. The logic is that by highlighting the unlawful nature of U.S. action, it is trying to send a message, “China may be bad. But the U.S. is also bad.” China is also discreetly reminding Europe that the U.S. was the country that bugged Angela Merkel's mobile phone a few years ago.

When both the U.S. and China are guilty of technological eavesdropping, Huawei knows that Europe has to choose, in the end, one of them. Huawei is the world leader in 5G communications. Huawei is also reportedly proposing to bid at a surprisingly attractive price compared to that of Ericsson, a European 5G provider.

China seems to think that it will inevitably have to sustain a setback for a short-term period in the ongoing trade war with the United States, but in the mid- and long-term, China has a fighting chance, by expanding non-U.S. markets, notably by networking with Europe and Asia, providing them with economic incentives.

America's allies are fair game as well, including Japan. China knows that Japan has long eyed China's huge home electronics market. There is room for mutual gains.

China Still Sees the U.S. as a Declining Power

China believes the U.S. is still declining under the Trump presidency, losing its leadership and alienating its allies. If the current trend continues and if China is able to continue its technological innovation and make market inroads in “global markets that exclude the U.S.,” time will be on China's side, in the end, it believes.

During the “Liang Hui” (two annual major political events in China) in March, Chinese State Councilor and Foreign Minister Wang Yi said, “China is ever closer to the world's center stage." In the midst of the U.S.-China trade war, that's a remarkable display of confidence, coming from China’s top diplomat.

South Korea pays attention to U.S.-China relations because it has numerous historical experiences of being relegated to a ‘dependent variable’ in great power struggles. With acute fluctuations expected in U.S.-China confrontation ahead, South Korea needs more diplomatic wisdom than ever to tide over the challenges in the geopolitical landscape.