China’s Vulnerability – USA Gov Policy

China may possess advanced technology but without other countries continuously supplying it, the communist giant could not compete with the United States or other post-industrial nations for long. Min-hua Chiang, a research fellow and economist with Heritage Foundation, reports this week that China is far more dependent on the United States than most people think. Its critical supply chain requires vast numbers of imported chips and capital equipment. That, in part, is one reason China is seeking to become more self-reliant. There is a push in Beijing to increase domestically produced, advanced technologies in the event that other states impose economic sanctions on China in the future. Second, despite China’s effective overseas industrial espionage network supplying stolen technology, it pays a high price for legally obtained technology from other advanced countries.

President Xi Jinping’s long-term, geopolitical ambitions threaten to isolate China from the world’s advanced economies. Xi wants to ensure the Chinese economy can fulfill demand should Beijing seek to force reunification of Taiwan or initiate a conflict in the South China Sea. His policy of self-reliance preceded the lessons China is learning from Russia’s war in Ukraine, although the conflict is serving to reinforce Xi’s message.

According to Chiang, China’s direct political confrontation with the United States has exposed its weakness in the solid technology hierarchy and its unbreakable dependence on the US. Its lack of technological superiority in key areas also serves as a constraint on Xi’s global plans. She notes that “China’s late start is the main reason for its inferior level of technology. The communist regime didn’t start actively promoting the industry’s development until the 1980s. Drawing lessons from the experiences of the East Asian Tigers—the four highly developed economies of Hong Kong, Singapore, South Korea, and Taiwan—China had stepped up its efforts by encouraging foreign direct investment in assembling products such as smartphones, laptops, computers, etc., in China.”

Its export-oriented economic development, based on using and assembling foreign countries’ capital equipment and industrial components, has trapped the country into technology reliance on foreign countries. The Economist’s Intelligence Unit points out that advanced foreign industrial goods is evidenced by its growing trade deficit in electrical machinery (including semiconductor chips) from $15 billion in 2001 to $217 billion in 2021. Jenny Leonard, of Bloomberg, reports that “Chinese orders for chip-manufacturing equipment from overseas suppliers rose 58% in 2021, making it the biggest market for those products for a second year running, according to data provided by industry body Semi.” This is evidence of China’s rush to stockpile equipment from the United States before any new US export restrictions came into effect.

China’s Ministry of Commerce admits that the United States is its biggest source of intellectual property. Data from its Bureau of Economic Analysis indicates that exports of US intellectual property tripled in the last decade. That is not accounting for any stolen or reverse-engineered technology it obtained. Chiang says that “ According to the US Bureau of Industry and Security, the number of license applications from China for purchasing ‘tangible items, software, and technology’ increased from 3,747 in 2020 to 5,923 in 2021. The total amounts paid for those applications increased from $106 billion to $545 billion. As a result, the licensing amounts per application went up from $28 million to $92 million. Although the cost of foreign technology has increased, and the length of time to obtain US licenses is longer, there are no major technological breakthroughs in China to counter its dependence on foreign technology. Slower technological advancement means slower economic growth, says Chiang. This is one area that threatens the legitimacy of the Chinese Communist Party and its hold on power. Without a strong global supply chain network, China could be faced with a long-term dependence on more advanced overseas technologies. Maintaining that gap could provide protection for Taiwan, the South China Sea, and other states threatened by China’s rapid rise to power. However, the Biden Administration and the US Department of Commerce appear unwilling to crack down on China to ensure it abides by the rule of the international norms-based trading system.

“If the Biden administration is serious about securing the semiconductor supply chain in the United States and allied and partner countries, it’s absurd to let the Chinese Communist Party buy up and stockpile the global supply of tools and equipment to make semiconductors,” says US House Representative Michael McCaul, a Republican from Texas. “At the center of the growing debate, the US Department of Commerce said it’s so far found nothing other than normal market forces at play,” according to Bloomberg News. Economists are watching closely this summer to see if China will increase orders during a period of global shortages. If the Biden Administration joins with Japan, the Netherlands, and some of its other allies, it could ward off China jumping to the front of line with offers of higher that market value on critical technology products. Such a policy also could forestall Chinese moves toward forced reunification with Taiwan.

Daria Novak served in the U.S. State Department

Photo: Bund area of Shanghai (Pixabay)

Quick Analysis

Ukraine’s Frozen Conflict

As we approach winter in the northern hemisphere, the war in Ukraine is beginning to resemble a “frozen conflict” from many perspectives. Ukrainian President Volodymyr Zelensky recently told the media he hopes the war will end faster once President-elect Trump takes over in January. Opinions in Moscow, however, differ from that of the Ukrainian leader. Russian President Vladimir Putin argues that the North Atlantic Treaty Organization (NATO) needs to exclude Ukraine from joining in “exchange” for peace. If it does not, he says, then no end to the war is in sight. So far there is no Christmas solution. Several NATO countries, according to Vladimir Socor of the Jamestown Foundation, are tentatively considering “coalitions-of-the-willing” to provide security for Ukraine outside of the formal NATO framework. There is, however, no collective mechanism today under which such an arrangement is viable. According to the NATO Charter, while Ukraine is a NATO partner country, it may not join as a full member since it has not fulfilled the requirements for membership. That has not stopped NATO and allies from continuing “to provide Ukraine with unprecedented levels of support, helping to uphold its fundamental right to self-defence,” according to the organization. Socor says that keeping Ukraine out of NATO will not advance peace with Russia. Waiting for a peace settlement, he suggests, would only serve to encourage Moscow to continue the war indefinitely. Although the Biden Administration officially withdrew its support for Ukrainian membership in 2021, NATO maintains an “open door” policy toward membership-seeking countries. The current White House position led the way for European states to oppose Ukraine’s membership saying that a decision should be delayed until “conditions are met.” Biden pushed for changing “open door” to a “bridge” metaphor. It is not intended as an across-the-board NATO policy and has been implemented in the past on a case-by-case basis, says Socor. “The alliance’s open-door policy was not fully insulated from Russia’s non-statutory blocking power, and NATO-aspirant countries’ path toward membership was not always irreversible.” Russia has successfully blocked states like Georgia from joining, first in 2008 and again after the war in Ukraine began in 2014. Russia recognizes the value add of Ukraine to NATO is enormous and that Kyiv has a better case than some other nations. Putin’s invasion was, in part, intended to foreclose that option. By 2021, Moscow was pushing hard to maximize its war objectives, which included further annexations of Ukrainian territory. A main goal for Putin was, and is, to ensure there is no Ukraine left to join NATO. As President-elect Trump prepares to assume office in January, he is faced with the historical challenges presented by the war. Post-conflict security guarantees were the center of several proposals made during the 2023 military stalemate. The incoming Trump Administration has yet to outline how it intends to handle the Russia-Ukraine war. Analysts in Washington believe that the new Administration will expect its European allies to guarantee the majority of Ukraine’s security needs. As we approach 2025, several European nations have acknowledged that they do not view Ukraine as eligible for NATO membership as it would draw the organization into the middle of the conflict. Others want to wait until the war is over or pending a “peace” settlement before considering Ukrainian membership. Socor reports that some “influential voices” are suggesting that “Kyiv should join NATO after “freezing” the war along a stable armistice line, de facto accepting Ukraine’s partition, with NATO security guarantees applying de jure to the government-controlled territory only.” This would mean starting accession talks soon with the actual talks to commence only after a ceasefire is in place. Trump arrives in Washington at a time when Putin’s hybrid strategies of war in Ukraine have eviscerated commonly-held differences between war and peace. “Absent a political consensus in NATO over Ukrainian membership, certain European allies, including France’s President Emmanuel Macron, are holding informal consultations about post-conflict security guarantees to Kyiv by NATO members outside of NATO’s framework,” according to the Jamestown Foundation. The Biden Administration downplayed the discussions on possible forms of military assistance and defense industry cooperation by sending only an Assistant Secretary of State. For a European peace to hold the Trump Administration would need to formally extend the United States’ nuclear deterrence to Ukraine. Options under discussion in Europe include a “coalition of the resolute” to deploy forces to Ukraine as part of a possible armistice package, deterring further Russian attacks, says Secor. European officials are also debating, without any agreement, whether its military forces could perform non-combat logistical roles to free Ukrainian forces to fight. None of the possible courses of action has moved forward as all eyes are waiting on the incoming Trump Administration for clues about its intended level of support for a NATO framework and other non-NATO proposals. Daria Novak served in the U.S. State Dept.