Valoli Aad Vredenbregt

Aad Vredenbregt owns and runs Valoli.

28 June

Whatever the future may look like, China will play a key role in it. The West needs to accept that, argues Aad Vredenbregt.

Geopolitics, economics, technology, climate, public health and demographics are all changing at an unprecedented pace. Amid this unprecedented shift, a new world order is taking shape, in which China claims a spot on center stage. Apparently, some find this hard to digest.

In early 2000, China’s economy was only 14 percent of that of the US; by 2010, that share had grown to 40 percent. We can all make our predictions of when China will overtake the US, based on assumptions for growth, inflation and the exchange rate. Already the combined GDP of the BRICS nations (Brazil, Russia, India, China and South Africa – considered the fastest-growing economies, although struggling at present) exceeds that of the G7 countries.

China’s exports to the 140+ countries that joined its Belt and Road Initiative (BRI) presently surpass its exports to the US, Europe and Japan combined. This BRI is a China-led infrastructure project that aims to stretch around the globe. Its goals are unimpeded trade, financial integration and strengthening bonds between countries.

Analysts see the project as a massive expansion of Chinese power, for which the West struggles to offer any competing vision. In whatever future world order, China will play a key role even though its government is struggling to revive the economy after the lockdowns. Any business that operates internationally needs to take into account China’s ever-growing influence. China continues to be a major contributor to global economic growth and is already a major trading partner to most countries in the world.

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The Asian middle class is expected to double by 2030. That implies that the geographical distribution of demand is shifting toward the East. The supply side will also become more competitive as companies from China offer competitive value to what the West is providing.

Labor-intensive supply chains have been migrating out of China and more sophisticated supply chains have emerged. Chinese industry advances across many areas such as energy, renewables, manufacturing and life sciences, using key technologies such as AI, quantum computing and new materials. Cutting-edge innovations in intelligent and connected car designs are happening there. Competition from local Chinese companies is stiff and not having a presence in China can lead to an international company being marginalized over time. Progress will also be made in semiconductor technology, with or without US sanctions.

Since the US and China don’t just consider each other a military adversary but an economic one as well, the countries are at war in both innovation and production capacity. China launched massive frontal assaults on US technology and industry capabilities. Xi’s “Made in China 2025” strategy of 2015 identified key technologies in which China seeks self-sufficiency, backed by restrictions on foreign firms’ market access in key industries and enormous subsidies for Chinese firms. Former President Trump’s trade war was a response – a poor one – to China’s assaults on America’s industrial and technological capabilities. President Biden’s new export sanctions on advanced chips and semiconductor equipment to China are evidence that a battle has caught on.

For semiconductor industries, missing out on the Chinese market can significantly hurt competitiveness. Intel, Nvidia and ASML CEOs have already indicated that the Chinese market is crucial for their future. Politicians nor business leaders can put their heads in the sand and hope for the best. The stakes are too high.

A trade war between the world’s two largest economies would be destructive to the future of the entire world economy. Their points of contention should be addressed in a constructive manner, which starts with open-minded dialogues. Mutual respect between American and Chinese cultures, individuals and communities is required. We need cultural awareness and sensitivity to break down stereotypes, foster understanding and promote cooperation. By valuing and respecting each other’s differences, the US and China can build stronger relationships and work towards a more harmonious new world order. Other world leaders should push for more reality-based self-interest from both countries.

World orders will shift over time, countries have to cope. Both the US and China should re-imagine the future world order and plan their strategies and negotiations accordingly – while keeping the world economy open for business.