This is my second to final piece of “Yum Cha in China” series. The rivalry between US and China not only going to be intensified further but this inescapable confrontation raises more questions than it answers. It reminds me of the “Novikov Telegram”, a 1946 dispatch by the Soviet ambassador to Washington, which subsequently led to impossibility of peaceful coexistence and containment is being the best long-term strategy.

Reports by the Ministry of State Security to top Beijing leaders suggest that global anti-China sentiment is at its highest since the 1989 Tiananmen Square crackdown. A wave of anti-China sentiment led by the United States in the aftermath of Covid-19 drives China leadership to be prepared in a worst-case scenario for armed confrontation between the two global powers. Dr. Shi Yinhong, an international relations professor at China’s Renmin University and an adviser to China’s State Council summarises that this new Cold War between the US and China features full competition and a rapid decoupling. There is no going back no matter who wins in the US election this November. May 5, 2020 of PLA Daily’s essay on the importance of financial security argues that China should guard against the "high explosive point" of the strategic game. My view is that this contemporary game of great powers will go beyond direct military conflicts and will also manifested in the smokeless war in the financial markets as well. It could fuel resistance to China’s Belt and Road infrastructure investment projects as well.

Trump administration is "turbocharging" an initiative to remove global industrial supply chains from China as it weighs new tariffs to punish Beijing for its handling of the coronavirus outbreak. They are looking for ways to push companies to move both sourcing and manufacturing out of China. Tax incentives and potential re-shoring subsidies are among measures being considered to spur changes. India is developing a land pool nearly double the size of Luxembourg to lure businesses moving out of China. Other America allies - Japan, Vietnam and European countries are getting drawn into a tit-for-tat mud-slinging contest with China. It was reported that the ranking Republicans on seven House committees sent a letter to Education Secretary Betsy DeVos, asking for information and accusing China of providing funds to U.S. universities in an effort to spread Communist party propaganda and restrict research into Covid-19.

Trump is exploring blocking Thrift Savings Plan (TSP), the federal government retirement savings fund from investing in Chinese equities. It is scheduled to transfer roughly US$50 billion of its international fund to mirror an MSCI All Country World Index, which captures emerging markets, including China. In an interview aired Thursday morning by the right-wing Fox Business Network, President Trump floated the idea that the United States “could cut off the whole relationship” with China.

On the other hand, China has been transparent about its ambition of returning to its self-perception of its historic position in the international community. There is little debate that these objectives require Beijing to be a leader in Asia and attention is given to Xi’s approach with a greater emphasis on using economic means for the pursuit of security goals compared to Deng Xiaoping’s priority for a stable external environment to achieve economic development and integration. China’s use of economic inducement and retaliation over geo-political issues are well-documented.

Chee Seng, Wong
CIO, Athena Advisors
wong-chee-seng@outlook.com