Geoeconomics of the US-China tech war

Geoeconomics of the US-China tech war

Chinese President Xi Jinping's arrival in Central Asia this week in his first overseas travel in nearly three years is perhaps the most consequential irony of the coronavirus pandemic. As the place where the deadly pandemic began in early 2020, China was the first to swiftly and successfully suppress and contain Covid-19 within weeks, while its counterparts in North America and Europe languished for months under mounting death tolls and hospitalisations.

To this day, the number of cases in China remains under 250,000 with Covid-related deaths just over 5,000, giving the country a global ranking of 108 by this metric. Topping the "Worldometers" coronavirus chart, the United States has seen over 97 million cases with deaths exceeding one million. Yet there is more to these numbers if we peer beneath the surface.

Over the past year, the coronavirus table has turned in a paradoxical fashion. Countries like the US that suffered the most early on have reopened faster and freer, thanks to expeditious and efficacious vaccines. Even though its virus caseloads looked out of control in 2020, the US never imposed a quarantine. Now that it has been fully reopened and moved beyond Covid-19 from being a pandemic to something akin to an ordinary flu, the US's free and open posture poses a challenge to China's closed and controlled system. The longer-term lesson may be that more open systems allowed societies to live with the virus sooner, with higher costs in the beginning but ultimately greater gains when economic conditions and social disruptions are considered.

Countries like China with its "zero-Covid strategy" that seemed stellar at the outset, on the other hand, are stuck in what might be called a "Covid trap", unable to fully re-engage with the outside world as strict quarantine rules remain in place indefinitely. For China's 1.4 billion population, reopening borders would invite sharp spikes in infections that would likely inflict fatalities on the elderly and others with poor health conditions, potentially overwhelming the healthcare system. It appears the longer China is closed, the more it has to stay closed.

Because of the lack of transparency and reliable data, the performance and efficacy of China's vaccines are seen as untested. The combination of a huge population, a highly contagious virus and uncertain vaccines suggests that even a reopening in rolling phases and locales would be a gamble. Lest anyone thinks of China's Covid-19 dilemma as schadenfreude worthy of ridicule, the global economy has been adversely affected. As China's growth rate is on course to come in well under the 5.5% target for 2022, its trade and investment partners are feeling corresponding economic pain, as supply chains and production networks everywhere have been stymied and disrupted.

Thailand in 2019 welcomed over 11 million Chinese among its 39 million tourists, with more than 700 flights between the two countries per week on average. Since early 2020, Chinese visitors have slowed to a trickle, while the number of bilateral flights has gone down to just six per week. As China continues to grapple with Covid-19, its economic partners, such as Thailand and other Asean economies, will continue to feel the squeeze.

President Xi's state visit to Kazakhstan and his attendance at the Shanghai Cooperation Organisation summit in Uzbekistan, where he will meet Russian President Vladimir Putin, is thus crucial, as it is likely to be an early sign of China's global re-engagement. On course for an unprecedented third five-year term to be appointed at the 20th Congress of the Chinese Communist Party next month, Mr Xi appears to be signalling that the Chinese leadership is back in person on the global stage.

In doing so, Mr Xi will be playing catch-up. A big price for China's "zero-Covid" approach with tight travel restrictions and constraints on diplomatic dealings is that the Asian giant has fallen behind. Mr Xi's geostrategic "Belt and Road Initiative", launched in Kazakhstan in the early months of his tenure, has lost momentum and gained controversy for leaving recipient countries of Chinese loans and infrastructure projects, such as Sri Lanka and Laos, with underused roads, rails, and ports under a mountain of unfinanceable debt.

Because senior Chinese officials have not been able to travel freely, the US and European Union have outdone them with delegation visits to Asean countries, including Thailand where Secretary of State Antony Blinken recently came to sign a joint communique with Thai Foreign Minister Don Pramudwinai to bolster the Thai-US treaty alliance. The Covid-induced lack of diplomatic engagement is evident in Bangkok, where Chinese embassy officials are hamstrung from in-person meetings with key stakeholders in the Thai-Chinese relationship because of stringent rules. Local Chinese diplomats need to self-isolate after seeing Thai interlocutors and counterparts in order to stay clean of the virus because they have to undertake work travel back home and receive colleagues from China.

The gap China needs to fill over the past year is considerable. From roughly mid-2021, the US has pressed its Indo-Pacific strategy strongly via the "Quad" countries, with Australia, India and Japan. Maintaining the geostrategy of the preceding government under Donald Trump, the administration of President Joe Biden continued to push back hard against China in the maritime domain in the South China Sea, East China Sea, and the Taiwan Strait, including a recent visit to Taipei by the US Speaker of the House Nancy Pelosi.

The US has launched the Indo-Pacific Economic Framework (Ipef) with 13 other Asia-Pacific partners, including Asean (minus Cambodia, Laos and Myanmar), as a trade component to complement its Indo-Pacific strategy, focusing on digital economy, supply chain security, clean energy, and tax and anti-corruption. Although Ipef is in its infancy, its objectives of keeping China out and away from high-tech prowess are clear.

The Biden White House's new trade and investment scheme are also aimed to win over Asia-Pacific economies that might otherwise gravitate deeper into China's orbit. In addition, the US has come up with the Chips and Science Act, a $52-billion programme to subsidise American high-tech companies.

Its aim is to catch up with China where the US is behind, such as in artificial intelligence and quantum technology, and to take steps forward where US companies hold an advantage.

All of these manoeuvres are not lost on the Chinese leadership. The geoeconomic battlegrounds over supply chains, high-tech innovations and market shares in Asia and beyond will likely heat up. Although it is as yet unclear how Beijing will re-open and re-emerge, China's pandemic setback and relative detachment from the cut-an-thrust in global affairs appear to be tapering off, especially if President Xi keeps up his international travel in the coming months.

Thitinan Pongsudhirak

Senior fellow of the Institute of Security and International Studies at Chulalongkorn University

A professor and senior fellow of the Institute of Security and International Studies at Chulalongkorn University’s Faculty of Political Science, he earned a PhD from the London School of Economics with a top dissertation prize in 2002. Recognised for excellence in opinion writing from Society of Publishers in Asia, his views and articles have been published widely by local and international media.

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