**Pushing Back on Communist China’s Mercantilism**
It is well known that the main pillars of the communist China economy include the domestic real estate market, foreign direct investment, and exports.
According to a report by the U.S. National Public Radio (NPR), the Chinese Communist Party’s real estate market is facing a severe crisis, suffering significant blows. The collapse of Evergrande Group in January of this year, once hailed as the “most valuable real estate company in the world” in 2018, has drawn particular attention. Another real estate giant, Country Garden, the largest residential builder in China, defaulted on its debts in October last year and faced liquidation proceedings in February this year, plunging into financial distress.
Similarly, due to the Chinese government’s harsh COVID-19 zero-tolerance measures in 2022 disrupting the economy, foreign direct investment in China has dried up.
The authoritarian regime of the Chinese Communist Party has also implemented a new Anti-Spy Law, leaving foreign investors who have started decoupling measures to reduce reliance on the Chinese economy feeling discouraged. These measures by foreign investors include relocating production and manufacturing companies from China to other countries. Even European countries have joined the decoupling trend, though they prefer to use the term “de-risking”, a more diplomatic approach introduced by Ursula von der Leyen, Chair of the European Commission, in January 2023, indicating a more nuanced balance in trade with China, including diplomatic negotiations.
But how does the situation look for China’s export-driven economy? There are increasing signs that countries around the world are paying attention to the continuous mercantilist practices of the Chinese Communist regime, which unfairly advantages Chinese producers by suppressing the prices of foreign suppliers through government subsidies.
Let’s take a closer look at China’s mercantilism and recent countermeasures by the West.
Mercantilism emerged as a trade economic system from the mid-Renaissance to the late 19th century in Europe. Its goal is nationalist, aiming to maximize exports and minimize imports through trade control to accumulate wealth and power. A trade surplus is the most critical indicator of the success of mercantilism, as it means a country is selling more domestically produced goods to other countries than it is buying from foreign producers.
To achieve these goals, governments often take various measures, including tariffs, manipulating regulations and tax laws favorable to domestic industries, exploiting cheap labor (including through slavery), and directly subsidizing domestic industries to weaken foreign competition, including using military force (primarily naval) to ensure secure transportation of goods to overseas destinations.
The United States and its Western allies mistakenly believed that when China became a member of the World Trade Organization (WTO) in December 2001, the Chinese Communist regime would improve its mercantilist practices. As part of this process, China received Most Favored Nation treatment from the United States, providing the best trade conditions offered by its trading partners, including the lowest tariffs, minimal trade barriers, and highest import quotas (if any).
However, while gaining these WTO member benefits, the Chinese Communist regime violated the terms of the Protocol of Accession by continuing its mercantilist practices through government subsidies (including directed loans, tax exemptions, and forbidding the establishment of independent trade unions in China) and refusing to provide transparency on Chinese regulations and laws governing economic activities.
Since China opened up to the world following the historic Shanghai Communiqué signed jointly by China and the United States in February 1972, the Chinese Communist regime eagerly accepted, transformed, and continued Western mercantilist practices.
Here are a few typical examples of China’s mercantilism with Chinese characteristics.
The Chinese Communist regime often uses the economy as a weapon to target anyone threatening its core interests. This includes discriminatory sanctions and embargoes that do not comply with WTO rules against countries and companies supporting the Hong Kong democracy movement or opposing ongoing genocide in Xinjiang and Tibet.
The FBI describes China’s ongoing economic warfare against the United States and the world as follows: “(China) uses its laws and regulations to put foreign companies at a disadvantage while favoring its own companies.”
China has expanded the missions of its United Front Work Department, including foreign influence operations, closely coordinated with the Ministry of State Security to coordinate espionage activities. The focus is on stealing technology and trade secrets, enabling Chinese industries to surpass foreign competitors and become leading suppliers worldwide.
According to a report by the British Broadcasting Corporation (BBC) in 2023, China’s espionage activities target ten critical industries, including aerospace and aviation equipment, pharmaceutical development, nanotechnology, biotechnology, artificial intelligence, software technology, among others.
Under Chinese law, all joint ventures in China require foreign companies to form partnerships with Chinese partners. The regulations for joint ventures make it possible for foreign intellectual property to be directly stolen. The FBI has described this process: “The Chinese (Communist) government restricts certain types of foreign companies from entering the Chinese market, requiring them to form joint ventures with Chinese companies to enter the Chinese market. Then, Chinese companies exploit some of these collaboration opportunities to obtain foreign proprietary information.”
Over the years, the Chinese Communist regime has successfully controlled various strategic commodities and established strategic reserves as a means of hedging against inflation and manipulating markets to influence (pressure) specific target countries.
Strategic commodities refer to raw materials or agricultural products crucial to a country’s economy, where a disruption in the trade and supply of such commodities would result in significant economic losses for the country.
For years, the Chinese Communist regime has created overcapacity in various heavily subsidized industrial sectors and used this excess capacity to export products at prices below production costs, rapidly capturing foreign markets. In April of this year, Reuters reported, “Policy makers in the United States, Europe, and other regions are concerned about China’s overinvestment in electric vehicles, solar panels, lithium-ion batteries, and other industries because this could lead to output levels exceeding domestic demand.” The UK’s Daily Mail reported on China’s “inundation of electric cars in the UK.”
China’s mercantilist practices aim to seize global market share at the expense of foreign companies. The result is the formation of significant trade surpluses favorable to China, such as reaching $576 billion in 2022, providing ample funds for the astonishing development of the Chinese military.
Much to the dismay of globalists and “engagers” around the world, former President Donald Trump aggressively pushed tariff systems, restructured the North American Free Trade Agreement, encouraged U.S.-China decoupling as a strategic move to rebalance U.S.-China trade and weaken Chinese mercantilism. Current President Joe Biden has retained many of the tariff measures from the Trump era, and recently increased tariffs on electric vehicles (EVs), advanced batteries, solar panels, steel, aluminum, and certain medical devices.
The Group of Seven (G7) and Australia are adopting a more subtle “collective resilience” strategy to address China’s ongoing mercantilism. This strategy involves implementing economic deterrence by collectively withholding critical goods heavily relied upon by China. As highlighted by the Center for Strategic and International Studies (CSIS) in Washington, D.C., G7+A (referring to Australia) countries have identified that in nearly 400 goods, 70% fall under items China heavily relies upon, with a trade value exceeding $37 billion in 2022; and in nearly 160 goods, 90% are products China heavily depends on, with a trade value of $7.5 billion. Threatening to reduce exports of these items to China can pressure the country, forcing it to lessen its frequent use of sanctions and embargoes, truly realizing the commitment proclaimed by the Chinese Communist Party leader Xi Jinping of “China opening up to the world.”
To counter China’s mercantilism, Western societies have taken many other effective measures, including the EU launching an investigation into Chinese electric vehicle subsidies, Western media issuing warnings about recent dumping behaviors by China, an EU investigation revealing that Chinese government subsidies led to a Chinese train manufacturer withdrawing a bid for a railway car contract in Bulgaria, the U.S. Trade Representative launching an investigation into Chinese “unfair, non-market policies and practices aimed at dominating the maritime, logistics, and shipbuilding industries”, and the EU starting a new anti-dumping investigation on importing lysine from China, an essential amino acid for human nutrition.
In conclusion, the global consensus against China’s mercantilism seems to be moving in the right direction, but more collective responses are still needed.
*This article represents the author’s personal views and does not necessarily reflect the stance of the Epoch Times.*
*Author’s Bio:*
Stu Cvrk served in the U.S. Navy for 30 years, holding various active and reserve positions and gaining extensive operational experience in regions such as the Middle East and Western Pacific before retiring as a captain. He graduated from the U.S. Naval Academy in Maryland, receiving a classical liberal education, with educational and experiential background in oceanography and systems analysis, which laid an essential foundation for his subsequent political commentaries.