China's Long Economic War - How Beijing Builds Leverage for Indefinite Competition

The US foreign policy establishment is starting to try and come to grips with China overtaking the US, but as you can see in this article, even among the "realists" there is still a lot of cope and wishful thinking about the ephemeral, "unquantifiable" advantages of US "values" over China's straightforward material advantages, wishful thinking that the world will reject Chinese exports for no reasons other than ideology (this may be true for the West but the exact opposite is happening everywhere else), etc.

They are still trying to predict problems for China based on the assumption that the fact that China doesn't follow a Western style, neoliberal, consumption-based economic model (aka the "going into debt to buy things you can't afford because your society glorifies consumption" model) is a bad thing, with all the usual fearmongering about how bad it is to have "deflation" (as if it wasn't something objectively good when consumer prices fall because production is getting more efficient and supply is increasing):

For much of the past year, China’s response to trade tensions has continually surprised hawks in Washington. In December 2024, when the Biden administration imposed new export restrictions on advanced chips, Beijing immediately answered by banning exports of several metallic elements to the United States. In April 2025, after the Trump administration threatened huge tariffs on China, Beijing dug in, imposing strict export controls on seven rare-earth minerals vital to defense and clean energy manufacturing. In May, China stopped buying U.S. soybeans, the largest U.S. export to China by value. And in October, after the United States extended existing export restrictions on Chinese companies to all of their majority-owned subsidiaries, China added five more rare earths and a broad array of advanced processing technologies to its own export controls. These increasingly bold measures not only posed a major threat to U.S. and global supply chains but would also have significant domestic consequences. The message was unmistakable: China is prepared to absorb pain to put real pressure on the United States.

If the approach was bold, however, it was not reckless. By opting for calibrated retaliation, Beijing preserved negotiating space and kept off-ramps open. After U.S. President Donald Trump and Chinese leader Xi Jinping met in South Korea in late October, China agreed to postpone many of the restrictions. Yet calibration should not be mistaken for weakness. Alongside its announced moves, China has developed a potent arsenal of nontariff barriers and legal instruments that it can draw on when needed. Discarding the strategic restraint that had previously characterized its approach to the United States, China has shown it is ready to weaponize its supply chain dominance.

This tough stance has been reinforced by domestic political considerations. Chinese leaders and negotiators are determined not to relive the public backlash that followed the 2020 Phase One trade agreement between Beijing and the first Trump administration, which to many Chinese commentators seemed as lopsided against China as the treaties that Western colonial powers brokered with the Qing dynasty. For Xi, who has vowed to end China’s “century of humiliation,” another deal that appears to favor the United States is politically untenable, and his willingness to stand up to Washington has become a means of solidifying his position as the country’s paramount leader ushering in a “national rejuvenation.”

Yet Beijing’s approach cannot be reduced to retaliatory tactics or nationalism. China’s leaders have spent years preparing for Trump’s return and view the trade war as part of a much larger contest that is likely to last for decades. In the short term, Beijing’s priority is securing the concessions on advanced technology needed to accelerate semiconductor development in China and reduce reliance on imports. In the medium term, it aims to deepen technological capacity, diversify export markets, and capture a larger share of value-added exports in global supply chains to reduce U.S. leverage. In the long run, it intends to build an alternative global trading and financial architecture strong enough to strip the United States of its unilateral sanctioning power. Above all, China wants recognition that its core interests lie beyond even the threat of Western interference—that it has full freedom of action within its sphere of influence, including Taiwan and its regional periphery, and that it can engage economically with the world on terms no less favorable than those accorded to the United States or other great powers.

In essence, China is attempting a geopolitical feat without precedent. It seeks to obtain an equal place alongside the United States without triggering “the Thucydides trap’’—the tendency for rising and established hegemons to come to blows. Unlike earlier revisionist powers, China intends to complete its ascent through the steady accumulation of economic power and influence rather than through military conquest. To succeed, it must not merely draw even with the United States but surpass it in some areas, to the point that any U.S. refusal to acknowledge its superpower status appears absurd to the rest of the world.

As this protracted struggle unfolds, conventional side-by-side comparisons of economic data or military capability are unlikely to provide a clear indication of which side is ahead, which is slipping behind, and why. When success in one domain comes at the expense of another, the ultimate effect on national power or influence can be ambiguous. As history has shown, a country’s global influence also depends on less tangible qualities such as the values it projects, its reputation, and its ability to attract allies and partners. To come to a clearer overall assessment of China’s quest for power, it is useful to borrow from a discipline that thrives on uncertainty and tradeoffs. In credit finance, banks and lenders assess a business’s creditworthiness by applying a series of broad criteria commonly referred to as “the four Cs”: capacity, capital, character, and collateral. Translated into geopolitics, this framework offers a structured way to evaluate China’s continuing rise and its implications for the United States.

As Washington retreats from multilateralism and becomes more consumed by domestic polarization, Beijing will continue to exploit opportunities to advance its own geopolitical goals. On paper, it is well positioned to do so: it can mobilize resources at an immense scale, it dominates green energy supply chains, it commands the world’s largest standing army, and its artificial intelligence companies have shown they can keep abreast of their American counterparts. But the United States retains other forms of global influence and clout that will be hard for China to match. As a close examination of the four Cs suggests, the contest between Washington and Beijing will not only be determined by which country has the best AI models or the most ships. Hard-to-quantify dynamics are likely to be as important as raw empirical advantages and hard power. To prepare for this long struggle, then, the United States will need to better understand what China is seeking and how it stacks up against American power in different domains, and where Washington’s own policies are falling short.

NATION OF MILLIONS

China’s global power is founded on its immense population and resources, or what might be called its capacity. As long ago as the thirteenth century, Marco Polo marveled at the extent of China’s cities, wealth, and territory in The Travels of Marco Polo, whose original Italian title was Il Milione, or The Million. Today, that vastness has enabled China to mobilize resources for growth at a scale and speed that eclipse most competitors. In 1978, China was among the poorest countries, with a per capita GDP of about $157, less than one-60th that of the United States and less than one-tenth of Brazil’s. Now, it is the second-largest economy and exports more goods and services than any other nation on earth.

This unprecedented ascent has been built on the backs of China’s easily exploited migrant laborers¹, a subset of its workforce that grew from roughly 30 million in 1989 to nearly 300 million in 2024. These low-paid workers have fueled the country’s explosive growth, manning factories, operating ports, building infrastructure, and making China the industrial powerhouse of the world. Today, the Chinese Communist Party is betting that the country’s huge army of engineers and scientists can do the same for technology and innovation. Already, China has nearly caught up to the United States in spending on research and development. Chinese researchers now publish more papers in elite scientific journals and file more patent applications than their American counterparts. Behind these figures lies a deep well of human talent: China produces roughly 3.6 million STEM graduates annually, over four times the U.S. total.

¹[Unlike the West's industrial revolution which was all sunshine and rainbows and was not at all built on the exploitation of workers and colonial extraction]

Yet this enormous capacity also poses one of China’s biggest challenges. It has left the economy lopsided and reliant on foreign markets to absorb excess output, leading to growing friction with many Western governments. And China’s industrial and supply chain dominance has pushed many countries to reduce their dependence on the country, eroding Beijing’s principal source of leverage. China’s extraordinary industrial power thus presents a paradox: the country can produce almost anything cheaply and at enormous scale, yet the more it uses this strength, the faster the world turns against it.

Beijing’s almost singular focus on building its industrial base has also stunted the development of a balanced domestic market. Chronically weak household demand has prevented the Chinese economy from becoming a self-propelling engine. For household consumption to account for the same share of GDP in China as it does in the United States, the average Chinese family would have to consume 70 percent more—a tall order. In fact, China’s consumer spending growth has slipped to its lowest levels in over a decade, with retail sales growth in 2024 around 3.5 percent, well below the double-digit gains of earlier years. Consumer prices fell year-on-year in several months of 2025, signaling deflationary pressure in parts of the economy. Falling prices reduce corporate profits², further increasing the true economic cost of maintaining bloated³ industrial capacity.

²[Ah, and finally here we have the admission why they hate deflation so much - not because it is bad for consumers, but because it's bad for corporate profits!]

³[Lol, "bloated" according to who? Like the US's industrial capacity was "bloated" during and after WWII? No, you see when it's the US, having the world's biggest industry is a good thing, and a sign of how superior the US system is for being able to supply the whole world with goods. When it's China it's bad of course, it's "overcapacity". Because everyone in the world is already living in super-abundance, no one wants for anything, right? So why is China still making so much stuff? (Also, it means we can't control China, and China has leverage over us, and we don't like that...)]

China’s massive industrial capacity has made it especially dependent on the United States.⁴ In addition to being the leading destination for Chinese exports, the United States has served as a vital source of best practices⁵ that Chinese policymakers and companies have repeatedly drawn on to craft their own approach to industrial, financial, technological, and military development. Even in sectors in which Chinese companies have long outpaced American competitors, such as electric vehicles and batteries, the United States remains an indispensable source of talent, research networks, and demand. These realities contribute to the conundrum that Xi faces in negotiating with the second Trump administration: if China is to eventually stand on its own against the United States, it must first pull its rival closer so it can lean on American expertise in sales and product design.

⁴[Lol again. That's not what the latest US defeat in the trade war showed. It actually turns out that China is not really that dependent on the US and can pivot away if it needs to, while the US is dependent on China, hence why it had to raise the white flag in Seoul]

⁵[Double lol. Citation needed. If China was copying the US's policies it would be a deindustrializing, over-financialized basket case like the US where nothing gets done on time and everything is five times over budget, housing is unaffordable, living standards are plummeting, half the entire economy is one big speculation bubble, and a handful of near-trillionaires own almost everything. The reason why they are successful is precisely because they are not copying the failed US model]

History has shown that capacity alone does not make a superpower. In the early twentieth century, Germany boasted a world-beating industrial base and top engineering talent but ultimately failed to establish enduring regional hegemony. Starting in the 1960s, Japan enjoyed decades of dominance in automobile manufacturing and electronics but failed to translate this advantage into geopolitical power before the rest of the world caught up⁶. Even when capacity helped create a superpower, that status could be short-lived if other attributes were weak. The Soviet Union developed a vast industrial and scientific sector and achieved spectacular technical feats⁷, such as the first space flight and the world’s largest nuclear arsenal. Yet political and bureaucratic sclerosis, combined with an unbalanced statist economy, ultimately led to its demise. Today, China has the industrial capacity of a superpower, but it will need to match that strength in other domains to consummate that status in geopolitics.

⁶[We're just not going to talk about the fact that the US kneecapped Japan's exports by strongarming them into signing the Plaza Accord.]

⁷[Oh wow, a rare admission of the USSR's achievements. I wonder, did it physically hurt them to have to write that sentence in?]

RICH BUT NOT QUITE GLORIOUS

Along with capacity, aspiring superpowers need to have immense capital—the ability to deploy vast sums of money to influence behavior and shape outcomes abroad. China now holds over $3.3 trillion in official foreign exchange reserves, more than any other country. The Communist Party’s near-complete hold over China’s financial system also allows it to invest state funds with a speed and scale that would be unthinkable almost anywhere else.

Moreover, China has transformed its massive foreign exchange hoard into an active instrument of financial statecraft through its sovereign leveraged funds. These vehicles finance the party’s industrial policies, back Chinese firms’ strategic acquisitions overseas, and partner with foreign institutions to reduce political resistance to Chinese capital. At the 2024 summit of the Forum on China‑Africa Cooperation, for example, Xi pledged more than $50 billion in renminbi-denominated loans to African countries, much of it underwritten by the China Development Bank and other state-backed institutions. These loans are as much about securing political support for China’s expanding corporate footprint as they are about promoting the international use of the renminbi.

Yet China’s capital and financial power is more constrained than its headline figures suggest. Consider the overall status of the renminbi in the global financial system. On paper, the preeminence of the U.S. dollar looks vulnerable, with the dollar accounting for just 56 percent of global reserve allocations, a 30-year low. Yet despite China’s position as the world’s leading trading nation, much of the dollar’s lost share has shifted not to the renminbi or other currencies but to gold and other nonsovereign assets. Since 2008, central banks have increased their gold holdings by 25 percent to the highest level since 1970. By contrast, the dollar still dwarfs the euro, which accounts for roughly 20 percent of reserve allocations, and the renminbi, which holds just two percent. Thus far, the diversification away from the dollar appears to be less an endorsement of an alternative currency than a reflection of waning confidence in the U.S.-led financial order⁸.

⁸[Which is exactly how China wants it at the moment. Time and time again they have shown no desire of taking over the role of printing the world's reserve currency. China doesn't want to become the US.]

Still, China has been building financial infrastructure to reduce global dependence on the dollar, if not to replace it outright. In 2024, China’s Cross-Border Interbank Payment System grew by 47 percent, compared with just 12 percent growth for SWIFT, the Western-dominated interbank system responsible for moving most of the world’s dollars between countries. For now, CIPS handles only a fraction of the global transactions that SWIFT does, but the system has the capacity to be scaled up rapidly. Following Russia’s invasion of Ukraine in 2022, for example, Western governments expelled Russian banks from SWIFT. To bypass Western sanctions, Russian entities began to adopt CIPS, and today, nearly all of Chinese-Russian trade—99 percent—is conducted in renminbi and rubles.

To truly challenge the dollar, however, China would have to make the renminbi fully convertible and dismantle the capital controls that underpin its system of financial repression⁹. It would also need to allow foreigners to hold renminbi-denominated assets on a far greater scale. Some progress has been made: since 2020, foreign holdings of renminbi-denominated bonds have risen 83 percent, to $597 billion. But that figure would need to increase more than 20-fold to match foreign holdings of U.S. corporate and government debt securities. Until China allows far greater foreign access to its debt, there will simply not be enough renminbi-denominated assets for investors to replace their dollars even if they wanted to.

⁹[Why would they want to dismantle controls which are specifically designed to support their chosen economic model? Calling this "repression" is also just funny. Again, there is this inability to think outside of the neoliberal box, assuming that everyone eventually has to become like the US.]

Meanwhile, China’s growth model is reaching its limits. The very mechanisms that once fueled the country’s rise—a state-dominated financial system, suppressed consumption, and export-dependent growth—are now constraining its future. For decades, the government used capital controls, artificially low deposit rates, and an undervalued currency to funnel household savings into industrial sectors. In effect, Chinese households subsidized the country’s rise through foregone returns while the rest of the world splurged on discounted Chinese goods. That model is no longer sustainable: foreign exchange reserves have barely grown since 2017, and the social costs of financial repression are mounting.

Anyway, you get the jist. You can read the rest in the article. It's more of the same. Essentially looking at China through the lens of how the US has operated as a global superpower and assuming that if China wants to succeed it needs to adopt the same approach as the US, including the US model of financial imperialism, a debt- and consumption driven domestic economy, giving financial markets free reign with no capital controls, and exporting the global reserve currency.

There's also some funny remarks about how, unlike the US and it's "values", China has "cultivated solidarity" and transactional relationships but doesn't "inspire allegiance", aka doesn't have vassals, which is just a very ironic admission.

It never occurs to the author that this goes against everything China stands for and is trying to achieve, that China works on a fundamentally different paradigm than the West.

There's the usual blabbering about how China is not abiding by the "global norms", is trying to reshape them and so on, is not a "moral leader" (because it doesn't bend the knee to Western liberal norms and "values" and doesn't fall in line with sanctioning Russia) but that's just boilerplate "rules based order" nonsense that can just be ignored.

I think one of the most interesting parts is how the article later claims that China's biggest weakness is that "the world" doesn't trust it. The unspoken part here is that "the world" of course means mainly Western countries (the "always the same map" crowd). Maybe the US investing billions into disseminating anti-China propaganda might have something to do with that?

And then they go on to say:

For example, [China] has presented itself as a leading international source of development financing, even though multilateral development banks, private investors, and traditional Western lenders still account for a larger cumulative share.

Which is very amusing because what this is, is not in any way proof that China invests less in the development of the global south, but merely an admission that the West traps the global south in more debt. Even as they go on in the next paragraph to say that the narrative of the China "debt-trap" is pervasive! Although they are also forced to admit:

Although empirical studies have found little evidence of such deliberate intent, the pervasiveness of this narrative shows the extent to which China’s opaque lending practices and the political leverage that appears to be built into its financing model have led to global unease.

There's nothing "opaque" about China's lending. It's just win-win business deals with none of the IMF type strings attached or conditions demanding austerity, privatization and market liberalization. This is a hard concept for the Western mind to understand.

Anyway, then you have the usual "overcapacity" blabla, "peak China" thesis, "China is stagnating", "China is falsifying its data", "China is becoming aggressive", etc. etc. It's too tedious to quote and address everything, we've heard it all a hundred times before.

The important part is what comes after, it's the admission that China is now a peer competitor of the US that can take on the US and come out on top. I think this lament that the US has now definitively lost its post-war primacy sums it up:

After World War II, the United States’ capacity was unmatched; its overwhelming industrial power, financial heft, and scientific achievement set the standard for excellence in nearly all fields. For decades, the United States has also led the world in character and credibility, exporting its values, its prosperity, and its security umbrella to dozens of countries while defending the system of global markets based on the U.S. dollar and the rule of law that it largely built. But these strengths have faded, and with them, the sense that American preeminence is a fact of nature.

And:

Contrary to the assumptions of many U.S. policymakers, China’s leadership does not seek to unseat the United States or to replace a global system from which China has greatly benefited. But it does seek to end the U.S. strategy of containment and to obtain a de facto veto over unilateral U.S. actions, such as sanctions. By ratcheting up its actions against China, the Trump administration has inadvertently reinforced Beijing’s determination to consummate its superpower status.

This is of course to be understood as a bad and scary thing. We can't contain and unilaterally sanction China anymore? Oh no, however shall we go on living?