Top Communist Party Official: China, US Headed For “Complete Economic Decoupling”

It’s fair to say that tensions between the US and China have escalated to levels unseen since the days of the Nixon Administration, when the bilateral relationship between the two countries finally began as the Communists abandoned their commitment to isolation and insulation from the capitalist west.

Though it has never garnered much attention in the headines, the US Navy has increasingly flexed its military muscle in the contested South China Sea, which Beijing claims as sovereign Chinese territory, despite an ICC ruling repudiating China’s claims to some of these reefs and islands in the south and east china seas.

Over the past week, the Navy sent two aircraft carriers to begin some of the largest military exercises that US forces have ever hosted in the South China Sea, a show of strength with a clear message: That the US stands ready to counter China’s military ambitions in the Pacific.

A reporter for the Nikkei Asian Review noted Thursday that a former high-ranking CCP official this week published an editorial in a key academic journal that appears to cut against the Party line, and suggest an even more radical solution: complete economic decoupling from the US.

The author is careful to address the fact that isolationism has a bad history in the 20th Century in China: Instead of China going it alone, Zhou Li, a 65-year-old former deputy head of the Chinese Communist Party’s International Liaison Department, argues that a competing “yuan-based” economic bloc must emerge to rival the dollar-based financial system.

In a commentary piece, a writer for Nikkei breaks down Zhou’s argument:

It has been a tense first week of July in the seas of Asia.

While two U.S. aircraft carriers, the USS Ronald Reagan and the USS Nimitz, launched hundreds of aircraft daily into the skies above the South China Sea, China was conducting naval exercises in the same sea. In a rare and symbolic move, the People’s Liberation Army Navy also carried out live-fire drills in the East China Sea and the Yellow Sea.

Amid the tensions, one published article has been the talk of the town in many Chinese circles. Written on the assumption that the novel coronavirus will disrupt China and the world for an extended period, the content is highly controversial.

The article predicts industrial supply chains being torn up, a China-U.S. decoupling and a world split into dollar and yuan economic blocs.

The author is Zhou Li, a 65-year-old former deputy head of the Chinese Communist Party’s International Liaison Department, a division in charge of party-led diplomacy. His views notably differ from the official Chinese government line; they are also radical.

Zhou says Chinese must prepare:

1. For the deterioration of Sino-U.S. relations and the full escalation of the struggle.
2. To cope with shrinking external demand and a disruption of supply chains.
3. For a new normal of coexisting with the novel coronavirus pandemic over the long term.
4. To leave the dollar hegemony and gradually realize the decoupling of the yuan from the dollar.
5. For the outbreak of a global food crisis.
6. For a resurgence of international terrorism.

Zhou does not shy from painting a grim picture of the Chinese economy, and his wording clearly differs from that of official documents prepared by government bureaucrats.

“Many international economic organizations such as the International Monetary Fund have issued reports downgrading global economic growth this year to as much as minus 4.9%, the worst economic recession since the Great Depression in the 1930s,” Zhou wrote.

The article goes on: “The order log at our exporters has been greatly reduced. Production at enterprises upstream and downstream has stalled. International transportation logistics have been blocked. Raw materials are lacking and plants are unable to deliver their products.

This phenomenon is putting huge pressure on our stable growth and job security.”

While not spelling it out, Zhou was hinting that China’s current economic situation is so harsh that it too could post zero or negative growth.

It is precisely the “black swan” – a serious incident that defies conventional wisdom and is unforeseen – that President Xi Jinping has been warning about.

Furthermore, Zhou indicated that the yuan bloc is on its back foot. “The U.S. controls the main channel for international payment and clearing, namely through SWIFT,” he wrote, noting that the international payment information of Chinese, Russian and Iranian companies is in Washington’s hands.

Disrupted supply chains would inevitably deliver a blow to the 5G strategy of Chinese telecoms equipment maker Huawei.

If Zhou’s predictions are correct, various future plans of Xi’s would crumble.

But there is an even bigger problem.

If China barrels ahead to go beyond building an economic bloc and chooses to isolate itself, it will no doubt revert to the world before its accession to the World Trade Organization at the end of 2001, a stepping stone for the high economic growth that followed.

Worse, China may travel back in time to before it established diplomatic ties with the U.S. in 1979, during the Cold War.

China’s historic rapprochement with the U.S. came a few years after the end of the 1966-1976 Cultural Revolution, a political campaign launched by Mao Zedong, during which numerous innocent people became victims after being stigmatized as counterrevolutionaries.

The Cultural Revolution followed the 1958-1961 Great Leap Forward, a reckless campaign also launched at the behest of Mao to pursue a big increase in agricultural and industrial production. The campaign failed, and a huge number of people starved to death.

To be sure, Xi has recently issued an order to prepare for the worst, including in China’s relations with the U.S., using the expression “bottom-line thinking,” or assuming the worst.

But until now, it had been taboo in China to refer to just how far the situation surrounding China might deteriorate due to the “new Cold War.”

“In the six months since the outbreak, the US ruling authorities – including the Trump administration and the U.S. Congress – have continued to strengthen their pressure on China,” Zhou wrote, citing examples such as canceling preferential treatment for Hong Kong and sending warships to the Taiwan Strait and the South China Sea.

He said the U.S. attempted to write “China “Virus” into U.N. Security Council resolutions and that it was trying to seize U.S. Treasury bonds purchased by China as compensation for the pandemic.

Zhou is not a mere scholar. He is a figure who was close to the center of the party’s diplomatic nerve center.

Furthermore, his article appeared in a newspaper published by the Chinese Academy of Social Sciences, a government-affiliated think tank. It appeared as part of a special feature about “a community with a shared future for humanity.”

Amid a compilation of articles praising Xi’s concept of a “community with a shared future for humanity,” Zhou’s article oddly stands out. It was as if to say that the “community” Xi envisions is that of an economic bloc.

The article has sparked a torrent of interpretations and speculation as to why China dared to reveal a doomsday scenario.

In a straightforward interpretation, Zhou’s article could be an attempt at preemptive-damage control ahead of a sudden move toward decoupling, which would rattle the Chinese people and could lead to social unrest.

The article has left Chinese readers with a sense of resolve. “China will never lose,” and, “Beat the U.S.” are frequent comments left by those who read it.

Some Chinese have reacted coolly to the article. “U.S.-China decoupling is a pipe dream,” one reader said. “There is no way that we can get along through such a method.” This view is shared by other skeptical readers.

Others say it could be in line with the traditional way of expressing views euphemistically. While seeming to be loyal to the party, these euphemistic articles often level criticism or give advice to the party.

In the second half of his article, Zhou touched on higher food prices, which have already been laid bare, and the possible coming of a global food crisis.

In the past, China, the world’s biggest importer of soybeans, gave up on food self-sufficiency as it pursued industrialization. Without an international environment that helps the global economy to thrive, China could not feed its people.

Some say Zhou’s article could be an indirect expression of dissatisfaction toward a current leadership team that is running out of control.

It is of great interest how Zhou, a former diplomat stationed in Moscow, analyzed the self-destruction of the Soviet Union after it was driven into an economic corner.

The demise of the Soviet Union is a topic in which Xi himself has been interested. He sees it as a bad example that China must avoid.

He once said, “Why did the Soviet Union disintegrate? Why did the Soviet Communist Party collapse? An important reason was that their ideals and convictions wavered.”

“Finally, all it took was one careless word from Mikhail Gorbachev to dissolve the Soviet Communist Party, and a great party was gone,” he said.

Xi made the remarks in Guangdong Province in December 2012, shortly after taking the helm of the Chinese Communist Party as its general secretary.

Xi is firmly determined to protect his communist rule at any cost and prevent any moves that could lead to “color revolutions.”

The introduction of the highly controversial national security law in Hong Kong is one piece in this puzzle.

In mid-June, Chinese Vice Premier Liu He, who signed the “phase one” trade deal with the U.S. in January as Xi’s economic advisor, hinted at another piece of the puzzle — an economy mainly based on domestic circulation.

That smacks of the Mao Zedong-style “self reliance” policy Xi mentioned shortly after the U.S-China trade war erupted.

What is Zhou’s true motive for laying out the worst-case scenario? Will China indeed decouple from U.S.?

Is it really possible for the powers to avoid a military clash?

The article has raised more questions than answers.

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Source: Nikkei Asian Review