China bytes back at the United States and its allies
Beijing’s export ban on rare earth minerals crucial to chip production highlights high-tech war
Welcome to the eighth edition of Between The Lines. This week we look at Cold War 2.0 and China’s high-tech export move against the United States and its democratic partners. There is also the US$1 trillion debt that Beijing owes to American bondholders. Let’s get started.
A rare earth rumpus has broken out between the United States and China in their high-tech battle of wills. Earlier this week, Beijing announced plans to curb exports of the crucial minerals, gallium and germanium.
They are vital in manufacturing state-of-the-art semiconductors used in a range of domestic appliances, such as smartphones and electric vehicles, as well as 5G base stations and solar panels. Advanced military tech will also be affected.
In what has been described as a “future-defining trade war,” Beijing rolled out tit-for-tat sanctions after Washington and its allies blocked advanced chip sales to the world’s second-largest economy.
The crunch came last week when the Netherlands banned exports of advanced microchip machines to China on national security grounds.
State-controlled Global Times parroted the ruling Communist Party line on Thursday in an editorial ahead of US Treasury Secretary Janet Yellen’s visit to the Chinese capital:
Is China announcing the export control measures at this time to give Yellen a warning? This is overthinking … [while] interpretations are bound to be distorted, it is necessary to make them [the US] feel uncomfortable.
“To contain and suppress China, the US has imposed various export restrictions, and these are escalating and expanding. [But] China will not be as unscrupulous and rule-breaking as the US,” Global Times said.
As always, Beijing loves to play the victim instead of the villain. Prepare for Cold War 2.0 to get rather ugly.
Why the Party owes American bondholders US$1 trillion
When is a debt, not a debt? Ask China. In a gripping commentary for The Hill, Andrew Hale revealed that the Chinese state still owes American bondholders US$1 trillion. A senior trade policy analyst at The Heritage Foundation, he said in a commentary on Tuesday:
Every country should pay its sovereign debt. Default, we are told, is not an option. But has anyone told China?
“The United States pays interest on approximately $850 billion in debt held by the People’s Republic of China. China, however, is currently in default on its sovereign debt held by American bondholders,” Hale wrote.
The historic unpaid loans can be traced back to before 1949 and the Communist Party’s victory against the forces of the Republic of China. Hale again:
After the military victory of the communists, the ROC government fled to Taiwan. The People’s Republic of China was eventually recognized internationally as the successor government of China.
“Under well-established international law, the ‘successor government’ doctrine holds that the current government of China, led by the Communist Party, is responsible for [the] repayment of the defaulted bonds,” he said.
Maybe it is time for the Party to pay up by dipping into its $6 trillion of foreign reserves. But it would be advisable not to hold your breath on that outcome.
Beijing gives EU’s top diplomat the cold shoulder
Josep Borrell, the European Union’s top diplomat, is persona non grata in China. Beijing abruptly canceled his visit on Wednesday amid a war of words “over trade, human rights and the Ukraine conflict.”
He was due to arrive in the country next week for talks with Chinese Foreign Minister Qin Gang. But it was made clear that Borrell would not be welcome, according to EU Ambassador Jorge Toledo in Beijing as reported by the Associated Press news agency.
“Unfortunately, we were informed by the Chinese counterparts that the envisaged dates next week are no longer possible and we must now look for alternatives,” EU spokesperson Nabila Massrali said in an emailed statement, adding:
It is for China to communicate the reasons. We will adapt and find together a new date.
Borrell has been a vocal critic of China’s human rights record and its “no limits” pact with Russia after Moscow’s illegal invasion of Ukraine. He has also warned that China’s ballooning trade “imbalance” with the EU “must be reduced.”