China's road to economic 'superpower status' will be littered with potholes. Photo: iStock

Lao Tzu’s life is shrouded in mystery. Reportedly born in 601 BC, the Chinese philosopher and scholar was the “Keeper of the Archives” at the royal court during the Zhou dynasty, according to traditional accounts.

While separating the man from the myth has proved difficult, his teachings and proverbs live on in the world’s second-largest economy. None are more poignant than “the  journey of a thousand miles starts with a single step.”

Roughly 2,600 years later, it still resonates in the context of China’s rise as a major global power.

On the world stage, President Xi Jinping’s whirlwind European tour ended on Tuesday after talks with French President Emmanuel Macron, German Chancellor Angela Merkel and European Commission President Jean-Claude Juncker at the Elysee Palace in Paris.

Back home, preparations were underway for the latest round of trade talks between Washington and Beijing on Thursday.

Two massive, yet tiny, steps on China’s economic “journey,” which has become increasingly hazardous under the ruling Communist Party government.

For the United States and a number of its allies, the battle over trade, technology, and China’s overall state-dominated model has raised alarm bells.

“Victory will not come fast, especially if the US remains so eager to secure short-term wins – such as Chinese promises to purchase large quantities of American soybeans and energy products – that it fails to encourage the systematic changes that would benefit it and its allies in the long run,” Minxin Pei, a professor at Claremont McKenna College in the US, and an occasional contributor to Asia Times, wrote.

“Such opportunism makes US allies doubt America’s resolve in an economic confrontation with China, fueling [the] fear that they will shoulder high short-term costs for nothing.”

President Donald Trump’s pugnacious style has also alienated traditional “friends,” such as the European Union, which share a common concern.

Brussels has constantly highlighted the slow pace of reform in China and the problems foreign firms face when doing business there. “Promise fatigue” has become an apt catchphrase from EU companies caught up in a web of red tape.

Spiritual leaders

Germany and France, the spiritual leaders of the largest trading bloc in the world, have also expressed anxiety about Xi’s signature Belt and Road Initiative, despite the powwow in Paris.

After Italy, the third largest economy in the eurozone, signed up to the project last week, there was a distinctly frosty reaction.

In Beijing, it was seen as a massive publicity coup for Xi.

Yet China’s move to export its economic blueprint should come as no surprise.

Yan Xuetong, the distinguished professor and dean of the Institute of International Relations at the prestigious Tsinghua University, outlined the scenarios in The Age of Uneasy Peace.

“Contrary to what more alarmist voices have suggested, a bipolar US-Chinese world will not be a world on the brink of apocalyptic war. This is in large part because China’s ambitions for the coming years are much narrower than many in the Western foreign policy establishment tend to assume,” Yan wrote.

“Rather than unseating the United States as the world’s premier superpower, Chinese foreign policy in the coming decade will largely focus on maintaining the conditions necessary for the country’s continued economic growth – a focus that will likely push leaders in Beijing to steer clear of open confrontation with the United States or its primary allies,” he continued.

“Instead, the coming bipolarity will be an era of uneasy peace between the two superpowers. Both sides will build up their militaries but remain careful to manage tensions before they boil over into outright conflict. And rather than vie for global supremacy through opposing alliances, Beijing and Washington will largely carry out their competition in the economic and technological realms,” Yan added.

Technology has been a key sticking point in broad-ranging discussions to end a trade war that has seen the US impose tariffs on Chinese imports worth up to US$250 billion.

Structural reforms

Although progress has been made to reduce the record-breaking deficit with China, which was a staggering $323.32 billion last year, other problems remain.

They include enforcing an agreement on safeguarding intellectual property protection, banning forced technology transfers and demands for structural reforms to Beijing’s economic policy.

At the National People’s Congress last month, a raft of laws were rubber-stamped to deal with some of these issues. More details are expected to emerge after US Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer wrap up the fourth round of talks in Beijing.

The signs are encouraging.

“The key asks the US has put in the negotiation with China fit into our own needs of reforms,” Lou Jiwei, the chairman of China’s National Social Security Fund and the former finance minister, said at the end of last week.

Xi’s government needs a deal as does Trump’s administration. A cooling economic environment has descended across Beijing, Washington and Brussels, home of the EU.

Even a report released on Wednesday by the National Bureau of Statistics failed to offer crumbs of comfort.

Data revealed that profits for industrial companies plunged by 14% in the first two months of the year compared to the same period in 2018, coming in at 708 billion yuan ($105.4 billion). It was the biggest drop since the height of the Global Financial Crisis in May 2009.

A short statement from the NBS blamed the decline on the Chinese New Year holiday shutdown in February. “Compared with January-February of last year, this year’s holiday factor has a longer impact on the production and operation of industrial enterprises,” it said.

Economists were skeptical. “Although it’s possible [the] US and China could come to a trade deal in the near future, [there] still remains a question [whether] that [will] help reverse the decline in China’s exports,” Betty Wang, a senior China economist at ANZ, told Reuters news agency.

For China’s economy, this appears to be a single step forward and three steps back, which is not exactly from the playbook of Lao Tzu.

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