China's 90% Model: America has the tools, but can't counter China alone

China's 90% Model: China Has America by the Throat: Here's How to Fight Back and Win

by Ram Charan

Published by Simon & Schuster

320 pages ₹1,599

 

This book covers China’s ascent to supremacy on multiple fronts well, but the countermeasures, though well researched, seem overly optimistic. In a battle between Chinese coercive strategies and the coalition of the willing led by the United States, the one with no moral binds seems destined to win.

 

If the book’s advice had been available to US and European diplomats, military strategists, business leaders, and trade theorists 10 years ago, it could perhaps have delayed China’s ascent. Even if doing nothing now is not an option, as the author contends, the war seems over; only the formal coronation may be pending.

 

At the core of China’s strategy is to build 90 per cent of the world’s capacity (from which the book derives its title from) in an expanding list of critical industries, subsidise production, maintain an undervalued currency, flood the market at below marginal cost, and drive out competitors. It has already done this in 10 industries, including apparel, toys, and solar systems, and seems poised to do the same in industries that are critical to sovereignty — economic and national security — such as semiconductors, artificial intelligence (AI), aerospace, automobiles, critical minerals, telecom and defence. Debt and data are the new weapons.

 

The policy of encirclement extended from global manufacturing, which facilitated market access, to establishing supply chains and a logistics web through its Belt and Road Initiative (BRI) in several strategic points to control trade. BRI financing is more about forcing alignment with China in multilateral forums and ensuring access to raw materials to power its factories and capacity to quickly reach anywhere in wartime, even while slowing or severing others.

 

It enticed unsuspecting giants such as Apple, Tesla, Motorola, and Lucent with low-cost logic. When sufficient local manpower was trained, subcontractors developed, and stakes became important, China applied the squeeze. China would break contracts, cancel licences, coerce the transfer of technology, control pricing, withdraw incentives, force equity participation, conscript technology and evict them. Huawei, BYD, CATL, and SAIC are some examples of the resulting indigenous giants that emerged. In an act of silent invasion, conscripted technologies have been converted into military capability.

 

It is dominant as a supplier of several raw materials, such as rare earth minerals, gallium, graphite, and lithium; a dominant buyer of soya from Brazil and iron ore and wines from Australia; a financier of BRI projects; and a provider of  processing technologies for Chilean copper and lithium in select South American countries. With this web of dependencies, it can choke several factories. The squeeze on Australia after it banned Huawei from bidding for telecom contracts being a sampler.

 

To counter China's supremacy are six essential pillars of American power, that include, among other things, access to US markets, control of global financial systems, the strength of its capital markets, and its open society with accessibility, independence, transparency and accountability. The author's belief that these are potent enough to win the war against China's arsenal of deceit, distortions, distraction, coercion, and compliance stretches credibility.

 

Donald Trump’s ascendancy made up for the essential missing piece. The author commends Mr Trump’s suite of actions: (i) the imposition of tariffs on countries with large trade surpluses with the US and undervalued currencies, (ii) attracting investments to create local capacities, (iii) securing energy at affordable costs, (iv) breaking China’s chokehold on critical supplies, (v) strengthening the military, and (vi) arresting the leakage or conscription of technology by China. If Mr Trump eliminates transhipments of China’s exports, it can dent China’s gross domestic product by about 2.1 per cent, which is substantial and capable of bringing them to the negotiating table. Despite his praise, the author acknowledges that Mr Trump’s actions have alienated the allies he needs as much as they have hurt China.

 

Yet, this is a battle that the US cannot fight alone. It needs a coalition of the US, the United Kingdom, the European Union, Japan, South Korea, and Israel. Co-ordinated action, shared investments, and standards — called “convergence” — by the coalition targeting key industries are necessary to counter China.

 

The latter chapters are dense and well researched, but the target audience keeps shifting in the narrative far too often. It requires co-ordinated action from the coalition and industry captains. For China, the strategy lies in its President’s head, and everything else is execution with no decision or investment hurdles in between. But whether that co-ordination is possible in democracies with only fiscal and financial incentives, but without China’s clinching weapon of coercive force, is difficult to tell. While the author exhorts business leaders to be wary of China and make their exit before it is too late, some elements of the extrication strategies seem overly optimistic, though he has listed some successful exits.

 

The identification of industries and products to apply chokes on China merits attention and greater focus on execution. His advice to business leaders at the end of each chapter on how to approach China distils the essentials from a complex environment and presents ideas for a hopeful way forward.

 

India would do well to have a similar playbook, but for the time being, it does not even figure in the core group of six countries in the author’s scheme of things.

The reviewer is the author of Making Growth Happen in India