May 26, 2018

Axios AM

By Mike Allen
Mike Allen

Good Saturday morning from the Kimbells' horse farm outside Indianapolis, where I'm visiting for tomorrow's Indy 500.

Welcome to this holiday weekend Axios AM deep dive: China trends.

  • At Axios, we help you see beyond petty politics and daily churn to understand the huge trends reshaping our lives — in tech, media, business and global affairs.
  • China’s power grab is the most consequential.
  • If you find today's special interesting, click here to sign up free for Bill Bishop's popular weekly newsletter, Axios China.
1 big thing: Why China scares pols of all stripes

Illustration: Sarah Grillo/Axios

China, with a series of short- and long-term moves on the global stage, is doing something few others can: eliciting similar warnings and worries from Democratic Rep. Tim Ryan, Republican Sen. Marco Rubio and nationalist Steve Bannon. 

  • All three say China is a growing threat to America’s workers, economy, technology and national security.
  • All three weighed in after Jim VandeHei and I posted our piece Monday calling China the single greatest threat to the U.S.

In an era where political adversaries seem to agree on nothing, their takes were shockingly similar: 

  • Ryan, a Democrat who represents the classic Rust Belt town of Youngstown, Ohio: "I’m getting more and more worried every day ... China has a grand strategy that includes all of government — economy, military, education and politics — with the goal of elevating China to the number one military and economic power in the world."
  • Rubio, Republican of Florida: "The Chinese know our pressure points. ... Americans benefit every day from the fact that America is the most powerful nation on earth. If that's erased, this won't be the same country. If economic and military power move to China, an authoritarian state, that affects things we take for granted like free speech, equal opportunity and human rights."
  • Bannon, President Trump's former chief strategist: "China has survived intact for 4,000 years because they have perfected 'barbarian management.' They view us as a 'tributary state,' a natural resource and agriculture provider —
    Jamestown to their Great Britain. ... Trump must keep the hammer down."

Both Ryan and Rubio say the issue is getting increasing resonance with constituents, but they remain frustrated with the lack of urgency among their colleagues, and the mixed signals from Trump.

Trump’s blunt view of the Chinese: They’re ripping us off so hit them hard with tariffs.

  • That mindset may not lend itself to the comprehensive, targeted and strategic response that many believe is required.

Be smart: Experts say the U.S. is falling further behind, and that the nation needs a massive strategic and investment plan similar to the post-World War II mobilization that included the Marshall Plan, the G.I. Bill and the space race.

Go deeper ... VandeHei's seminal take on Beijing's plans for 2018, 2025 and 2050, "China is the greatest, growing threat to America."

  • Be smart: While America dawdles and bickers, China is thinking long-term — and acting now, everywhere. Worthy of your time.
2. Grand infrastructure plan spooks China's rivals

Illustration: Sarah Grillo/Axios

In challenging China's aim to dominate the future economy and set the global rules for how commerce is done, the U.S. and Europe are going up against history:

  • Quick take: For centuries, rising great powers sought to thrive and exert influence by establishing a new global framework for trade. Now, Beijing wants to control the greatest businesses, and is building the biggest infrastructure project since at least the Marshall Plan — the Belt and Road Initiative.

Why it matters: When it's done, this system of ports, railroads and pipelines — traversing some 65 countries — will be the new face of Chinese foreign policy.

  • Led by Europe, Japan and India, many of the world's leading economies are balking, viewing the plan as a Trojan horse for Chinese geopolitical, military and economic designs.
  • The U.S. is complaining about the details of Made in China 2025, Beijing's companion plan to dominate the economy of the future.

Go deeper with the story by Axios future editor Steve LeVine.

Expand chart
Adapted from a Mercator Institute for China Studies map; Map: Lazaro Gamio / Axios
3. Chinese exports take over the world

Two decades ago, China's gross exports were on par with the Netherlands. Only North Korea relied on the world's most populous country as its primary source of imports.

  • Now, China exports far more than any country on earth, and is the top supplier of countries in every corner of the world.
  • Why it matters: Relative global power is a zero-sum game. Even though the U.S. is growing alongside China, the younger power's newfound influence will impact the U.S. role on the international stage.

Go deeper with the full story by Axios' Erica Pandey, who specializes in China.

4. Pic du jour

This isn't Beijing or Shanghai. This is all new.

This aerial photo, taken Wednesday, shows Hengqin International Financial Center, being built on an offshore financial island in south China's Guangdong Province.

5. The long game for Middle East influence

Illustration: Sarah Grillo/Axios

China has stayed out of regional conflicts in the Middle East for decades. But with its massive international infrastructure plan, Beijing is finally ramping up involvement — and it's determined to win influence.

  • Between the lines: If it's successful, a big reason will be that China hasn't taken sides or made enemies in the Middle East.

The big picture: Middle Eastern countries are interested in seeing what China's up to. But they're all hedging, says Barbara Slavin, who leads the Atlantic Council's Future of Iran Initiative.

  • Still, they can be much surer about President Xi Jinping's longevity than they can about President Trump's.

Go deeper: Erica has more on China's strategies.

6. Latin America takeover

Illustration: Rebecca Zisser/Axios

The Monroe Doctrine is running up against the Xi Reality in Latin America.

China has now surpassed the U.S. as the leading trading partner of several South American countries, including Brazil, and dramatically stepped up investments in the region at a time when U.S. engagement is on the wane.

  • Investments: While China is growing its economic presence in the region, other countries are investing less.
  • Loans: The China Development Bank loaned $114 billion to Latin American and Caribbean countries between 2005 and 2016. (The total reaches $141 billion if you add China's Exim Bank.)
  • Trade: Two decades ago, the U.S. was the primary source of imported goods in virtually all of Latin America. That's changing, fast.

Go deeper with Erica's story on Chinese cash flows into Latin America.

7. Artificial intelligence: the next big battlefield

Illustration: Lazaro Gamio/Axios

China's AI plan is part of the Chinese government's blueprint for becoming a superpower and achieving "the great rejuvenation of the Chinese nation," while maintaining Communist Party control.

  • Kai-Fu Lee, founder of Sinovation Ventures and a world-renowned AI researcher, and Paul Triolo, head of Eurasia Group's Geo-technology practice, argue that China and the U.S. are already in a global AI duopoly.

Go deeper with Bill Bishop's full story.

8. China takes lead in pioneering retail

Illustration: Rebecca Zisser/Axios

In January, Amazon attracted intense attention when it opened Go, its cashless convenience store in Seattle. But that still leaves the e-commerce giant far behind its Chinese rivals, which are already staking out new ground in retail.

  • Why it matters: The future of retail in the world's leading economies is increasingly expected to be not online shopping, but a melding of e-commerce and physical stores. Chinese Big Tech appears to be in the vanguard of how to pull this off.

Chinese internet giants led by Alibaba are becoming online-offline behemoths, investing in or acquiring some 30 physical retailers in the nation since the fall.

  • "It would be like Amazon buying a stake in every major offline retailer in the U.S.," Sanford Bernstein's Bhavtosh Vajpayee tells Axios.

Go deeper: Steve has the full story.

9. China’s theft of U.S. tech is hard to stop

Illustration: Sarah Grillo/Axios

Washington is waking up to the reality that the cost of doing business in China's massive market is risking precious tech secrets. But it may be too late.

The big picture: Rogue practices like intellectual property theft are built into Beijing's industrial policy, and China has used these policies to innovate so rapidly that it may soon be able to cut its reliance on the West.

  • China sets up barriers to entry, like giving its state-run companies exclusive access to capital and forcing foreign companies to transfer their technology to local partners.

The bottom line: Companies grudgingly yield to these demands, hoping China will eventually reform unfair practices.

Go deeper: Erica's full story.

10. 1 hog thing

High-rise pig farm buildings in China's Guangxi region (Thomas Suen/Reuters)

On Yaji Mountain in southern China, 1,000 sows per floor crowd into high-rise “hog hotels,” Reuters reports.

  • A 13-floor breeding operation will be the world’s tallest building of its kind.
Mike Allen

Thanks for reading this Axios holiday special.

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