Grok 4’s analysis of Borst article:
Summary of the Document
This is a 15-page academic article titled The Economic Costs of China’s Self-Reliance Drive, authored by Nicholas Borst (a China research expert at Seafarer Capital Partners and former Federal Reserve analyst). Published in China Leadership Monitor (Fall 2025, Issue 85) on September 1, 2025, it examines China’s long-standing but intensified push for economic independence amid escalating U.S.-China tensions. The piece draws on historical events (e.g., Korean War embargoes, Sino-Soviet split, post-Tiananmen sanctions) to explain Beijing’s motivations: reducing vulnerability to foreign leverage via technology, trade, and resources. Under Xi Jinping (since 2012), these efforts have accelerated into a “whole-of-nation” campaign, formalized in plans like Made in China 2025 and the 14th Five-Year Plan, but at mounting economic costs.
Key Sections and Arguments
1. Historical and Strategic Context:
• China’s Communist Party views foreign dependence as a national security risk, prompting decades of policies to build domestic capacity in strategic sectors.
• Xi’s era emphasized “core technologies” and self-sufficiency, supercharged by the U.S.-China trade war (2018–ongoing), tech sanctions (e.g., on Huawei, ZTE), and financial curbs (e.g., dollar-denominated sanctions threats).
• Post-2025 escalation under a second Trump term led to near-embargo tariffs (>100%), unraveling the 2020 Phase One deal.
2. Tools of Self-Reliance (The “Party’s Toolkit”):
• Industrial Policy: Massive subsidies (e.g., $230B+ for EVs/batteries 2009–2023) to foster domestic champions, but sparking global backlash like U.S. Inflation Reduction Act exclusions, EU 45% tariffs, and Turkey’s 40% duties. China’s EV overcapacity (projected +8M units/year by 2026) now relies on exports, risking further isolation.
• Technology Development: State support for firms like Huawei ($75B subsidies by 2019) in semiconductors and 5G, including subsidies, IP acquisition, and talent recruitment. Backlash: U.S. Entity List bans, EU/UK 5G exclusions, leading to Huawei’s overseas revenue plunge (from ~$100B in 2018 to ~$100B stalled by 2024).
• Financial Independence: Building alternatives like CIPS (vs. SWIFT) and tight capital controls to evade U.S. sanctions. However, this stalls RMB internationalization—RMB holds <5% of global payments and 2.14% of reserves, far below goals.
• Resource Control: Dominance in rare earths (70%+ global mining/processing via state mergers like China Rare Earth Group) used as leverage (e.g., 2010 Japan embargo, 2023/2025 export curbs). Response: U.S./EU/Japan “Minerals Security Partnership” for decoupling, plus U.S. Defense Production Act investments.
3. Economic Costs and Tradeoffs:
• Direct Costs: Industrial spending hit ~$250B in 2019 (3x U.S. levels), straining debt-laden local governments (IMF: broad debt doubled 2019–2024). Waste examples: Corrupt semiconductor investments (e.g., Tsinghua Unigroup bankruptcy despite billions poured in).
• Indirect Costs: Global backlash erodes China’s export model—e.g., EV/tech exclusions, RMB stagnation, rare earth decoupling—potentially isolating it from markets/resources needed for growth.
• Irony: Self-reliance provokes the external pressures it aims to avoid, risking a “chaos” scenario Xi warns of.
4. Alternatives and Outlook:
• Beijing’s “Dual Circulation” (2020) aims to balance domestic demand with global ties, but it’s failing due to supply-side bias (low household consumption ~40% of GDP vs. global ~60%).
• Recommendation: Shift to consumption-led growth to achieve resilience without isolation, though unlikely given Xi’s state-heavy approach.
The article includes charts (e.g., U.S.-China tariffs, EV exports, Huawei revenue, RMB share, rare earth dominance) and footnotes with sources like Peterson Institute, WSJ, and official Chinese docs. It’s analytical, not alarmist, emphasizing how self-reliance undermines China’s integration-dependent model. Borst discloses Seafarer holdings (e.g., Samsung) but stresses views are personal. |
