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Chinese state capitalism vs Western neoliberalism: a conflict for the global influence


President Trump has a lot of work to do during his 10-day tour in Asia. In Japan and South Korea, he tried to reassure the nervous allies that the United States has not granted regional sovereignty to China. In Vietnam and Philippines, he has to communicate the US pursuit of balancing China's influence in Southeast Asia.

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But the most important stop is in Beijing where Trump already meets with President Xi Jinping for the first time since the Chinese leader announced a "new era" in global politics at his party's central council in October. Trump will try to exercise strong pressure, calling for closer cooperation on the North Korea issue and resolving trade disputes. But he goes in a moment where China, not the US, is the strongest player in the global economy.

According to Time, the Chinese totalitarian-capitalist model shouldn't supposedly survive in a global free market, let alone thrive. Until a few years ago, it was common perception that China would soon need a fundamental political reform to keep the state legitimate, and that it could not maintain for a long time its state capitalist system. Today, China's political and economic system is better equipped and perhaps even more viable than the American model that has prevailed since the end of WWII.

While the US economy remains the world's largest, China's ability to use state-owned companies ensures that the emerging giant is on the track to surpass US GDP in 2029, according to the Center for Economic and Business Research.

At the same time, the leaders of other emerging powers - not just Russia, but also republics like India and Turkey - follow China's example on building systems where the government is engaged in trade, while reinforces control of domestic politics, competition and information. This process has been launched for many years, but China has now its most powerful leader for decades and the US has the weakest.

The Americans and Europeans have bet on the fact that the long arc of human development is turning towards liberal democracy. What if they are wrong?

There is an old story according to which, free-market economist and fundamentalist Milton Friedman, during a trip to China several decades ago, he visited an area where the workers were building a canal. When he asked his host why the workers used shovels and strollers rather than modern equipment such as tractors, he replied that the purpose of the project was to create jobs. If you want jobs, then give these workers spoons instead of shovels, Friedman said.

Times have changed since then, but the reality, not that much. It is much easier for Xi Jinping to guide Chinese officials in terms of creating and protecting jobs than, for example, for Barack Obama to persuade Democratic legislators to rescue the car industry after the economic crisis in the US. Beijing offers immediate economic and political support to its strategic industries 365 days a year, provides direct funding to strategic sectors, legislates with these criteria, deals with industrial espionage and cyber attacks against foreign competitors.

This protection net is being proved particularly important at a time when the most significant variables in the world are the rate and scale of technological changes. Automation has already begun to threaten jobs in the developed world. 87.8% of the jobs lost in US industries between 2000 and 2010 was the result of automation and advanced technology, according to a study by the Ball State University in 2015. Technological development is now ready to displace hundreds of millions of workers in the developing world. But strict control of the economy by the Chinese government will certainly help absorb the shock, which will have far greater impact elsewhere.

Examples are the three major oil companies in China. CNOOC, PetroChina and Sinopec have benefited from government funding and liquidity-providing services through state-owned banks. That is why the indebted state biotech giant, ChemChina, has managed to acquire the Syngenta Swiss company and its assets for $ 43 billion, since the Chinese government has made it clear that food security in China is a strategic priority and that the state financially guarantee for ChemChina, in order to contribute to stability. Private businesses also benefit. Huawei Telecom is ready to dominate, especially in developing countries, thanks to the China Development Bank credit line, which consistently supports the political agenda of the Chinese government.

But jobs and industry are not the only ways in which China secures political unity and stability. It also uses technology to strengthen political control by the ruling party, in ways that Western governments would like to do. At a time when new generations interact with society mainly through smartphones, we will see tremendous power in those institutions or companies that have the means to control these interactions and the data they produce.

But China's most important aspiration concerns Artificial Intelligence. Research and exploitation of technological breakthroughs in this sector require the type of planning and investment that the US did for space to reach the moon. However, the US government has entrusted this field, as well as the wider innovation, to Silicon Valley. On the contrary, the Chinese government itself has taken over the AI sector.

Of course, China's system can withstand the shocks of today's world, but its citizens living in it suffer political oppression and injustice at all levels. Also, as companies in China struggle with debt, the ability of the state to rescue them is not inexhaustible. As it is also not inexhaustible the ability to control its citizens and to avoid social unrest. However, in the near future, China is likely to remain strong and stable. Its international presence will continue to grow.

In October, Xi Jinping said it is time for China to "become the epicenter of the world." In this fragmented world, no government will have the international influence needed to continue to define the political and economic rules governing the global system. But if you had to bet on a country that is in the best position today to expand its influence with its partners and opponents, it would not be wise to bet on the US. The smartest move for high return on your money would be probably to bet on China.

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