PHOTO: AFP

REUTERS, London

In 2011, US President Barack Obama announced America’s “pivot to Asia”– only for conflicts from Afghanistan to Ukraine to bog him down. In Brussels last week, however, newly installed Defense Secretary Pete Hegseth renewed the United States’s pledge to refocus on China. It might seem that Uncle Sam has left it a bit late, given the Middle Kingdom’s rise in the intervening years. Yet emerging fault lines in China’s economic strategy suggest that now might be an opportune moment for the pivot after all.

US Vice President JD Vance’s speech at last week’s Munich Security Conference hogged the headlines. Yet Hegseth’s earlier remarks at NATO’s Brussels headquarters contained the more practical pointer to the future of geopolitics. His message was unambiguous: “stark strategic realities prevent the United States of America from being primarily focused on the security of Europe.” Chief amongst those realities is China, which Hegseth called a “peer competitor” with the “capability and intent to threaten our homeland and core national interests in the Indo-Pacific”.

It is not hard to see why Hegseth has reached this conclusion. Since the turn of the millennium, not only has China’s military strengthened prodigiously, but its domestic economy has also experienced an ascent unseen in world history. Its GDP has grown more than 10-fold to become the only global US rival. Its manufacturing sector, which is especially critical for military clout, now accounts for nearly a third of all global capacity. With the so-called “Sputnik moment” of DeepSeek’s R1 artificial intelligence model, the United States has reason to fret about its technological lead as well.

The international aspect of China’s economic rise has been fundamental to its emergence as a superpower too. In 2000, more than three-quarters of countries shared more trade with the United States than with the People’s Republic. By 2020, the position reversed. That had a critical financial corollary.

Two and a half decades of generating foreign currency earnings as the world’s exporter-in-chief allowed China to amass the largest stockpile of foreign wealth the world has ever seen, totalling some $4.5 trillion at the end of 2023 if Hong Kong is included, according to the Brookings Institution.

In the first decade of the new millennium, China mostly directed these foreign savings into the US Treasury market. After 2008, however, the country switched to a more proactive strategy. Under the Belt and Road Initiative, it diverted external surpluses into a vast network of infrastructure investment projects across the developing world. Thus as of mid-2024, China’s holdings of US Treasuries had nearly halved from their peak of $1.3 trillion in late 2013. Meanwhile, its portfolio of loans to emerging market sovereigns grew to between $1.1 trillion and $1.3 trillion, according to estimates from researchers at AidData.