By Pompeo Della Posta
This conversation between two economists and specialists of China delves into the way China has partaken in the process of globalization through policies such as the Belt and Road Initiative (BRI) and provides the Chinese position in regard to the negative narrative associated with China’s rise and successes in global markets, addressing themes of unfair competition, democratic deficit, hegemonic ambitions, and domestic development, as well as Europe’s potential role in the China-US relationship.
Pompeo Della Posta: European (and more generally Western) politicians, business, media, and public opinion often blame China for engaging in unfair competition, based on government subsidies and low social and environmental regulations that allow Chinese companies to practice dumping, thereby exporting to the EU and Western countries at unreasonably low costs. Moreover, because of the presence in China of state-owned enterprises and the adoption of active industrial policies, China has been repeatedly contested by the WTO, the IMF, the EU, and Western governments and companies. How would you respond to such critiques? Don’t you think that such policies violate market rules? Why did the Chinese government adopt them? China has certainly benefited largely from globalization. However, would the benefits have been of the same magnitude in the absence of such accompanying policies?
Kunling Zhang: Critiques of China’s unfair state subsidies and low regulatory standards represent a misreading of its competitive advantages and a double standard in international trade economics. China’s comparative advantage in sectors such as manufacturing, renewables, and electronics stems not primarily from government support—though that exists—but from economies of scale, complete and deeply integrated supply chains, and rapid technological improvement. These factors are largely market-driven achievements; government intervention alone could not have accomplished them. Accusations of “dumping” often mistake genuine efficiency gains for predatory pricing.
Although it is true that subsidies are used in China, they are by no means unique to it. According to a 2023 World Bank report, Unfair Advantage: Distortive Subsidies and Their Effects on Global Trade, the EU, the US, China, Canada, and Australia are among the top global subsidizers by number of programs. The EU and the US alone account for over half of all subsidy measures, surpassing other economies. These figures demonstrate that subsidy is a common tool of modern industrial policy—not a Chinese invention.
Regarding regulatory standards, it is important to consider a country’s stage of development. While China’s standards are indeed lower than those in some developed nations, critics often overlook the fact that all industrialized countries—including the US and the UK in their early development phases—had lower environmental and social standards that evolved as their economies matured. China is on a similar trajectory. Although China still relies heavily on coal for energy production due to limited oil resources, it is actively transitioning its energy mix toward renewables, particularly solar power, in pursuit of its “dual carbon” goals—reaching peak CO₂ emissions before 2030 and achieving carbon neutrality by 2060—while continuously strengthening its regulatory frameworks. This suggests that current lower standards are a transitional feature of China’s development path, not a permanent condition.
State-owned enterprises (SOEs) do play an important role in China’s economy, but they are far from dominant. The private sector represents approximately 60 percent of GDP, about 70 percent of technological innovation, over 80 percent of urban employment, and more than 90 percent of all enterprises, indicating a vibrant market economy. SOEs help address market failures and guide investment into strategic or high-risk sectors where private capital may be hesitant, thereby supporting long-term developmental goals and economic stability.
I think the fundamental question here is: where should the line be drawn between government intervention and free markets? Or, what role should the government play in a market economy? Economists have debated this for centuries without reaching a consensus. China is a strong believer of an effective government as one of the necessary conditions for successful economic transformation, drawing on the experiences of some economies in East Asia, such as Japan, South Korea, or Singapore. These economies achieved rapid industrialization through outward-oriented strategies and industrial policy interventions after WWII, forming a unique paradigm that differs from the Western free-market economy model. Since the 2008 global financial crisis and the COVID-19 pandemic, the role of government in the economy has expanded worldwide—not only in China—with industrial policies becoming more common across the globe. Even countries that firmly believed in the virtues of unfettered markets, as the EU did as well, have changed views and are now rediscovering the benefits of running industrial policies. The issue, therefore, is not strict adherence to a theoretical ideal of free markets but the functional effectiveness of a mixed system in achieving development objectives.
DPD: The Belt and Road Initiative can be interpreted as a continuation of the Chinese “Going West” policy launched in 2000. According to that policy, it was necessary to move resources to the Western regions of China to favor their development, after the coastal regions had developed thanks to the “Open Door Policy” launched at the end of the 1970s by Deng Xiaoping. With the Belt and Road Initiative, China is now building infrastructure to put in contact those Western regions with the rest of the world, to further stimulate their development. Has the “Going West” policy worked? Is the Belt and Road Initiative helping the development of the Western regions of China?
KZ: The “Going West” policy and the Belt and Road Initiative (BRI) are closely linked components of China’s development strategy. While the former led to significant infrastructure investment and poverty reduction in western China, that region’s landlocked location remained an obstacle to full integration into the global economy. The BRI serves as an external complement to domestic efforts, building overland corridors—such as the China-Pakistan Economic Corridor and the New Eurasian Land Bridge—that help turn western provinces from peripheral hinterlands into central hubs of continental trade.
Flagship BRI projects include the China-Europe Railway Express and the China-Laos Railway, which significantly improve connectivity between western China and regions such as Central Asia, Europe, and Southeast Asia, boosting transport efficiency and international trade. China has also established pilot free trade zones in Chongqing, Sichuan, Shaanxi, Guangxi, Yunnan, and Xinjiang, as well as fostering border development and opening up pilot zones in Guangxi, Inner Mongolia, and Xinjiang. These platforms have facilitated bold experiments in trade, investment, and finance, injecting new vitality into the western region’s development.
In 2023, the western region’s total trade volume reached 3.7 trillion yuan, 1.9 times higher than in 2013 (when the BRI was launched), outpacing the national average growth of 1.4 times. Its share of national trade rose from 6.7 percent in 2013 to 9.0 percent in 2023. The region’s GDP grew to 26.9 trillion yuan in 2023, accounting for 21.4 percent of the national total—an increase of 1.6 percentage points since 2013. Although regional disparities have not been fully resolved, the BRI has clearly created new opportunities for growth in western China over the past decade.
DPD: Some of the economic corridors of the BRI, however, seem to be directly related to the need that China has to overcome the difficulties and security threats resulting from the fact that, for example, 80 percent of Chinese oil imports pass through the Strait of Malacca. What is your take on this point?
KZ: It should be noted that the BRI is not an aid program—though it includes some aid components—but a new model of international development cooperation. It emphasizes extensive consultation, joint contribution, and shared benefits, meaning all participating countries engage on equal footing, contribute according to their capacity, and share in the outcomes. Therefore, both China and participating countries should share the benefits derived from the BRI, otherwise it will be unsustainable and unsuccessful.
The interpretation that the BRI helps China mitigate the “Malacca dilemma” is economically sound. From a risk management perspective, over-reliance on a single, strategically vulnerable chokepoint such as the Strait of Malacca constitutes a critical supply chain vulnerability. Diversifying transport routes through pipelines and ports in Central Asia and Pakistan is a rational risk-management strategy, similar to what other major economies do. For example, because the EU deeply recognized the risks of relying on a single energy supply route through Ukraine, the Nord Stream natural gas pipeline project, which connects Russia directly with Germany while bypassing Ukraine, was built.
One should not forget, however, that BRI projects also provide public goods to host countries in the form of infrastructure, energy access, and improved connectivity (whose absolute need is clearly documented by regional banks such as the African Development Bank, Asian Development Bank, and Latin-America Development Bank), creating mutual benefits.
DPD: The Belt and Road Initiative suffers from a negative narrative, suggesting that the support given by the Chinese government to receiving countries is self-interested. An example is the recurring accusation that China would create a “debt trap” for receiving countries, aiming to seize the assets built thanks to its financing. What would you respond to such an accusation?
KZ: If the goal of the BRI is mutual benefit through international cooperation, it is unreasonable to assume that China, as the initiator, should not benefit from it. But I think that China does not —and need not—seek gains by setting up “traps” for other countries. In fact, Western accusations go beyond a “debt trap” to include claims of environmental damage, support for authoritarian regimes, and corruption. Yet these allegations are often journalistic and lack empirical support; most rigorous academic studies do not substantiate them. The argument linking the BRI to a “debt trap” began in early 2017 and was contained in an article titled “China’s Debt Trap Diplomacy” written by an Indian scholar. Following that article, a report titled “Debtbook Diplomacy” by two Master students at Harvard in 2018 furthered the “debt trap” narrative. However, a closer examination will find that both sources either lack any reliable factual basis or present selective facts or unsubstantiated claims.
First, while debt sustainability is a valid concern that requires careful management, it represents a risk inherent in all large-scale development financing, regardless of where the funds come from. Second, many countries cited as victims of the “debt trap” were already in economic distress due to governance issues, global economic conditions, conflicts, or natural disasters. Before the BRI existed, these countries had already accumulated significant high-interest debt from Western-led institutions and private creditors. Third, BRI loan terms are not unilaterally dictated by the Chinese side but result from negotiations between the parties. The oft-cited case of Sri Lanka’s Hambantota Port is more complex than portrayed: the ports’ struggles were largely due to commercial viability issues, and the equity lease to a Chinese company was a negotiated solution to help Sri Lanka manage its broader debt burden—using China’s loan to pay existing debts and avoid bankruptcy—not a unilateral “asset seizure.” In the case of Piraeus port, the prescription to sell it came from the Troika to help solve the 2011/12 Greek crisis as part of the more general euro-area crisis. Fourth, China has actively participated in debt relief efforts, including by instituting payment postponements and reductions for countries such as Kenya, the Maldives, and Malaysia during the COVID-19 pandemic. In none of those cases did China request the payment of its debt in exchange for the relinquishment of a strategic asset, which is inconsistent with a strategy of predatory seizure.
That said, the “debt trap” criticism has had a positive effect: it prompted China to pay greater attention to debt sustainability. In 2019, China’s ministry of finance issued the Analysis Framework for Debt Sustainability of the Belt and Road Initiative, which proposed a detailed analysis framework for the debt sustainability of the BRI projects in order to enhance debt risk management and improve the economic benefits of these projects.
DPD: Do you think the yuan-renminbi could challenge the US dollar as a currency of international rank? Are there any plans for making it freely convertible on international monetary markets? And what about the Chinese project of creating a digital yuan?
KZ: The internationalization of the Renminbi (RMB) is a gradual, market-driven process aimed at reducing the global financial system’s over-reliance on the US dollar. However, I think the RMB is unlikely to challenge the dollar’s supremacy in the foreseeable future. The dollar remains the world’s primary reserve currency, used in nearly 90 percent of global trade, while the yuan’s share, though growing, is significantly smaller, accounting for approximately 3 percent of global foreign exchange reserves and over 5 percent of international payments. For a currency to achieve top international status, it requires deep, liquid, efficient, and open capital markets, full convertibility, and most importantly, unwavering institutional trust—conditions the RMB is still developing. China has deliberately taken a cautious approach towards RMB internationalization. The current actions involve expanding the RMB’s use in trade settlement, direct investment, especially within BRI projects, and promoting it as a reserve currency. A more realistic outlook is a multipolar international monetary system where the RMB plays a significant, though not dominant, role alongside the dollar and euro.
The digital yuan project represents an innovative component of China’s currency strategy. Its primary focus is likely domestic—enhancing payment efficiency and monetary policy transmission. Internationally, it could streamline cross-border transactions and reduce dependence on dollar-based systems such as SWIFT, but it does not, by itself, resolve the fundamental prerequisites of currency internationalization. Its role in challenging the dollar’s international status will still depend on its integration with the global financial infrastructure and broader acceptance, both of which are still in early stages.
DPD: Western media, including European, blame China for being an autocracy, a country in which there is no democracy, unlike equally large and populous countries such as, for example, India or Brazil. However, most of my Chinese friends and colleagues claim that China is indeed a democracy. Could you justify this claim? Do you think the Chinese system satisfies the needs and demands of its citizens?
KZ: The question of democracy hinges on its definition. The Western model emphasizes procedural democracy: multi-party competition, universal suffrage, etc. China’s system rather emphasizes outcome democracy: substantive outcomes and governance performance. Its legitimacy is derived from delivering continuous economic development, guaranteeing poverty alleviation, maintaining social stability, and responding to public needs in areas such as infrastructure, education, and technology.
I think the claim that China is a democracy rests on the idea that the system is designed to achieve the collective will and long-term interests of the people, measured by tangible improvements in living standards and national welfare, rather than through the adversarial and electoral mechanisms familiar in the West. From an economics standpoint, if a political system consistently satisfies the basic and evolving needs of the vast majority of its citizens, it possesses a form of legitimacy, regardless of the specific procedural pathways it follows. This philosophy is best elucidated by Deng Xiaoping’s “cat theory”: whether a cat is white or black, as long as it catches mice it is a good cat. For example, the Chinese system lifted hundreds of millions of people out of poverty, something that large democracies such as India or Brazil have not been able to do, at least not in the same order of magnitude. The Chinese system argues that its model, shaped by its historical and cultural context, is effectively meeting the demands of its population for prosperity and stability.
DPD: The Chinese government keeps talking about the world as a community of a shared destiny that should engage in a win-win international cooperation for the benefit of all countries. The growing perception prevailing in the Western world, including European countries, however—sorry to say this—is overall negative. Politicians and the media, often referring uniquely to Western sources and points of view, amplify a narrative (that inevitably spreads to the general public) that suggests that China might represent an economic, political, and, in the end, even military threat to the rest of the world (and this is further strengthened by the fact that they take for granted that China is supporting Russia in the war against Ukraine). Even a win-win strategy in which all participating countries enjoy a benefit, then, would not be enough to induce cooperation when what matters are the relative gains accruing to cooperating countries, rather than the absolute gains. In other words, Western countries fear that when engaging in trade with China, the latter will gain more than they, and this would create the conditions for China’s future economic and potentially even military dominance over them. What is your take on this point? Do you think this fear is justified? What kind of reassurance could China give to the Western world that there will never be an offensive or hegemonic attitude on the part of China that would threaten the stability and independence of other countries?
KZ: China’s rapid rise in economic, military, and diplomatic influence naturally causes concern in some Western circles. I think the “problem,” as it is seen from the Western world’s perspective, is the fact that China’s rise has occurred on such a large scale, at such a rapid pace, and more importantly, in such a different manner. In this sense, the fear of China as a threat is an understandable reaction to the largest rapid rise in modern history, though not justified by China’s actions, strategic intent, or cultural fabric.
Westerners often frame their critiques of China in moral terms, yet this is problematic when considering their own histories. Western development was not a morally pristine process, as it relied heavily on exploitation—including in the form of colonialism and imperialism—that continues to have severe consequences today. China, however, has no record of colonialism or aggression against other countries, nor has it ever expanded its territory through military conquest, plundering, or exploitation during the process of its development. This is because the humiliation suffered in modern times has left an indelible mark on China’s memory and culture regarding the horrors of war. Starting with the First Opium War (1839–1842) to the founding of the People’s Republic of China in 1949, China suffered a series of military defeats, unequal treaties, foreign invasions, and internal upheavals that led to the loss of sovereignty and national pride. Therefore, China has no intention of imposing such hardships on other nations and has also deeply realized that a peaceful and stable international environment is the crucial condition for its development. China’s core doctrine, encapsulated in phrases such as “community with a shared future for mankind” and “peaceful development,” explicitly rejects hegemonic expansion. Its military budget as a percentage of GDP is significantly lower than NATO’s, and its strategy has been one of economic integration, not territorial conquest.
As China’s economy grows, the West’s anxiety also stems from a fundamental discomfort with a shifting global order and power balance. The fear of a Chinese threat is amplified by a media and political landscape that often benefits from a confrontational stance. This is because this approach aligns with the strategic and economic interests of certain groups, such as domestic political elites, actors in the military-industrial sectors, or media outlets looking to capitalize on sensationalism. The claim that China is supporting Russia’s war effort is a potent symbol in this narrative, although China maintains it is pursuing normal economic relations, not military support, arguing that if China had supported Russia in the war against Ukraine, the outcome would have been quite different by now.
From the perspective of relative vs. absolute gains, historically, in the initial phases of international cooperation, developing nations gain more than established economies as they industrialize and catch up with them. It would be considered unfair to ask China, a developing country by many measures, to slow its growth simply to maintain the relative advantage of richer nations. Moreover, China’s economic success is not a zero-sum game. China’s growth has not only lifted hundreds of millions of its own people out of poverty, but it has also fostered global economic growth for decades.
Bridging the “understanding gap” is essential to dismantling stereotypes and accepting that China’s model is one of many valid paths to modernization. I think both China and the West should take certain responsibilities. China’s most powerful reassurance is to continue on its path of peaceful growth. This means consistently demonstrating through actions that its rise does not come at the expense of others. China should also proactively, transparently, and consistently explain its strategic intentions in terms familiar and accessible to Western audiences, rather than relying on party rhetoric or political slogans that the latter may not fully understand. Another effective way to counter the “threat” narrative is to recall that China is an indispensable partner in solving global problems such as climate change. China’s pledge to achieve carbon neutrality before 2060, in contrast to the US’s inconsistent climate policies and withdrawal from international climate agreements, is a tangible example of China acting as a responsible global power. Fundamentally, the root of much misunderstanding is a lack of familiarity. Both sides should encourage a larger number of people-to-people exchanges. The West’s desire to understand China has long lagged behind China’s interest in the West. Shifting the conversation away from framing China as a challenge to Western democratic values would allow for a more rational and less emotionally charged discussion.
PDP: Do you think that the European Union (EU) should play a moderating role in the confrontation between the US and China?
KZ: The EU is uniquely situated to play a moderating role in the confrontation between the US and China, given its geopolitical influence, economic power, and commitment to multilateralism. As a collective actor, the EU has the potential to offer an alternative to the perception that a zero-sum dynamics characterizes US-China relations. By advocating for dialogue, cooperation, and adherence to international law, the EU could help reduce tensions and promote stability in a region critical to global trade, security, and geopolitical balance.
One of the key areas where the EU could intervene is in the domain of economic relations. Both the US and China are major trading partners for the EU, and China’s economic leverage could be used to encourage both parties to avoid protectionism and embrace cooperative frameworks that benefit global trade. For example, the EU has the opportunity to foster multilateral negotiations on issues such as trade imbalances, intellectual property rights, and market access, where it could act as a bridge between the two powers. Moreover, the EU’s values-based foreign policy, which emphasizes human rights, democracy, and the rule of law, places it in a strong position to advocate for peaceful conflict resolution. While it should avoid taking sides in this geopolitical rivalry, the EU could push for confidence-building measures, dialogue platforms, and confidence-enhancing mechanisms to ensure that tensions do not escalate into open conflict.
However, the EU’s ability to act as a credible moderator is complicated and, in some cases, seriously undermined by its internal divisions. This lack of cohesion within the EU prevents it from operating as a unified front in international diplomacy. To be effective, the EU must try to navigate these differences and devise a coherent and strategic approach to its relations with both the US and China, prioritizing stability, peace, and the protection of its global interests. Ultimately, while the EU faces challenges in playing the role of mediator, its potential to contribute to a more balanced and constructive US-China relationship is significant. By fostering multilateral dialogue and advocating for shared global governance principles, the EU could play an important role in mitigating the risks of confrontation and promoting a more stable, cooperative international order.
For Kunling Zhang’s interview of Pompeo Della Posta on how Europe and China have reacted to the slowing down of globalization, click here.
Kunling Zhang is Assistant Professor of Economics at the Belt and Road School of Beijing Normal University. Previously, he was a visiting fellow at the Australian National University and Harvard Kennedy School. His research focuses on the fields of international development and political economy.
Pompeo Della Posta is Professor of Economics at the Belt and Road School of Beijing Normal University. He has been the 2019 President-Elect of the International Trade and Finance Association and is the editor of the scientific journal Scienza e Pace/Science and Peace. His research focuses on international economics, international monetary economics, economic globalization, and Chinese international economics.
