An effortless Chinese rise to dominance is far from certain

An effortless Chinese rise to dominance is far from certain

The era of Xi Jinping has seen China’s economy shift more toward inefficient state sector dominance, which over time could neuter the Chinese economic miracle itself. (Reuters)

In retrospect, all fads seem ludicrous. For some reason, in the 1920s, people thought sitting on the tops of flagpoles was amusing; now it seems beyond odd. Hula hoops largely came and went in the 1950s, while disco was a dance craze of the 1970s. The Rubik’s cube was a toy that captured the 1980s zeitgeist, but now seems to be largely a waste of time.

Political risk analysis is not immune to intellectual faddishness, either. While Deng Xiaoping’s historic opening up of China took place in December 1978, it took many years for the bulk of the foreign policy commentariat to wake up to the fact that something profoundly important was happening. However, while slow to notice China’s rise, most foreign policy analysts have now overcompensated, assuming Beijing’s seemingly effortless ascension to superpower status is now inevitable. I think, like all fads, this naive view will look faintly ridiculous in hindsight.

While there is no doubt China will remain a great power, serving as the only possible peer competitor to the US over the coming decades, the assumption that the new era will herald “a Chinese century” amounts to a blind intellectual leap into the dark.

While everyone has been parroting on about Beijing’s undoubted geopolitical rise, far less has been written about its deep-seated and intractable problems. Inheriting the aftermath of the lunacy of the Cultural Revolution, Deng altered the “Mandate of Heaven” — the pillars by which the Communist Party maintains its political legitimacy — morphing them into assurances about both capitalism and nationalism. Now, however, both China’s market prowess and geopolitical adroitness are being called into real question.

First, China’s growth has significantly slowed to an official rate increase of 6.1 percent of gross domestic product (GDP) in 2019 — Beijing’s worst yearly performance since faraway 1990. While, as China’s economy matures, this slowing was inevitable, it does signal that the days of easy double-digit catch-up growth are over.

Secondly, and more worryingly, the era of Xi Jinping has seen China’s economy shift more toward inefficient state sector dominance, which over time could neuter the Chinese economic miracle itself. China’s big banks are all state-owned and obediently follow the government’s directives on lending. In 2013, only 35 percent of banking credit to non-financial services went to state companies, while 57 percent was directed to the private sector. By 2016, after Xi’s prodding, the distribution had changed radically, with fully 83 percent of banking credit heading to state-controlled corporations, with just 11 percent going to private firms.

Yet, at the same time, the efficient Chinese private sector continued to be the motor powering the economy. According to state statistics, in 2018 the lending-starved private sector still somehow managed to account for 50 percent of China’s tax revenue, 60 percent of its GDP, 80 percent of its urban employment and 90 percent of all new jobs. China’s huge economic problem, then, is one of the Communist Party’s self-harming ideology, with the government stymying the very engine of economic growth necessary for its long-term health.

Even worse, the suicidal demographic catastrophe that has been China’s one-child policy has left the country on the economic precipice, likely to grow old before it grows rich. China will have to pay for the care of a vast elderly population without the resources available to the richer developed world facing similar challenges. The country’s birth rate in 2019 fell to its lowest level since the modern state’s founding in 1949 — in the year there were only 10.48 live births per 1,000 people. By 2050, it is estimated that people over the age of 60 will account for a staggering one-third of the population. This self-inflicted demographic wound may limit China’s continuing rise to dominance more than anything else.

If China’s economic prowess is under increasing threat, its assertive nationalism is also proving to be increasingly counterproductive. The jailing of fully 1 million Uighurs in the west of the country is proving to be a public relations disaster. Hong Kong is in open revolt, with Xi’s intractable line neither proving harsh enough to quell the regular demonstrations nor conciliatory enough to make the crisis go away. Sizing up the situation, the people of Taiwan have decided they do not want more of the same and overwhelmingly voted for leaders who actively advocate the island remaining entirely separate from Beijing’s stifling embrace.

The assumption that the new era will herald ‘a Chinese century’ amounts to a blind intellectual leap into the dark.

Dr. John C. Hulsman

Even in the Asian region, Xi’s assertiveness has pushed China’s nervous neighbors into America’s arms. Old allies Japan and Australia are closer to the US than they have been in living memory, as is (of all places) Vietnam. Further, rising India — alarmed by China’s aggressive outreach into the Indian Ocean rim — is increasingly siding with America, serving as a regional counter to China’s over-sized ambitions.

In all these cases, China’s heavy-handedness has given America a huge strategic advantage. These Asian alliances, old and new, threaten to contain China regionally, leaving the US as the dominant power even in Beijing’s own backyard. Despite all these problems, China has undoubtedly been rising and will remain a great power. Because of all these problems, however, its effortless rise to superpower status will, in retrospect, quite likely be seen for what it is: The latest intellectual fad.

  • Dr. John C. Hulsman is the president and managing partner of John C. Hulsman Enterprises, a prominent global political risk consulting firm. He is also senior columnist for City AM, the newspaper of the City of London. He can be contacted via www.chartwellspeakers.com.
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