China’s President Xi Jinping opened the latest congress of the Chinese Communist Party with a strong defense of his record. Because of his program, an increasingly brutal crackdown on the slightest dissent, he said he had “ensured that the party will never change in quality, change its color, or change its flavor.”
In short, dictatorship now and forever.
And he even claimed better is yet to come. Xi concluded his formal report to the CCP representatives: “The Party has made spectacular achievements through its great endeavors over the past century, and our new endeavors will surely lead to more spectacular achievements.”
No doubt Xi, the most powerful Chinese leader next to Mao Zedong, believes the People’s Republic of China will prevail. However, his triumphant expectations are premature. The CCP overestimates its position vis-à-vis the West, which could bring China grief.
Certainly, the PRC has become a serious global power. However, it is important not to exaggerate its strength. Although Beijing is a far more comprehensive power than the Soviet Union, the foundation of which proved to be clay, China’s impressive national edifice is built on pot metal rather than iron. Beijing is a vulnerable, not-yet superpower.
That doesn’t mean its collapse is imminent. Challenges should not be ignored. Some analysts have spent years predicting the PRC’s imminent demise. Today the issue of China’s economic prognosis and that nation’s capability for future mischief divides scholars even at the same institution.
Nevertheless, panic is the wrong reaction to Beijing’s rise, especially since that response tends to encourage decidedly illiberal policies. For the PRC, slower growth appears inevitable, a recession is possible if not likely, and a jump to high-income status is not certain. A lengthy period of stagnation is seen as increasingly likely. Indeed, some analysts are less certain that the PRC is destined to generate a bigger economy than America.
Although China’s remarkable growth after the post-Mao reforms reflected the release of enormous resources, both capital, and labor, inefficient state enterprises survived, in part because they provided politically important employment. As would be expected, they have remained a major economic drag. Now further reform, once promised by Xi, is unlikely: his government views parastatals as an essential tool for reasserting party control over economic actors.
Commercial discrimination and abuse have turned many foreign investors against what was once seen as illimitable markets likely to yield inevitable profits. The Xi government’s continuing rigid COVID-lockdown policy, along with rising wages, Chinese government restrictions, and U.S. political pressure, also are encouraging businesses to rethink the PRC. Overall, U.S. investor confidence in China is at record lows. Although there so far has been no exodus of firms from the PRC, they are less likely to make ambitious plans for the future.
China is heavily indebted, a problem exacerbated by continuing COVID lockdowns. The latter also is exacerbating youth unemployment, the impact of which concerns families as well as young adults. An increasing number of disillusioned younger workers are adopting attitudes of “lying flat” and “let it rot,” downgrading ambitions and reducing efforts.
The New York Times interviewed a 25-year-old who was “among a small but growing group of Chinese who are looking to the exits as China’s pandemic controls drag into their third year. Many are middle-class or wealthy Shanghai residents who have been trapped for nearly two months by a citywide lockdown that has battered the economy and limited access to food and medicine. Some … have ties overseas and worry that China’s door to the world is closing. Others are disheartened by heightened government censorship and surveillance, which the pandemic has aggravated.”
The PRC’s property bubble is not new but is another significant economic weakness, one long promoted by Chinese government policy. Indeed, the country is notorious for its “ghost cities.” The ongoing crisis has greatly affected urban households, two-thirds of whose wealth is in property, and the middle class, as many property buyers pay mortgages on unfinished homes. Indeed, some buyers have joined mortgage strikes, further destabilizing the real estate market.
This decline is likely to intensify. Warned the Council on Foreign Relation’s Brad Setser: “China’s real estate crisis poses financial risks, but it is ultimately a crisis of economic growth. Since the development and construction of new property is estimated to drive over a quarter of the country’s current economic activity, it is not difficult to see how a temporary downturn in the property market could promote a prolonged economic slump.”
Analysts have even begun speculating on China’s resemblance to Japan in the 1990s when a real estate collapse contributed to the infamous “lost decade.” State banks, many already saddled with significant bad debts, are suffering as the real estate market slows. In fact, Chinese regulators have ordered banks to provide continued financing to troubled developers to complete ongoing projects, further undermining already overburdened financial institutions.
Even so, some in the Chinese government advocate additional interference with the financial sector to spur growth. Wang Yiming, an adviser with the People’s Bank of China, argued that “Greater financial support is needed to develop commercial sustainability.” He added: “The original financial model of supporting traditional industry … needs to be adjusted to improve the ability to respond to the risk.” Which ultimately would mean even greater losses.
The much-hyped Belt and Road Initiative adds an international financial drain, with nearly $400 billion in lending to mostly developing states, many with authoritarian governments and statist economic policies. Sri Lanka is only the most recent example of projects that look like a burden rather than benefit Beijing. Indeed, the PRC recently announced debt relief for 17 African countries.
The biggest problem is the PRC’s increasingly politicized economic policies. China’s increase in total factor productivity has been falling since the 1990s, reducing prospects for future growth. Yet the party has expanded and strengthened its controls within private firms. Officials are pressing to dramatically increase penalties for noncompliance by tech companies; one regulator declared that law enforcement needed to “grow very sharp teeth.” The basic objective is to impose the regime’s political objectives on the private sector. The CCP’s expanded reach was highlighted by the public humbling of Jack Ma, founder of Alibaba, and other entrepreneurial titans. Xi also is pressing for “common prosperity,” or wealth redistribution, to defuse popular dissatisfaction with income inequality that has become so evident in a nominally socialist economy, even one “with Chinese characteristics.”
Experience suggests that the greater the state interference, the more harm to the economy. Economist Pranab Barnhan pointed to the essential threat:
“The disadvantage for China follows from the lack of an open system that could encourage free spirit, critical thinking, challenging of incumbent organizations and methods, and diversity rather than conformity—these are necessary ingredients of many types of creative innovations. The current system of state promotion and guidance of globally successful large private technological enterprises (Alibaba, Tencent, etc.) is worth examining from this point of view. On the one hand, the state wants them to be ‘national champions’, on the other hand, it does not want them to be autonomously powerful enough to be outside the ambit of its control, supervision, and surveillance.”
China also is heading over a demographic cliff. The population has peaked, much earlier than once predicted. With a shrinking population, and a potential two-thirds reduction in working-age population by the end of the century, the PRC might not outstrip the U.S. economically. Still much poorer than America, China is rapidly growing older before it grows rich. That might become its permanent status. The PRC also is rapidly aging and suffers a dearth of women, as a result of the infamous “one-child policy,” which encouraged rural dwellers to abort or kill baby girls.
As economic growth slows, it will become increasingly difficult for single children to support their parents and grandparents, and for China to meet the expenses of an older society. The PRC’s compensatory policies, including an embarrassing call on CCP members to have three children, are unlikely to achieve much. Forbes columnist Milton Ezrati observed:
“By 2040, according to UN estimates, the country will have seen a 10% drop in the absolute numbers in its working population, while its population of dependent retirees will have increased by some 50%. The economy will have barely three workers for each dependent adult. Those three workers will have to produce enough for their own consumption, those of their other dependents, and one-third of a retiree’s needs. The economy’s flexibility will have all but disappeared, while limited human resources will constrain its ability to invest in the future.”
Chinese officials long have claimed that their system provides competent and flexible governance—at least after the end of Mao’s mad, disruptive, and deadly reign. China’s ambassador to America, Qin Gang, defended his nation’s political system: “On matters concerning people’s keen interests, there are broad-based and sufficient consultations and discussions before any decision is made. Policies and measures can only be introduced when there is a consensus that they are what the people want and will serve the people’s needs. It has been proved that the whole-process democracy works in China, and works very well.”
However, Xi’s leadership style contradicts these purported advantages. He has eliminated almost anyone inclined to question his judgment. He centralized power in the national government, restricted the information flow, and discouraged local and provincial initiatives.
Earlier this year several scholars negatively assessed the impact of Chinese policy in testimony before the U.S.-China Economic and Security Review Commission. For instance, Victor Chung Shih of the University of San Diego predicted that “information manipulation by officials around [Xi] may lead to policy missteps.”
Jessica Teets of Middlebury College warned that “centralization has also resulted in reduced local discretion for policy experimentation, rigid policy implementation without local adaptation, and decreased morale among local officials,” which has resulted in “the loss of long-term innovation and citizen engagement.”
This system falls short in the international realm as well. Xi overvalues confrontation as a foreign policy tool. This failing is evident in both “Wolf Warrior” and COVID-19 diplomacy, which so far internationally have been busts.
Moreover, as noted earlier, the PRC lacks allies and genuine friends. After all, what other country believes in the principle of Han ethnic superiority? Trade/investment and BRI projects might gain temporary favor with some governments, but Beijing’s determination to seize any advantage accrued has proved costly. Even the Tatmadaw, Myanmar’s military, sought to escape the PRC’s tight embrace when a decade ago it initiated its semi-democratic experiment, which terminated last year in a new coup.
Finally, though the PRC’s governing process remains opaque, the continuing centralization of power in Beijing and the exaltation of Xi pose political risks. There already is a hint of potential discord—or at least concern—over the economic consequences of tighter economic regulation and COVID restrictions. Internal discussions remain shrouded and Xi could be using others to deliver bad news. However, there is significant negative economic news, which could create political problems. Although claims of ongoing political challenges appear overblown, continued difficulties could undermine Xi’s authority. Given his ubiquitous role, he cannot avoid responsibility for failure and has many enemies who will seek to take advantage of any misstep.
In fact, spurts of popular dissent suggest that at least some Chinese believe the CCP is failing at its essential task of providing both prosperity and security.
Beijing-based writer Helen Gao recently observed: “The unusual eruptions of public rage are not just a result of the party’s failure to keep up its side of the bargain; it is also the fact that much of the recent difficulties are the product of erratic, reckless party policies.”
Although the regime’s brutally repressive security apparatus prevents organized resistance, there is little reason to believe that the PRC’s challenges will soon ease. Economic stagnation, imploding real estate values, and continued COVID crackdowns likely will further fuel widespread anger with unpredictable results.
Of course, Chinese weakness does not preclude danger to other peoples and nations. Some analysts contend that if the PRC has peaked—or, at least, come closest to reducing the distance to America—CCP paladins may be more likely to react aggressively and even militarily. This suggests something akin to what President Ronald Reagan called a “window of vulnerability” involving the Soviet Union.
Ironically, this perspective offers greater long-term assurance for the U.S. and other relatively free societies. That is, Beijing’s opportunity for advantage may be limited and the CCP mainly poses a short-term problem. In any case, America should proceed with confidence, not fear, in the coming years as it competes with China.
Doug Bandow is a Senior Fellow at the Cato Institute. A former Special Assistant to President Ronald Reagan, he is author of Foreign Follies: America’s New Global Empire. He is a 19FortyFive Contributing Editor.
Dr. Scooter Van Neuter
October 20, 2022 at 5:03 pm
I’m not so sure I understand this piece. By every commonly regarded metric, China is already a superpower.
October 21, 2022 at 7:53 am
October 21, 2022 at 1:48 pm
Absolutely agree, China influence in supply chain, trade, domination of multiple industries such as EV, ship building, digital currency etc all show that China is superpower not to mention the infrastructure building speed.
October 20, 2022 at 5:26 pm
China’s collapse would be immenent if America wasn’t dumping trillions into their economy.
October 21, 2022 at 4:15 pm
Yes, we need to totally divest and force every other country on the planet to choose who it want’s to do business with: USA or China.
By the way, I think this was the longest article I’ve seen at 19fortyfive.com
October 20, 2022 at 6:16 pm
Hmm. Well certainly Chinas has many problems, and it is not guaranteed that these will be solved. Still, one must respect the vast achievement that China made, when they both switched from Stalinist-style economics to something more like Lenin’s New Economic Policy, and also equally critically, they switched from Mao’s disastrous “strength through numbers” pro-natalist policy to a low-birthrate policy. China pulled over a billion people out of dire poverty: wages there have been higher than Mexico’s for some time now.
One notes that per capita food grain availability in China is about three times subsistence – while India’s is still at a bare minimum of subsistence. China’s fertility rate is low because of what Malthus quaintly termed “moral restraint” – less than the physical maximum, allowing the accumulation of prosperity and an investible surplus. India’s fertility rate is low because of what Malthus termed “misery and vice” – the Indians are physically incapable of having more children, which cements poverty in place and eliminates a surplus.
Perhaps China’s fertility rate has dropped too fast, but a low fertility rate has strengths. There might be three retirees per worker in China – but also few children per worker, the dependency ratio could be less than places like Somalia and Mexico, but output per worker is much higher. It’s also not so much the size of the economy in bulk, but the part of the economy that is investable. A billion chronically malnourished peasants may have a nominally large economy, but no ability to do anything other than barely exist. One notes that during WWII the United States had a relatively older population and a low fertility rate – didn’t seem to be a problem.
Note also that the happy time of the green revolution and chemical fertilizer may be ending, we are now in diminishing returns. Populations pushing at the limits will be resource starved; populations stabilizing below the limits can have an edge. Again, as long as the decline is not too fast, a China with a billion prosperous people could be much more powerful than a China with three billion not-quite-starving people.
Meanwhile the elites of the United States are busy opening the borders to the overpopulated third world, at the same time that they are crippling domestic production. China might not end up the dominant global power. But I’d not count them out.
October 20, 2022 at 7:59 pm
For most of human existence Authoritarian Culture, with a couple of exceptions, was the only culture. Then 246 years ago, the Reformation and Enlightenment created the conditions which formed the American Culture, the 1st of the 1st World cultures. The conditions form a structure which reinforces each other, while degrading the corrupting influence of Power.
2-The Rule of Law
3-Secure Private Property
5-The feedback of competition
All of these must be present to gain the Strategic advantage of “Compounding Growth”, the greatest force in the Universe (all strategy is based on “Compounding Growth”). This isn’t to say Authoritarian cultures don’t grow, just that Democratic Cultures grow at least 1%/yr faster. The “Rule of 72” states that 1% growth compounded over 72 cycles will double the GDP. This means that over the course of a lifetime, Democratic Cultures will double the size of Authoritarian Cultures.
The competence of China’s Leftist Culture (a subset of authoritarian cultures) was on full display in the “Water Buffalo” level economy China had before it opened up to the West. Since then, foreign investors have been bootstrapping China to take advantage of the slave labor, and potential 1.4 billion consumers. But, Authoritarian Cultures are not competitive. They can neither create or maintain modern civilization without continuous 1st World input.
While many reasons are given for China’s imminent collapse: Demographics, Debt, Real Estate, State Own Enterprises (monopolies), Capital flight, etc. These are all symptoms of the real problem. “Compounding Growth” does not favor Authoritarian Cultures, and Leftist Culture is the worst (actively destructive) of the Authoritarian Cultures. For example: Venezuela went from the most affluent nation in South America to the least in 20 years, even with the largest oil reserves in the world.
The smart money has already left China (capital flight), and the power corrupted Communists will go on a rampage of plundering the stupid money that remains. That will not be enough for the Communists, and military adventures to both gain domestic support by waving the bloody shirt, and looting foreign lands will ensue.
However, the age of smart weapons makes China’s industrial age weapons obsolete. And any attack on Taiwan will cut China’s economy in half, due to a strategic blockade along the 1st island chain of the China sea. Which will cut 98% of China’s foreign trade, which accounts for 40% of China’s economy (economic dislocation will easily account for the rest). This will permanently end China’s foreign investor fueled growth.
“Captains should study tactics, but Generals must study logistics”
October 21, 2022 at 2:34 am
China will never become a superpower or megapower a la USA as long as fools like xi jinping are leading the country.
Xi is an unrestrained dreamer globalist, following very faithfully in the footsteps of countless USA presidents.
China has top scientists working at the forefront of many groundbreaking technologies, including quantum communications, photonics, superconductors and even FOBS but xi has frittered away his country’s strengths with his feeble, headless and stupid leadership.
His stupid policy of steering china into massive unrestrained contact with other countries has resulted in ghastly very ghastly covid pandemic to enormous bribery scandal cases from USA (hunter & james and big guy for example) to africa to south east asia and south pacific.
Also the recent defection of a top hypersonic weapons scientist to uk secretly arranged by CIA & MI6 agents based in hong kong. Very
How to become a superpower then.Impossible!
China today is only superpower in name only, or a paper superpower. To become a real bona fide superpower, it has to shake off or leave behind the baggage of ‘show concern for friends and prosper thy neighbors’ policies formulated by fools that have only produced covid, defections, megaphone diplomacy and numerous arrests and detentions of citizens abroad.
A country attains superpower status only when even an uncontrollably bloodthirsty guy like genghis himself fears to molest. Has china achieved this condition. Answer is No.
October 21, 2022 at 10:53 am
The U. S. is selling the rope China wants to hang us with.
That said, war with China over Taiwan (or any other reason) would be a mistake.
What America has control over, we need to guard & protect against.
And is a whole long litany…
That is the vital national security interest of the American People.
Not a self-governing island 100 miles off China’s coast, half way around the world.
High tech sand (chips) is not a vital national security interest of the American People.
We can do that right here in America.
The Rational Thinker
October 21, 2022 at 8:11 pm
It’s easy and attractive to read the China-is-doomed tea leaves because, well, most American “experts” do not read Chinese, do not live in China, and, quite frankly, do not understand China. Their analyses are oftentimes more of a wish list than an in-depth exploration of current events in China and so the trend among American scholars is “China is doomed because they are not democratic.” “China is doomed because they have debt.” “China is doomed because they are not us.”
Never was the subject broached that perhaps far from being a “dictatorship”, China is simply a government unlike ours. Note that the CCP is actually open to the entire population – there is no requirement to join the CCP other than being a Chinese citizen (a given) and passing a civil service examination that takes a bit more studying than the American one. Wealth is not an guarantor of membership, connections are not a guarantor of membership – China’s government is, at least at face value, a meritocracy.
And if you don’t believe me, the past twenty years didn’t exactly happen by accident.
But more to the point, predictions about China’s demise have been made before. I believe it was the “expert” Gordon Chang who predicted China’s fall in 2001 and then revised it by saying, “What I really meant was 2003,” and then he gave up because being wrong that many times was beginning to become embarrassing. And Peter Zeihan, another China-doomsayer, has had to manufacture data points to support his views (“Over 90% of China’s navy can’t travel even a thousand miles”).. and by “manufacture” I mean “lie.”
China may not become a superpower in the way we define it because China, at least historically, has little interest in occupying those areas it doesn’t have to. Yes, they have certain core interests like the Tibetan Plateau, the Xinjiang, and Manchuria, but unlike czarist Russia, 19th-20th Century Japan, the British, or America today, China doesn’t see the benefit in occupying foreign land for what are essentially bragging rights. Our ability to puts a Burger King, an airstrip, and thousands of rifle-toting men and women around the world hasn’t made us more secure because, and this may shock you, we’re having a conversation right now about how to make us more secure.
China is unlikely to station troops around the world in the same manner and numbers as we have for one simple reason: they’re too practical for that. Their desire for security at home has not been misconstrued as a need to occupy others abroad. And given that they lack a voting populace who, like us, would vote for and favors war on an almost constant basis (despite our protestations of being a “peace-loving nation”), the CCP can simply tell any warmongering population “Not today.”
We want China to fail because that’s how we measure our success. We don’t measure our success by our accomplishments, we measure it by how badly we perceive others to be doing. And if China is doing well, it means we are failing.. which is funny because China’s success should be taken as proof positive that the world system we crafted is working. The world system we tout as our creation was meant to bring prosperity to all… and that we find it intolerable that others are prospering means that either we were lying about our motives or that we neglected to mention that by “everyone” we meant only us.
October 22, 2022 at 2:49 am
China lacks a mechanism to encourage innovation and entrepreneurship. It is a racist society (Han Chinese) ruling over a huge, diverse nation of Uighurs, Turkmen, etc.
Their population is aging fast, thanks to their one-child policy. Also, who would willingly move to China? People are lined up around the equator to come into the USA, Europe, UK etc. China, not so much.
If the US continues to bring manufacturing back to the states, China will wither.
October 23, 2022 at 12:17 am
China’s great prosperity was in the time of Deng and Jiang. That’s over now, and China’s taken a left turn into Crazy Town. The arrest of Xi’s rival on the stage of the party Congress is pure Saddam Hussein. Be it known that Chinese society is now dedicated to the protection of the Xi family portfolio, just as the fine print of the Russian social contract says: “You will die for our oligarchs’ riches, with equipment you have to purchase yourself (from them).”
October 24, 2022 at 8:39 am
I write this to speak to all the lovers of Chinese autocracy and power. The Ching Dynasty in the early 18th century looked like the most advanced civilization, most successful conqueror and most powerful empire in the world. The British and French democracies showed them that political freedom, free market capitalism, science created through academic freedom and military innovation by free nation states could shatter any backward and corrupt empire.
(This goes double for those who love Putin.)