Part 1 – The Preamble to the Wobble
If you have not read the first part please read it before proceeding further. it will enable you to understand the context of this article from the larger perspective. .
Part 2- The Cobbles in the Wobble
China has once again banned all crypto transactions and crypto mining, hitting bitcoin and other major coins. This is yet another ban since 2019, in one of the world’s largest crypto-currency markets. The difference this time seems to be the extent of involvement of all state agencies. The official statement is that the current ban is a resolute clamp down on virtual currency speculation, and related financial activities and misbehaviour in order to safeguard people’s properties and maintain economic, financial and social order. The reaction in social media is that ‘there is a degree of panic in the air’. Is the Government preparing the political ground for the fall of Evergrande and its ensuing contagion? Whatever it is the cobbles in the wobble have got more uneven. Time to see them granularly.
The single child policy is a Deng legacy to rectify the historic burgeoning population vs lack of resources problem in China. In 2012 itself, the joint World Bank-China study identified rapid aging and declining population as a challenge. Many Chinese researched the problem from the turn of the century. Their studies are freely available on the internet. Earlier, the issue was over the horizon. The political expediency of development and growth probably won over social de-engineering. The CCP conveniently, kicked the can down the road by putting in a few weak measures. To put it in context, China’s population is shrinking and ageing faster than any other country in the history of mankind. A demographic transition which took 126 years in France, 46 years in the UK , 40 years in Germany and 24 years in Japan is happening in 21 years in China. China’s one child policy has consigned it to a declining population irreversibly. Their fertility levels are below replacement rates. The country has aged. China’s working-age population has already declined by almost 40 million since a peak in 2015. The result – fewer workers, costlier work force, fewer consumers, more dependants, reduction in overall numbers of youth. China is growing old before growing rich. This phenomenon has economic, political, social, technological, developmental and other penalties. China has risen with a demographic tailwind in the past two decades. Historically, nations with a shrinking population have not risen to be powers. The oncoming demographic headwind portends a decline. China’s rise has peaked as per SCMP, National Interest, Nikkei Asia and Bloomberg, to name few platforms. To sum up this aspect – China knew about this albatross. It did nothing much about reversing the effect as it did in implementing it. Now it can do nothing about it. Whatever it does, is only cosmetic including the ‘common prosperity’ drive. In one sense, Xi Jinping has inherited a cross, which he has to bear, for which he has no solution. The cross is heavier since his own ambition is adding weight to it.
China was assessed by the World Bank to be resilient to idiosyncratic risks. It appeared so too when Covid struck. After the initial wobble at Wuhan, China’s recovery was remarkable. Soon it was on its feet, up and running. It had declared victory over the virus. Its vaccine diplomacy took off. The rest of the world was still struggling. Chinese wolf warriors howled through domestic and international media that the Chinese form of government handled the crisis better than the rest. The Delta variant changed all that. Chinese vaccines , which were always of doubtful quality are proving to be largely ineffective against the Delta variant. The zero covid policy has been upended as breakouts keep recurring. Political compulsions are forcing China to continue with the zero covid policy of mass testing, tracing and wide spread isolations. While others are learning to live with the virus, China is struggling to live without it. The combined effect on a susceptible population is promising to be a long standing depressing effect on its already cooling economy. The other aspect is that most countries feel that the Virus is the product of a lab leak badly handled by a China which has not come clean. This perception has created geopolitical polarisation against China. China’s ability to handle this idiosyncratic risk to its advantage has been hijacked by its politics. Politics as always is the key to Chinese fortunes – good or bad.
Ever since the Nixon-Mao rapprochement and its opening up to the world, China kept away from the conflicts and contentious issues which plagued and sapped the world – West Asia, Middle East, East Europe and the Sub-Continent. Deng had said hide your strength and bide your time. China did better. It remained in the shadows, maintained neutrality, built its strength and grew rich as the world started depending on its factories. China’s growth was aided internationally in this highly productive first development phase. At the turn of the century China started to emerge from the shadows. In this second emergence phase, as its economy grew so did its clout in international institutions. It reaped the benefits of WTO and globalisation immensely. The third phase of overt expansion commenced with Xi Jinping coming to power. The BRI and CPEC were rolled out. The geostrategic cum geo-economic network for gaining international influence was combined with salami slicing and a healthy disregard for international rules specially in the South China Sea. Its military expansion and modernisation developed wings. Its technological prowess started to show even though it was largely though stolen IPRs. The onset of the virus heralded the assertive fourth phase in Chinese geopolitics. Its fallout changed many things dramatically. It gave opportunity for Chinese expansion by political usurpation of Hong Kong and military assertion against India, and in the South China Sea. It gave opportunity to Xi Jinping to publicly state that China’s time had come. However the net effect was that it queered China’s geopolitical pitch. Flouting of International Rules Based Order turned many against China. ‘Debt Trap Diplomacy’ became the hall mark of Chinese projects and dealings. China now stares at a deglobalized world where its growth is opposed. Its actions have created antagonistic new alliances like the QUAD and AUKUS. Firewalls are being built with two purposes – to prevent Chinese theft of IPR and spread of its influence. The BRI is turning out to be geopolitically sick, an economic drain and a security vulnerability. China might not be isolated physically as earlier, however to a large extent it faces partial geopolitical shunning and decoupling. Its own policies and attitude are enhancing this claustrophobia. It is in this environment that Afghanistan and Taliban have happened. A spill over from Afghanistan into the restive Xinjiang and Tibet regions threatens the core principle of One China. It is virtually being forced to undertake additional external commitment to the East. On the other hand USA has quickly consolidated to focus on the South China Sea. India is steadily rising and hardening the LAC and IOR. Even the EU is adopting a strategy to protect its interests. China has two weak allies in Pakistan and N Korea which are really liabilities. Geopolitical arrangements with Russia, Iran and Turkey are fair weather cases. As against the World Bank recommendation to seek mutually beneficial relations with the world it has achieved the opposite. China is over stretching and lonely. Also, the identified challenge of growing economic, social, and cultural diversity has been ill addressed. The Chinese inability to bridge the Han vs Non-Han inequality is palpable. Uighurs and Tibetans remain largely discriminated with reports of mass internment and re-education camps. If Afghanistan is a cue, the Chinese need to learn from the US experience that economic development alone does not guarantee assimilation of people.
China has harnessed technology brilliantly. Its progress in development of disruptive technologies and their exploitation has been simply stupendous. It cyber capabilities are formidable. Exploitation of space has been outstanding. At one level it is frightening that China is exploiting and deploying indigenous technology in such a widespread manner. At another level, Chinese technology is suspect and even deficient. There is a duality about Chinese technological prowess. Despite all the hype, China lacks basic technology to redress its food insecurity – admitted by Xi Jinping himself. Very often, every one forgets that China is not self-sufficient in food. That is an Achilles heel. Much of its famed progress in disruptive technologies is dependent on semiconductor technology and processors which it lacks. Its vaccine research and technology has been found to be deficit in the ongoing pandemic. China has acquired most of its technology through coercion or IPR theft in a planned manner. Primary technology development from indigenous sources has been lopsided. It has had to depend upon Russia for many technologies. It coerces most EU based firms to part with technology to continue operations in China. In a technology denial regime which is in the offing, especially from USA, China will struggle in most probability. It is also possible that China might be too dependent on hi tech systems, especially in the battlefield. Failure of technology in battle is very high. USA experienced up to 50 % failures in missile systems during the Gulf Wars. There is also a clear case which suggests that Chinese technology development has resulted in wide spread environmental pollution for which it will have to pay a cost down the line. Pollution due to rare earths extraction has been particularly heavy. The seamy side of technology is often missed out by most of us.
China’s military modernisation was started in the Deng era as part of the Four Modernisation program. Consequent to its emergence from geopolitical shadows it has embarked on a massive maritime orientation. The Chinese military modernisation and expansion is the largest in scale on earth since the Hitler period. It is aimed to make PLA the greatest military force. The expansion and reorientation has been on track alongside its galloping economy. It is being propelled by an ingenious military civil fusion and seconded fully by a multi domain approach underpinned by disruptive technologies and an extensive space program. However, there are reports that the PLA suffers from low morale largely due to being a ‘one child’ army unprepared and unwilling for military sacrifices. It definitely has a handicap of lack of combat experience as its confrontation with India has shown. Its performance under the UN flag and its dealing with Pakistan and Afghanistan indicates that it is quite unprepared for the humanised battlefield of sub conventional warfare. This is important. As China tends to be a superpower, and asserts itself globally, the requirement to ward off low level sub conventional attacks will increase. Such attacks have to be tackled by its military and cannot be outsourced. What is likely to happen to its overseas assets in future is probably happening now in Pakistan. The PLA will eventually have to increase its physical footprint and be prepared to fight on the streets to protect its assets and interests. Predecessor superpowers – UK, USSR and USA have all done that. China has neither trained nor is it prepared to do that. Overall, PLA might be investing into costly weapons which are largely unusable and will pose a huge drain on the economy. This could be compounded by the fact that China will have to respond to the QUAD and AUKUS which will result in additional military expenditure which it might not be able to afford in the ultimate analysis. The major question is – have the Chinese economy and its military reached a stage where they can feed off each other or are they taking China into a dead end? We might have one idea but the Chinese might have another.
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