“1.4 billion people in China sounds like a lot, but I think in the next 20 years, we will see this bring big trouble to China, and the population decreasing. The speed of population decreasing is going to speed up. Now you called it a collapse. I agree with that”
“China is at a very critical moment. When other countries have been very well vaccinated, and China still lacks immunity, then that will be very dangerous.”
Zhong Nanshan, China’s top respiratory disease expert, in a recent interview .
A Chinese economist has recently stated “Given the serious economic slowdown we are currently facing, the day China surpasses the U.S. is moving away, not coming closer.” Very clearly there are self- doubts in the Chinese system. This is in stark contrast to their wolf warrior superiority complex and condescending attitudes which were on display till recently. Of late, I have read many such opinions expressed by Chinese. They want to avoid the Soviet fate. The mere fact that the Chinese are discussing this issue in their public forums indicates that there is some fire beneath the smoke. It led me to go over the events of the Soviet collapse and compare them with the trendline of events in China. This article is a presentation of facts based on seeing the strands and faintly smelling the smoke emanating from Chinese writings. After reading the article you take your call if there is fire beneath the smoke.
In 1985 when Gorbachev assumed power and propagated ‘Glasnost’ and ‘Perestroika’, he was toasted internationally. None predicted that in six years, by 1991, the Soviet one-party dictatorship, and its communist empire (domestic and East European) would sink without ripples. It was long known that the Soviet system was in economic trouble since the Brezhnev- Andropov- Chernenko era. However, it was never life threatening. The communist opacity hid the hollowness it generated , the illegitimacy it spawned and the rot of corruption. Loss of faith in communist ideology, dismal standards of living and elite infighting compounded the problems. Despite Gorbachev’s ‘Perestroika’, the rigid USSR system could not reform. Personalised politics had stunted institutions. Inefficient government-owned factories could not produce what the people wanted and what people needed was not produced. Supply simply did not match demand. Soviet Union could also not service its debt. Its overmilitarized economy weighed heavily when the regime collapsed. The government could not enact or execute policies to rescue people from oppression or help in improving their life. While Gorbachev wanted to reform, he could not reset the Stalinist model back to Leninist principles. He fell in between, achieving neither. Gorbachev’s regime was destroyed by the very policies it created. The freedoms and social forces that Gorbachev allowed to grow could not be controlled by the government. The genie could not be put back into the bottle.
The bottle broke with Chernobyl. The disaster at the nuclear plant was the product of a broken and distorted system. Much later Gorbachev described the explosion as a “turning point” that “opened the possibility of much greater freedom of expression, to the point that the system as we knew it could no longer continue”. On reflection, ‘the country’s economic indicators were not spectacular, but nor were they particularly terrible either. There were no mass protests against the regime, and most high-profile dissidents were either living abroad or were scattered and ineffective’. Communism and its younger brother, socialism, were noble ideals . Many countries including India sought to emulate them. However it was ultimately a system of organised lying. It eroded trust of the people in the very systems it created. The revolution was led not by party bureaucrats or politicians but by writers, students, doctors, scientists and the common man. The Soviet Communist Party, under the heat of harsh and critical scrutiny, simply melted away. Chernobyl took five years to accelerate the Soviet disaster in making and ensuring it reaches its logical demise.
Deng Xiaoping saw the demise of the USSR. He saw value in Gorbachev’s ‘Perestroika’ and ‘Glasnost’. He also saw that a command economy was bound to eventually collapse. He opened the economy and relaxed the system. China was determined not to repeat the Soviet mistakes. Deng instituted a hybrid system – capitalism underpinned by communist autocracy. It was strong enough to retain control and flexible enough to stimulate unprecedented growth. The model worked through Jiang Zemin and Hu Jintao. When the Chinese economy took off, an unprecedented number of people were lifted out of poverty. China was on track as its international clout was growing. However the fundamental fact was that it was still a communist model which was kicking the can down the road. Organised lying, corruption, censorship and other communist ailments never went away.
The Soviet collapse was due to two dynamic and interactive factors. The rigid system could not handle the change Gorbachev’s ‘Glasnost’ and ‘Perestroika’. Chernobyl accelerated the collapse. Similarly Xi Jinping is attempting his own ‘Perestroika’ and shutting out the limited ‘Glasnost’ instituted by Deng . Xi Jinping is reverting to state control and rigidity. The virus is accelerating it. Let us understand each in their respective perspectives. When Xi came to power in 2012, China stopped ‘hiding its strength and biding its time’. It built up military strength and flexed to seek its time. Debt trap and cheque book diplomacy came into the lexicon though the BRI. Chinese military and strategic assertion manifested itself in Hongkong, Doklam, Eastern Ladakh, Senkaku’s, South China Sea and Taiwan. While China avoided the pitfalls of USSR, it was creating its own. Growth was beginning to taper off. Urbanisation led to increased labour costs. An economically strong China kept getting more autocratic. The Communist brag to acclaim and prove itself as the best system became a drum beat. China violated its international promises in Hongkong. It rejected the International rules based order in the South China Sea. It exploited the loopholes of democracies and international institutions to either control them or undermine them. Xi Jinping was establishing a China centric world order by coercion. China was slowly and steadily losing the trust reposed in it. The similarities between the Soviet and Chinese systems were eerie even before the Virus. The only differential was the strong Chinese economy.
In the astronomic rise of China, fundamental flaws kept getting papered over. The ‘one child policy’ which was blindly implemented to check the population contains the seed of Chinese decline. It was conveniently ignored for the past two decades. China kept building its military irrespective of the costs. China’s great technological progress and prowess was facilitated by organised IPR theft and forced technology transfer. All these came into sharp focus due to the Virus. When the Virus struck in Wuhan, China refused to part with any information. It deliberately allowed the virus to escape and infect the world when it protected itself. Both these actions broke the international trust in China. This was reinforced when China gobbled up Hongkong, initiated a border flareup with India and started military coercion against Taiwan. China’s developing cult leadership of Xi Jinping and his Wolf Warriors were brazenly attempting to enforce a new world order. The Chinese requirement to constantly justify that its authoritarian system is better than the rest made it mock at countries like USA, EU and India who were seen to be stricken with the Virus. Even in its worst periods, the USSR was a trusted ally for many. Even at its best times, China could never be never trusted. The Pakistanis will vouch for that. With the Virus, even residual trust has disappeared.
Till 2019, China was the global engine of growth. It was the factory of the world. That suffered a wobble when the Virus hit Wuhan and its economy nosedived. When China declared victory over the virus, its economy was seemingly back on rails. However things were stirring underneath the carpet. After Covid set in, the Chinese growth story, from being supported became opposed. The trend to relocate and look at alternatives to China has also gathered momentum. Alternatives will emerge slowly but surely. For example, just within the past two years, Apple has relocated approx. 10% of its manufacturing capacity out of China. Others are following suit. The momentum will gather steam as days go by and China will face stronger headwinds. Fingers are now being raised to question the figures reported in their economy which is seen to be ailing. There is an internal opinion, expressed publicly, that indicates that China is over militarising. There are also indications that nationalistic dogma is taking hold in China. Most importantly– Xi Jinping is changing China’s course in a back to the Maoist future it once veered away from consciously. Can China turn the clock back to its Maoist past and co-exist with its once booming economy? Is China on a course to a great leap backwards?
Everyone knew that the Chinese demography was getting skewed. All demographic metrics have moved in the wrong direction at greater pace during the pandemic. Birth rates have fallen off the cliff. As the virus persists, marriages and birth rates will reduce further. However, ageing will continue unabated. Overall the population will keep shrinking irreversibly. The demographic skewing and population decline is permanent and has been accelerated by the Virus. The government has been unable to do anything about it. This entire issue also reeks of loss of control. As days go by second order social and economic effects will start appearing on the horizon. Just think. The requirements of an aged population is vastly different than what is required for export markets and foreign consumption. There will be a demand and supply mismatch in its manufacturing sector. Familiar to the Soviet situation? This also casts doubts on the dual circulation theory which relies heavily on domestic consumption.
The Covid period has made the rich richer and the poor poorer. The widening inequality is a global phenomenon. However in China the increasing inequality threatens the social contract between the communists and the population – ‘give up your freedoms in return for a secure and better way of life’. The rich tech and education sectors represented this wealth inequality. Further the data they amassed posed a threat to the government. Some of the tech biggies were on the verge of putting in place an alternate fiscal system through their international linkages. All this threatened the communist system even further. In a matter of six months the common prosperity program was ushered in and the tech sector emasculated to retain control. On the other hand the indebted property sector represents the ills of Chinese debt fuelled growth. Property went into severe stress when the Covid induced a brake in the money circulation in China and debt was rising to unmanageable proportions. Lack of liquidity accelerated the sector into default and (em)bezzle zone as per Michael Pettis. Result. The two major drivers of the Chinese economy have been culled by the Virus. China’s economy is being haunted by the Ghosts in their unoccupied cities.
When Covid struck, China saw it as a period of military opportunity and embarked upon military adventures whilst upping the ante for invading Taiwan. However their experience seems to have revealed huge gaps in their capability especially along the LAC. As a result they have been forced to invest heavily in unplanned military capabilities. The cost of their extensive infrastructure build up along the LAC will be astronomical since the area is bereft of resources. Prolonged and enhanced deployment will be an expensive proposition. China has also started to expand its nuclear arsenal, navy and invest heavily in hypersonic and space systems. They are also being forced to rethink of protecting their overseas interests in far seas. More importantly, all the new capacities and weapon systems which look good for an expanding force will pose a burden on its budget to maintain in a few years. Overall, The Wuhan virus seems to have forced China into a militarisation drive much beyond what has been generally assessed in their Defence White Papers. Is China overmilitarizing beyond its economic capability?
Despite declaring victory over the virus, it is back in China forcing lockdowns, mass testing and tracing, travel bans and widespread restrictions. The current policy is debilitating China’s manufacturing economy at macro, micro and household levels. Jobs are getting scarce. Pay cuts and reversal of perks and bonuses is a new norm. Businesses are limping. A virus fatigue is setting in. The Zero Covid policy has also left China unprepared for the eventual endemicity of the Virus. It is now proven that Chinese vaccines are ineffective and will not induce herd immunity. People have also not acquired natural immunity through infection. It seems that China will have to remain sealed off until the virus is eradicated. That is a forlorn hope since the virus might become an endemic but will not vanish. China and the world will have to live with it for life. Here lies the rub. The Chinese people are genetically very vulnerable to the Virus. If the current policy is dropped the chances of mass sickness is high, which the Chinese health care system is not equipped to handle. If that happens, the communist system will be seen to have lost. China will also not import vaccines since it will be an admission of defeat. If it continues to remain sealed off, the economy will start tanking. The risk factors are high either way. China is on the horns of a dilemma. The negative effect of Covid on a self-isolated China will be exponential as days progress.
Xi Jinping’s pitch for a third term is presaged on ‘Victory over the Virus’, Dual Circulation’, ‘Common Prosperity’ and back to ‘Marxist-Leninist-Maoist Communism with Chinese Principles’. China has gone back to fuelling its economy through more high speed railways and glitzy infrastructure. It implies more debt. They cannot change course in dealing with the Virus. While Xi Jinping and his cohorts have avoided the mistakes made by USSR, they have made their own. Will a declining China end up the Soviet way? It is only two years since the Virus has come into play. However the similarities are eerie as mentioned earlier. If Xi Jinping continues for the third term and holds course with his current policies, we will most probably see a China which is declining economically and militarising rapidly. There is also analysis and indication that China is entering into inter-factional political turmoil / struggle/purges. Also, if other issues related to ethnic divide, climate change and environmental disasters, resource scarcity and food insecurity which are endemic to China, start kicking in, the decline will be even more pronounced. After that who knows? It takes an idea to spark a revolution and a few more to collapse a system… as of now the Virus seems to be pushing China towards Chernobyl.
My earlier articles on China and the Chernobyl effect….
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