China’s 100-Year Marathon Towards Global Domination is ‘Out Of Breath’; Future Appears Rocky From 2030

Published in The Eurasian Times @ https://www.eurasiantimes.com/chinas-100-year-marathon-towards-global-domination-out/

There is lot of chatter about China’s economic woes. Everyone has a view of what has gone wrong with the Chinese economy. Most of these analysts were in the chorus cheering China’s 100-year marathon towards global domination. These very honchos are now prescribing what China must do to once again to fire on all cylinders and regain its mojo. However, very few analyze or put down a recovery timeline. In most cases China is analyzed piecemeal and never holistically. The hidden reality staring at us in the open is that China’s much touted comprehensive power will not recover. This is something that no one wants to acknowledge.   

For the past three years or more I have been writing that China’s decline is inevitable. Many felt that I was xenophobic and could not share my certitude about China. Well, that does not matter. The issue is where does China go from here? Will it recover? If it does not, what lies ahead? These are not million-dollar questions if basic logic is applied to China and the bluster and hype of communist propaganda is taken out of the equation. The Chinese are not from the planet of apes that we cannot decipher them, despite their complex behavior patterns or trendlines. So here comes my logic on the deflation and decline of China’s Comprehensive National Power based on some macro factors.    

Demography

A nation is made of people. Hence demography is primal in the future of China. The Deng era bequeathment of the ‘One Child Policy’ consigned China to an irrecoverable demographic decline. The mathematical certainty of the decline objectively establishes that the Chinese population is dwindling with abysmal birth rates (1.06), losing working age population and aging at the fastest rate in human history. As time passes, China might not have enough young working hands to produce the grains in its farmlands or cost-effective goods in its factories. This is easily derived from the UN graph of population by broad age groups. The graph duly transposed in various time periods is also tabulated alongside. An analysis of this table is illuminative. Till 2030 there might not be any major negative demographic effect. However, prosperity of the past few decades has driven up people’s expectations and wrought societal changes. The Chinese political economy does not have the bandwidth to cater for this aspirational change in its increasingly aging society or the apprehensions of its middle-aged people who are the workers, managers, and businesspeople. Further, it cannot even employ its educated youth. This is evident in numerous articles and underscored by way China is suppressing data.  The real problem with China’s demography is its numbers. Those in the 65+ age group will increase from 13.4% to 17.8% approx. Alarmingly, 1/4^th the population will be in the 60+ age group (which will increase from 18% to 23%). The scary data shows up in the decade 2030 -2040, when the total population will decrease progressively by about 55 million as working population reduces by about 120 million (12%) and dependency ratio increases from 1: 2.26  to 1:1.71. There will be lesser than 2 people to look after each dependent (young or old) in the country! In this period, the 65+ age group increases from 17.8% to 26.5 %. Interestingly if one considers the 60+ as aged, 1/3^rd the population (31%) in China will be aged. Overall, we will witness the vitality of the billion plus Chinese people being sapped steadily. They will surely become surly with no way to turn the clock back as it ticks on remorselessly. It is not an uncertain but a bleak future as the PRC does not have the tools to cope with this change. In comparison, ‘Japanification’ will be a boon. 

Ideology

Communist ideology has been the bedrock of the PRC since 1949. The radicalism of the Mao era gave way to three decades of capitalistic /market-oriented versions of socialism propagated by Deng Xiaoping and practiced by his successors Jiang Zemin and Hu Jintao. This was the time when privatization was encouraged, and China logged in astronomical growth rates. However, with such growth came the problem of loss of control and the hint of loss of power. That was unacceptable to the CCP patriarchy. Accordingly, Xi Jinping, was charged by CCP elders to restore the party primacy. Xi, the ideological hard liner, has emphasized on state control and totalitarian power residing indisputably with the CCP. In the past ten years he has reversed course. China is now under the absolute control of the CCP conflated with his increasing authority. Any reform to open the society or the markets have been rudely bludgeoned. Power and control have been increasingly centralized in Xi Jinping.  His rule is punctuated with constant purges striking at every section of the society and state. These have eradicated all alternate centers of power. All state organs are injected with party cadres loyal to Xi Jinping. For the past year and more it has become evident that between economy and political power, the latter is supreme. Further, the increasing importance of security and related laws enacted by Xi Jinping indicate that consolidation of power will continue irrespective of the economic outcomes. In this context a fundamental precept is important to recount. Fundamentally, communism is the antithesis of capitalism. There is no case in history where a communist system of government has succeeded economically. Also, communism is more about retention of power rather than welfare of people. This has been proven time and again in Russia, China (under Mao), North Korea, Cuba, and Venezuela where dreams are sold to retain power. Till such time Xi Jinping remains in power, this condition is unlikely to change.  The leadership is willing to sacrifice economic growth for the sake of ideology.  To round it off, it was widely believed that the Chinese, having shed their ideological moorings, were winning the war on global dominance without fighting in the best traditions of Sun Tsu. These days the beleaguered Chinese are losing the war without fighting! The more one looks at it, the Chinese model resembles the Soviet one which collapsed without a trace overnight.  

Structural Issues

China’s economic strategy has historically over-relied on real estate, infrastructure, high local debt, inefficient state-owned enterprises, lower-end manufacturing, and domestic consumer internet platforms on one end. At the other end its export driven model made China the manufacturing hub of the world. The low-hanging fruits of this policy are no more available as unprecedented geopolitical, security, ideological and demographic changes are taking place. By almost all accounts China has to shift to a consumption driven model to come out of this slow down. A recent analysis by Michael Pettis , (who I consider as on the spot on China)  reasons that  China must slow down investment if it wants to rebalance its debt-laden economy. It has the choice to suffer the pain of lower GDP growth, or encourage consumption to drive demand and suffer the pain of a disruptive transformation of the country’s development model. Pain is inherent both ways! The huge gap between low consumption and high investment in the Chinese economic model is unique and diametrically opposite to that of the rest of the developed/developing  world. The common wisdom from experts across all countries is that about 2/3rds of China’s investment is in property and infrastructure. Both have become wasteful and non-productive since China has more houses than it needs for the next seven years and large parts of its infrastructure is vastly underutilised. However the Chinese do not seem to think so. The chief economist at BOC International, Bank of China writing in China Daily opines that better ‘income distribution’ can create demand and drive consumption. The failed ‘common prosperity’ model is being couched as ‘income distribution’. He also acknowledges that this option is difficult to achieve. Hence, as per him, under the circumstances, China should adopt measures to stabilize growth by stimulating investment, especially infrastructure investment and real estate investment. Further the Chinese still hope to revive and maximise on exports. More the things change , the more they remain the same! Many things are apparent. The Chinese are not convinced – politically or economically, that they need a vastly different model. Resultantly there is no plan to change tracks. Even if they change tracks and go through the pain of transformation it will be anything from 5-10 years before results are seen. Very clearly, the old model is failing and the Chinese seem to have no other plan but to reinforce it! To my simple military mind any general who reinforces failure will generate defeat. I leave it to the readers to draw their own conclusions.      

Geopolitics 

Prior to the onset of the Covid Pandemic, the world was all set to either welcome or grudgingly accept China as the next superpower. It appeared to have arrived. However, during the entire course of the COVID pandemic, its ‘wolf warrior’ behavior, built distrust and posited a global threat. It suppressed COVID related information which would have saved the world a lot of misery. Its military assertion to usurp territories in Eastern Ladakh, South China Sea and Hong Kong violated international norms, rules, and treaties. Its repeated missile drills and enhanced naval and air activity in the Taiwan Straits as a precursor to annex Taiwan posed a military threat to all nations of the Western Pacific. Reflexively all these nations are antagonistic to China. Further, high-profile militarization to support ‘Rejuvenation of the China Dream’ and its surreptitious Global Initiatives pertaining to security, development, communication, and civilization to establish a Sino-centric world order threatens to upset the established global governance architecture. Its unseemly hurry to displace USA from its numero-uno status without concomitant capability is almost coercive. It was also realized that China held the world at ransom with its manufacturing prowess. This started a decoupling /derisking process through alternate supply chains which is now irreversible. To top it, USA has put in place sanctions and a technology denial regime which has long term implications beyond trade and technology. Then came the Ukrainian war in which the West suspects China of supporting Russia through its ‘no limit friendship’. As all this was happening, China’s flagship BRI became the symbol of its dishonorable debt trap diplomacy. If this was not enough, China came out with a new standard map which usurps large swathes of continental and maritime territories of many nations. It has also been insistent on showcasing its revisionist authoritarian political model to the rest of the world as a success. The sum-total is that China’s belligerent attitude has succeeded in generating global antipathy and distrust which will negatively impact its power in the long run. In the short run, its export-oriented manufacturing economy has already been hit severely with no chance of reversal.             

Climate Change

While climate change is a global ‘given’ and will impact all nations, its adverse effect on China will be disproportionately high. Droughts, famine, and floods have been endemic in China.  Empires have collapsed due to this reason alone. Expanding desertification, shrinking of arable land and water shortages have increased as China has developed. In recent times, food security or lack of it has dominated national debate as unpredictable weather has adversely affected crops repeatedly.  Unprecedented floods and droughts in the past few  years  have exacerbated the damage that China experiences through frequent coastal flooding, storm surges, coastal erosion, and saltwater intrusion. More importantly, climate change casts a dark shadow on China’s energy security.  Globally, China is the biggest importer of energy and is at huge risk of energy deficiency if imports are blocked or not available. Further in recent years its domestic power supply has been hit due to the unprecedented droughts which in turn has impacted China’s economy in multiple ways including bringing its manufacturing bases to a crawl. As climate variations have increased and threatened development, China has embarked on high profile , high investment, high risk water transfer infrastructure which has unknown outcomes besides being environmentally unsustainable. The communists who think that Chinese are great engineers, builders and constructors are proving themselves to be poor visionaries in their blinkered hurry. The net effect of climate change is reflected in a world bank report which states that the impacts of climate change threaten China’s densely populated and economically critical low-lying coastal cities, which are home to an estimated one-fifth of China’s population and contribute a third of its GDP. Unabated climate change could lead to estimated GDP losses of between 0.5 and 2.3 percent as early as 2030 (see graph below). In my opinion, mother nature will have its final say and trump unrealistic dreams of Xi Jinping and China.

Military

Xi Jinping is betting big on military to deliver the goods for China . PLA is his global enforcer  to set a Sino centric world order and wreak revenge on the century of humiliation. Accordingly Xi has vowed to build a modern and world class military in tight timelines. Massive defence outlays are the norm in China backed by an ambitious military civil fusion strategy. Resultantly one sees plenty of costly high-tech defence equipment being inducted into the PLA. The commentary emanating from China indicates low quality, lack of standards and suspicion that Chinese weaponry being  ‘battle untested’ might not meet the bill in conflict situations. Further the PLA is poorly led and managed as evinced by the fact that two successive defence ministers have been purged. The top leadership of China’s shiny new PLARF is being purged wholesale and severe restrictions have been placed on PLA leadership (past and present) . Besides this,  there have been many reports which have surfaced on non-availability of pilots, ship captains and the general level of poor soldiery.  The combination of unreliable high-tech military equipment and poor leadership invariably results in  low operability, high maintenance costs, reduced operational life cycles and high replacement costs. This is compounded by systemic corruption. One must also not forget that the PLA is one of the largest forces in the world with least amount of battle experience. It leads to two things. A disproportionate load on the economy which will increase with time and an ineffective force to deal with military / conflict situations. China is not going to get out of this trap which it has set for itself. 

Analysis 

If one looks at it closely and rationally,  one will realise that all the problems elucidated above are autarkic.  China has virtually little or no control in the directions in which these elements  of its comprehensive national power are heading in the foreseeable political climate of  PRC. However, these issues have huge intersections to compound each other’s decline. In light of their autarkic uncontrollability beyond a point and lack of any indication, politically or otherwise, of reining them in or putting in place course corrections, the chances of any recovery are bleak , if they exist at all.  

In 2018, I had written in an article that China was an overstretched hegemon. The economic slowdown had begun, the debt bubble was expanding, and the CPEC/BRI was facing a pushback. At that time itself, I felt Paul Kennedy’s concept of ‘imperial overstretch’  in his classic book – The Rise and Fall of the Great Powers was spot on . Accordingly I had surmised ,  “…. empires rise for economic purposes using military means. As they rise, accumulation of power through geopolitical expansion acts as an aphrodisiac. Soon empires reach a point when their vastness requires an unproductive economic splurge to retain the strategic edge. Invariably it comes at the cost of turning off the capital from productive areas. They then collapse. Every colonial empire has recently followed this script”. Today’s China is on an imperial overstretch. The net effect is that China’s much touted comprehensive national power will decline from hereon.

The question which arises next is that – will China collapse? No,  it will not. A nation of 1.4 billion homogeneous and industrious people will not collapse overnight. An entrenched system like the CCP without an alternative will not vanish. From here on, we will see the steady deflation of China. The change should be visible in the next 2-3 years despite communist hype. By the end of this decade the change should be marked and people will start analysing China’s decline in droves. However, as I have written earlier, the events in China will change Xi and the CCP, who will prefer to be in power of a China which is not a superpower rather than being out of power in Superpower China. 

Having said this, the fact is that China remains  a powerful nation. Its leaders believe that they can still conquer the sun. Xi Jinping has enunciated that he will use diplomacy, technology and military to achieve the Chinese Dream and Rejuvenate the China Nation. The contradiction of rising ambitions versus falling capabilities makes China an unstable and dangerous entity. China’s leaders and Xi Jinping might be tempted to or forced to gamble on a military solution to re-establish China’s rise before it is too late.  The phase from now till 2030 or thereabouts will be the most unpredictable. Taiwan, India and USA in particular need to side step the last rush of Chinese blood in this decade. In so far as India is concerned, our rise is predicated on deterring or deflecting Chinese belligerence rather than taking it head on. That is the challenge.