Beyond the Hoover Institute Report on China-US Relations: What are the headwinds facing China?

A new report published by the Hoover Institute sheds a bright light on the principles that guide the Chinese Communist Party – effectively the Chinese Government – in the strategic and policy direction it is setting for the first half of the century. The author, Cai Xia was for many years a professor at the Chinese Communist Party’s Central Party School, and taught high-ranking officials.  She was expelled from the CCP in 2020 for criticising Xi Jinping’s rule.  She now lives in the USA.  The article is 25 pages long, and well worth the read for China watchers. She argues that China is totalitarian (rather than merely autocratic) and its foreign engagements are an extension of a domestic policy which aims to secure the hegemony of the CCP. She identifies two possible scenarios for China-US relations:

1. Competition and co-operation;

2. Standoff and confrontation. She sees the latter as most likely, but does not rule out an implosion within the CCP due to economic stress, high levels of debt, and unhappiness within the CCP at Xi’s autocratic style and frequent purges of middle and senior officials. However the prospect of China and the US as – at best – competitors, and – at worst, in confrontation, leads to other thoughts.  Is the 21st century to be “the Chinese century”, as the 20th was American?
   

Economic weather warnings The economic prospects for China seem strong, but they are far from certain. China seems to have been the first major power to emerge from the Covid Pandemic – although the pandemic may well have more surprises in store for us all. China’s economy is the biggest in the world, based on PPP (purchasing power parity).  But the US still leads in terms of nominal GDP, by over $6 trillion. Economists differ about whether China will surpass the US.  Based on past and current trends – including its post-Covid recovery, and robust export performance – a straight modelling projection would see China overtake the US nominal GDP in 2033, according to the global chief economist of the Economist Intelligence Unit, but will not overtake it in terms of GDP per capita for the next 50 years, if ever. Others question a modelled forecast of this sort. China has high levels of unproductive debt. World Bank analysis suggests that China’s Total Factor Productivity has fallen from 3% in the early 2000s – the expected sort of level for an emerging economy – to 0.7%, which is close to the level of developed Western economies.  To a great extent it has already consumed the low-hanging fruit of a developing economic power. There are also other headwinds that will have an impact on China’s future growth.  President Biden seems resolved to continue to impose targeted trade sanctions on China, and will seek to encourage his allies in Europe and Asia to do the same.  It remains to be seen how comprehensive and effective these sanctions will be (and whether they backfire upon the US and its allies).  But China remains a middle-income country, and thus dependent on exports as the main driver of its growth. If the world is becoming more protectionist, how will that affect China’s prospects in the years ahead?

China in the World China has been active in supplying Covid vaccines around the world.  But there are questions over their effectiveness.  Chile, the Seychelles and Mongolia have all reported high rates of infection with the Delta variant of the Covid coronavirus, despite having vaccinated around two thirds of their populations.  Again, the emergence of new variants is a constant risk of a coronavirus such as Covid, but for now questions about the efficacy of its two main vaccines, along with apparent foot-dragging over giving the World Health Organisation access to information about the origins of the pandemic, may cause reputational damage and lack of trust in China.  Of course the problem of new variants could arise in relation to Western vaccines as well. China’s oppression of its dissenters and minorities has so far passed with remarkably scant global attention.  But there are “weak signals” that this may be changing.  A report this week of the killing of Chinese engineers in an explosion in Pakistan strongly suggests that it was the result of terrorism. If it was terrorism, it would not the first attack on Chinese personnel in Pakistan. It is not hard to envisage the plight of the mostly Muslim Uighurs becoming a rallying point for radical Islamic groups, leading to action against Chinese interests internationally, and support for Muslims in China. The same signals can be detected elsewhere.  The popular resistance to the military coup in Myanmar has seen attacks on Chinese-owned businesses, because China is believed to have decided to support the coup.

Environment: Big Problems Ahead An Environmental Risk Outlook of the world’s 576 largest urban centres published this summer found that 99 of the world’s 100 riskiest cities are in Asia, including 37 in China.  Looking specifically at natural hazards such as flooding, Guangzhou, Dongguan and Shenzhen are in the top 5 riskiest. NASA warns us to expect higher risks of coastal flooding in the 2030s, due to a “Lunar wobble”, which is a normal part of the lunar cycle, interacting with global warming, which is very much man-made.  Taken with the impact of rising temperatures across the cities of China, there is a major risk of major environmental damage and disruption to China’s intended economic progress.

China’s Population Pressures Last, but not least, China faces demographic challenges.  The changes in China’s population have stolen the headlines. China’s birth rate has been predicted to slow down, but the evidence from the most recent years is that this is happening faster than predicted. In 2020, Chinese mothers gave birth to just 12 million babies – the lowest total since the Great Famine of 1961. The birth rate is just 1.3, well below the 2.1 needed to maintain a stable population.  The figures, published by China’s National Bureau of Statistics, were only released after two delays, confirming that the statistics are of concern to the Government. This brings China’s birth rate into alignment with that of Japan and other East Asian countries.  Having already relaxed its one child only policy, China is moving to a three-child policy.  There is evidence of resistance among Chinese women to injunctions to have more children.  The State New Agency Xinhua set up an online poll asking, “Are you ready for the three-child policy?”  20,000 of the 22,000 who responded chose the answer, “I won’t consider it at all”. The comment with the most likes said: “I recommend you first resolve the fundamental problem of child support plus the unfair treatment of women in the workplace before asking them to have children”. The Chinese census also shows that the number of Chinese people aged 60 or more has reached 18.7% of the population – an increase of 5.4 percentage points over the 2010 census.  63.35% of the population are of working age (15-59), a reduction of 6.79 percentage points from 2010.  The increase in people of retirement age is placing increasing pressure on China’s pensions, health and welfare systems – and it remains a middle-income country.  A 2019 report by the Chinese Academy of Sciences projected that China’s state pension fund would run out of money by 2035 due to a rise in the number of retirees and a decline in the workforce contributing to the fund. Apart from Chinese women resisting encouragement to have more children, there are other signals of changing attitudes among workers, with some rejecting the high-pressure work environment to pursue a less acquisitive life – “tangping”, or lying flat.  This is a reaction against the “996” work culture that many Chinese companies have promoted.

Conclusion The headwinds facing China are important ones.  They are likely to have an adverse impact on China’s future prospects. In doing so, they may lead China’s leadership to re-evaluate the current direction of policy, as touched on in Cai Xia’s paper for the Hoover Institute. They are not enough to mean that China will not continue to challenge the USA’s position as the economic and military superpower.  But they probably are enough to lead to thinking within the CCP about whether an adjustment of its current course is required. Written By David Lye, SAMI Fellow The views expressed are those of the author(s) and not necessarily of SAMI Consulting. Trusted strategic foresight techniques help you make better decisions today and ensure your future success. Since its founding in 1989 by Shell and St Andrews University, SAMI Consulting has delivered scenario planning projects nationally and internationally and provided the link between futures research and strategy enabling organisations to take “robust decisions in uncertain times”. If you enjoyed this blog from SAMI Consulting, the home of scenario planning, please sign up for our monthly newsletter at newreader@samiconsulting.co.uk and/or browse our website at https://www.samiconsulting.co.uk Image by wei zhu from Pixabay