China – A Superpower’s Growing Pains

China – A Superpower’s Growing Pains

In January 2022, we published a blog looking at possible futures for China. This was part of a series of blogs based on the scenarios developed as part of the European Commission’s SAFIRE report, which set out scenarios for the World in 2040, along with matching scenarios for 10 key Regions, of which China was one.

This blog notes some interesting developments, reflecting on China’s path to superpowerdom, and some of the obstacles on that path. We must begin by acknowledging that while China receives media and political attention befitting its status as the World’s newest superpower, there is a great deal that is hidden from foreign eyes. Speculation about China has become a political participation sport that rivals, or perhaps even surpasses “Kremlinology” in the Cold War era of 1945-1990.  Accordingly we start with what we know, before adding in the uncertainties and speculations about China’s longer term future.

Economic Superpower

To begin with an obvious positive point, China has fully emerged as a global economic power. Its GDP is $17.9 trillion in absolute terms, second only to that of the USA, and far ahead of any other competitor.  Its share of global GDP is 17.9%.  Measured in terms of purchasing power parity (PPP), China outstrips everyone.  Its GDP is $33.1 trillion, against the the USA’s $26.9 trillion.

China, like the rest of the world, was forced into isolation by the Covid-19 pandemic.  The country’s rapid economic growth had already shown signs of slowing down.  In 2020, China’s reported GDP was 2.24%.  After a reported recovery in 2021, its reported GDP for 2022 was 2.99%.  And China remains a middle income country, based on its GDP per capita ($12,720).

This patchy performance is not only due to the impact of the pandemic.  Russia’s invasion of Ukraine sparked inflationary pressures around the world, and has led many economic powers to review their trade and supply lines.  Additionally, some of China’s neighbours have become more competitive in seeking investment.  And investors, especially Western ones, are keen to diversify their markets: the impact of the Covid-19 pandemic, and the disruption of the Russian invasion of Ukraine, have persuaded other countries of the need both to look to develop alternative trading partners, and bring some production home.  Security of supply has become a strategic priority. Last year’s ESPAS (European Strategy and Policy Analysis System) Conference devoted much of its time to this, and “friendshoring” was one of the buzz-words of the event.

The USA has very clearly signalled a shift towards reducing its reliance on China as a supplier of its manufactures, in what the Cato Institute has described as “polite Trumpism”.

In response to the fraying of the post-Cold War New World Order, and the rising tensions between countries and blocs, we are seeing the emergence of international groupings designed to foster new arrangements for governance of trade.  In the Asia-Pacific Region, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) has revived former US President Obama’s idea of a TPP.  The CPTPP is still taking shape.  The USA is not a member, and neither is China, although the latter has indicated its interest in joining.

China continues to build its own trade networks. Over 150 countries are now involved in the Belt & Road Initiative. Despite reports of some local difficulties, there seems to be no shortage of interest from all parts of the globe.  And, perhaps related to this, China’s trade is growing in some quite surprising places, including Latin America – the USA’s back yard.  Europe, given its wealth, remains an important trading partner for China, but the balance of global power has shifted to the Asia-Pacific Region, and away from the Atlantic.  The dismissive remarks about the United Kingdon by Victor Gao, vice president of the Centre for China and globalisation, very clearly express China’s attitude.

It remains to be seen how individual countries, as well as regional blocs, will line up in what is currently an ungoverned global trading environment.  But for now, it is clear that China has strengths which counterbalance the challenge of fiercer competition and greater western caution about reliance on its manufacturers.

To give two examples, China dominates the global market for electric vehicles (EV). China is the world’s dominant player, and best placed to exploit the dash for carbon neutrality in the developed economies.  Similarly, China is by far the world’s leading producer of equipment for renewable energy generation.

China’s Military Power

Global Firepower ranks China 3rd as a global military power, behind the USA and Russia – though the latter may be open to question given the cost in lives and equipment of Russia’s invasion of Ukraine.  China has been building up its military muscles at the same time as other powers and blocs have been allowing theirs to reduce.  Again, the invasion of Ukraine, together with Chinese military exercises and aggressive rhetoric, have now led others to take steps to develop their own military capacity.

While the size of China’s military is clear to see, its power and effectiveness is less so. China has used its size to assert itself in disputed areas of the South China Sea, and local fighting has broken out on China’s mountainous border with India.  China of course has also made clear its aim of bringing Taiwan under Chinese rule, and again has used military exercises and fierce rhetoric to emphasise the point.

However, the actual power and effectiveness of China’s military is unknown. China has not fought a major military campaign since it invaded Vietnam in 1979 – a brief war that is most accurately described as “indecisive”.

The most likely active military engagement would be if China were to launch an operation to take over Taiwan. Although China’s armed forces are many times bigger than Taiwan’s, Taiwan is an island, with a challenging coastline, and a mountainous interior.  Seizing it would be a complex and risky operation, and Russia’s misadventures in Ukraine may be giving China pause for thought.

China Flexes its Muscles

China has given plenty of signals of its dominant position in its own back yard.  As well as the abovementioned assertion of control over disputed islands in the South China Sea and the confrontations with India, China has used diplomatic means as well.

The China Asia Summit earlier this year involved the five “stans” – the former Soviet Republics of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan.  Russia did not attend, suggesting a significant shift away from the five Republics’ historic links to Russia.  When Xi Jinping travelled to Moscow in March for a summit with Vladimir Putin, the two leaders made statements of friendship and hostility to the West, but China offered Russia no help in Ukraine, and Xi Jinping did not sign off the planned Siberia 2 pipeline, which he had been expected to do – to Russia’s surprise.  It seems to be the case that China calls the shots in its relations with its neighbours, and is prepared to assert itself diplomatically.

It remains to be seen how Chinese relations with India will develop.  As noted in last week’s blog, India’s size and growing economy and population represent a potential rival to Chinese regional dominance, and India will seek to build its own profile as a regional and global presence – as it did in last month’s G20 summit, which India chaired.

Young Power, Aging Dragon

China’s population has now begun to reduce.  Its fertility rate is one of the lowest among the world’s major countries, such that even rising life expectancy is not enough to prevent the population from declining.  The linked report contains information on this. During protests in China last year, some young protesters took to referring to themselves as “the last generation”.

India is reported to have overtaken China as the country with the highest population, and India’s average age is significantly lower than China’s (28.1 versus 37.4), which suggests the gap will grow.  China faces the prospect of rising numbers of pensioners, with reducing numbers of younger workers to bear the cost of pensions and health & social care.

Purges

Since taking power as General Secretary of the Chinese Communist Party (CCP) and Chairman of the Central Military Commission in 2012, Xi Jinping has taken steps to centralise political power.  Hong Kong has been brought firmly under central control. At the 2022 CCP Congress, Xi’s power was ratified; and former President Hu Jintao was physically removed from the closing ceremony – a very visible sign of the concentration of power in Xi’s hands.

But there have been signs of turbulence within the centre of power. At the start of the year, Xi sidelined Zhao Lijian, who had been seen as close to the leader, and as the leading exponent of China’s assertive “wolf warrior” diplomacy.  More recently, this month, China’s Defence Minister, Li Shangfu seems to have been removed from office, and is reported to be facing a CCP investigation: this follows the removal of the two previous commanders of the Chinese People’s Liberation Army Rocket Force, Li Yuchao and his predecessor, Xu Xhongbo.  At the same time, Xi has exerted a much tighter grip on China’s economy and commercial sectors.

Because the internal manouevrings of the CCP are opaque, it is not clear why these changes are taking place.  Alleged corruption is one possible reason; or it may be that XI Jinping is impatient with China’s relatively sluggish recovery from the Covid lockdown.

Conclusion

What does seem clear at present, is that there is no challenge to Xi himself.  Serious economic problems, or an unsuccessful military adventure might change this, but for now Xi remains firmly at the helm.  But big decisions lie ahead: setting a course for continuing economic progress is the most immediate. But also, China will need to decide whether it wants to take aggressive action in Taiwan, thus increasing divisions with the West, and risking military embarrassment.

Written by David Lye,  SAMI Principal

The views expressed are those of the author(s) and not necessarily of SAMI Consulting.

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