China means to rush from victory to victory. So China’s rise does not seem far off. It has weathered the coronavirus pandemic better than the West and seamlessly picked up the old growth momentum. Last year, it signed the Regional Comprehensive Economic Partnership (RCEP), the world’s largest free trade area, with neighbors in the region and the controversial CAI agreement with the EU. Through the Belt and Road Initiative, China is consistently spreading its influence into Europe.
Beijing has worked its way to the forefront of new technologies. It is investing ever greater sums in its military apparatus and increasingly using that power to advance its interests. Nations that oppose China are severely punished through economic sanctions and other measures. Australia and Canada are just the latest examples.
An expression of Chinese hubris?
The notion that China is emerging as the leading power of the 21st century, while the West is past its prime, is gaining more and more adherents. President Xi is on a mission to bring about the “great renewal of the Chinese nation” and believes that history favors him. The Beijing government and its media are vigorously promoting the narrative of China’s inevitable rise because the more it is believed, the more likely it is to become reality.
Is China’s rise as unstoppable as it seems, or is this narrative an expression of Chinese hubris? Doesn’t it underplay undeniable weaknesses in the Chinese system? Are we naïve if we believe China?
In order to calibrate our China policy correctly, it is necessary to recognize and correctly assess the light and the shade. Otherwise, there is a danger that we will either fall into unnecessary alarmism or fail to face the Chinese challenge with sufficient competence and commitment.
In the past decade, a mixed situation has arisen in China that is quite explosive and to which the government is paying the utmost attention.
Domestic and foreign policy tensions
In foreign policy terms, China has become increasingly lonely. According to the latest survey by the Pew Research Center, China’s reputation has suffered considerably worldwide in recent years. The “democratic West” is preparing to devise joint strategies to counter the Chinese challenge. This will limit China’s room for maneuver in the world. In view of China’s geopolitical claims, there are increasingly loud warnings of the outbreak of military conflicts.
Insights into domestic political conditions are by their nature very limited, but widespread dissatisfaction with the government’s rigid course is repeatedly pointed out. The abolition of presidential term limits has not only surprised foreign countries. The consistent subordination of all sectors of society by the Chinese Communist Party takes back previously existing freedoms, and the harsh campaigns against enemies of the political leadership provoke resistance.
Overcapacity, real estate bubble, demographic bomb
There is rampant overcapacity in key sectors of the economy. In the steel industry, capacities of 1.2 billion tons per year have been built up against an estimated sustainable demand of 400 million tons. Other sectors of the Chinese economy are also suffering from overcapacity. At the same time, debt across all sectors has risen to more than 300 percent of gross national product, prompting the IMF to warn of significant dislocation. The word “red Ponzi” is doing the rounds.
The real estate market, which directly and indirectly accounts for 30 percent of GNP, has been called the largest bubble in history. More than 100 million housing units are said to be vacant – housing for at least 300 million people of a rapidly shrinking population.
The demographic development poses another enormous challenge. The population is no longer growing. While 70 percent of the population was still of working age in 2010, this figure will fall to 54 percent by 2050. One working Chinese will then have to care for one “dependent” – in 2010, there were still two working people. The proportion of people over 60 will have tripled by 2050 to more than 30 percent of the population. China runs the risk of being old before it becomes rich.
China’s rise as a high-income country not certain
To be sure, the government has so far demonstrated a high capacity to tackle upcoming problems, and it would be a mistake to underestimate China. However, China’s inevitable rise to the top of the world is fraught with significant question marks, and we need not be blinded by the ever-changing success headlines. Indeed, historically there are few countries that have managed to escape the “middle income trap”, and whether China will be one of them remains to be seen (China.Table reported).
The vision of China as the new power of the 21st century may sound forward-looking. It is certain that we take China seriously as a competitor and systemic rival and that we will have to confront it with increased competence and attention in the future. At the same time, however, our encounters with the country give us every reason for good courage and self-confidence. Despite all the criticism, it is the societies of the Western community of values that have produced the unique civilizational achievements of modern times. It will not be easy for today’s China to establish itself as a suitable alternative.
Dr. Gerhard Hinterhäuser is a partner at the management consulting firm Bingmann Pflüger International. He lives in Asia and Germany and was a member of the management board of the state-owned company PICC Asset Management Co. Ltd. in Shanghai from 2006 to 2014.