Planning for China’s ‘fall’

Article Highlights

  • A growing number of China watchers have been raising the alarm that all is not well in the world’s 2nd-largest economy

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  • 5 key things that governments and policy analysts around the world should pay attention to regarding #China:

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  • A shrinking labor pool & more pressure to provide basic social services will be a further drag on China’s economic growth

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  • Any disruption, weakness, or collapse emanating from Beijing will have profound repercussions across the globe.

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HALIFAX, NOVA SCOTIA—At the annual Halifax International Security Forum last week, much of the discussion centered on challenges to American leadership and what role the United States will play globally in the coming years. Many of the same questions that were asked about Barack Obama could have been directed towards China’s new leader, Xi Jinping, as became clear during the forum’s panel devoted to China. While the conversation on China revolved mostly around territorial disputes and the policies of leading nations like Japan and India towards Beijing, the discussion seemed to take for granted China’s inexorable rise and a concomitant growth in its influence and power.

Yet a growing number of China watchers have been raising the alarm that all is not well in the world’s second-largest economy. Indeed, any discussion of China these days would be far more foresighted to focus on the growing challenges and potential dangers that the new leadership is facing. The implications of China experiencing an unexpected economic crash or major political crisis, let alone a military conflict, should be as much a part of strategic planning as plans based on more optimistic scenarios. Not so long ago, the U.S. government and CIA were caught flat-footed by the collapse of the Soviet Union. To avoid surprise, the following is a short list of things that governments and policy analysts around the world should pay attention to:

 1.       Leadership divisions and scandals. The significance of the Bo Xilai case was not limited to its status as the most serious leadership crisis in China in perhaps four decades. It also revealed the power struggles that go on in Zhongnanhai and the level of corruption that feeds the staggering wealth of China’s rulers. Recent stories about the family riches of new Party Secretary Xi Jinping and Premier Wen Jiabao show that Bo’s use of his official privilege to gain wealth was not an aberration. Despite the public unity displayed by the new Standing Committee, there are still factions within the Politburo. The jockeying for power during Mr. Xi’s term is just beginning and a new scandal similar to that which deposed Mr. Bo could divide the leadership, not to mention cause significant social dissension. Nor is it clear how the PLA leadership will respond to perceived weakness or failures on the part of China’s leaders. How much it respects Mr. Xi and is willing to follow his lead will only become clear over time, but it certainly will expect him to protect China’s interests abroad and prevent greater social instability at home.

2.       Slowing economic growth. China’s relentless economic development has been the global success story of the past two decades. After growing at around 10% a year for nearly 30 years, China’s economy has slowed down significantly in 2012. Last quarter, growth dropped to 7.4%, partially due to continued economic weakness in America and Europe. While most countries would be thrilled with such a high growth rate, a sustained slowdown in China’s development curve would have ripple effects throughout the entire labor force. Not merely college-educated students would be affected; millions of factory workers and those in rural areas would also see their incomes decline. Given that a reported 180,000 protests and uprisings occurred throughout China in 2010, a weak economy will undoubtedly put severe stress on the country’s social and political systems. Waves of migration could increase both internally and to nations in Asia, causing tension between settled residents and migrants, and riots could occur in major cities. A populous already losing confidence in the national leadership could try to force the change. At the same time, China faces a significant provincial debt problem and a growing property bubble in the country’s largest cities. A collapse of either of these could have untold consequences for economic growth. Finally, China is beginning to reap the fruits of its One Child Policy, which will present the country with a significant demographic challenge for the rest of this century. A shrinking labor pool and increased pressure to provide basic social services will be a further drag on economic growth in coming years.

3.       Irresolvable territorial disputes. For nearly a decade, China’s “smile diplomacy” garnered it friends and admirers both in Asia and around the world. Beijing seemed more nimble and more innovative than other countries, including the United States and Japan. That generous foreign aid programs bought a good deal of its influence did not detract from the fact that China had become a major presence on the global diplomatic stage. However, its assertive and overweening behavior in the East and South China Seas over contested islets threatens not merely to derail China’s attempt to become the most influential nation in Asia, but also edges the region ever closer to outright conflict.  Although the territorial disputes themselves stretch back decades, the maritime standoffs have become more worrisome in recent months. The longer these go on, and the more connected they are with nationalist demonstrations among all the claimants, the more likely that miscalculation or an accident will spark an actual clash. While it is hard to envision a full- fledged war breaking out over these islands, the negative political and economic consequences of even a minor armed clash are cause for concern. For China, the specter of defiance by smaller nations has brought out an ugly assertiveness that may indicate deeper unwillingness to abide by international norms that do not comport with its aims. The result can only be a more unstable Asia-Pacific, and a possibly aggressive China.

4.       Environmental disasters in the making. While this gets much less attention than the sour economic and political news of the region, Mr. Xi and his colleagues must come to grips with the country’s looming environmental crises. Major sources of drinking water are declining rapidly; the threat of drought in China’s Northwest increases exponentially with even minor rises in temperature; the level of air pollution in China’s major cities is an untenable public health hazard; and food safety concerns continue. Not only is the leadership at risk of public backlash over polluted skies and waters, eventually the very real human toll of such governmental neglect will prove a drain on economic growth and will be a source of severe social tension.

5.       No new ideas. Perhaps of greatest concern is that Mr. Xi and his six colleagues that comprise the new Standing Committee do not have records of pushing reforms and do not seem particularly cosmopolitan. While it is unrealistic to expect the Communist Party to elevate to senior positions anyone not totally loyal to it and its control over the Chinese populace, it does need to find leaders with ideas and solutions to all of the various problems listed above. Unfortunately, Mr. Xi and his co-leaders are likely to come under pressure from elites worried about protecting their parochial interests and commoners angry at corruption and a declining standard of living. In response, it remains unlikely that the new leaders will embrace any type of meaningful reform for fear of losing political control (à la Mikhail Gorbachev in the Soviet Union 25 years ago). Given that President Hu Jintao presided over a slowdown in the growth of the private sector and a return to greater emphasis on state owned enterprises, what ideas does Mr. Xi have for ensuring continued economic growth or responding to citizens’ dissatisfaction with inefficient local government rule and continuing repression? What is Mr. Xi’s strategy for dealing with China’s problems and what type of vision does he have for the country over the next 10 or 25 years?

Should China’s new leadership merely muddle along for the next decade, then the next turnover of power in 2022 may take place under much more unsettled and less promising conditions. How will the PLA respond to a China that is growing weaker on the world stage or one whose goals are being frustrated by other nations? Will the leadership stick together if growth continues to slow or debt loads increase such that financial crises plague the nation in the coming years? These are questions to which Western and Asian governments should be paying close attention, and they should be figuring out which metrics are most important for understanding China’s current trajectory. Given the amount of information coming out of the country regarding potential problems, there is no excuse for being caught flat-footed or misinterpreting current trends. With the level of economic integration between China and the rest of the world, and the growing strength of China’s military, any disruption, weakness, or collapse emanating from Beijing will have profound repercussions across the globe.

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Michael
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