China faces rough road after summit

The Communist Party of China’s most powerful leader since Mao Zedong, Chinese President Xi Jinping, should feel particularly strongly about this. In 2022, Xi will seek the support of the CPC’s 20th Congress for his plan to remain in power for a third term, thereby eliminating the two-term limit established by Deng Xiaoping and adhered to since then.

This arrangement was partly an attempt to prevent any return to a Mao-like dictatorship, and it succeeded in unifying the leadership of the CPC. But one only has to look at the personality cult established by Xi and penetrate the meaning of the “Xi Jinping idea”, which has now been incorporated into the party’s constitution, to understand the intentions of the current Chinese president.

First, Xi’s holistic philosophy emphasizes that the CPC is the successor of all that is best in Chinese history and culture. Second, there is a strong element of grudge-laden nationalism. Third, and perhaps most important, is a directive to the Party and the nation that they must never forget that Xi has everything from getting up in the morning to turning off the bedside lights at night. And yet, Xi is looking at them and keeping an eye on them.

But if Xi doesn’t want others to scrutinize his record, his closest advisers should see that he sees China as the peak achieved because of its economic might and the problems faced by the West since the 2008 global financial crisis. Years of power have been wasted. The existential problems of “peak-peak” China will now become more apparent. The country does not look like an unquestionably new and worryingly successful power. In some ways, this potentially creates even more trouble and a threat to the rest of the world.

The most dramatic recent manifestation of China slipping from a tipping point has been the crisis at property developer Evergrande. The Evergrande debacle is beyond a major market failure, and brings together two of the three big existential threats facing the Chinese government.

The first is excessive debt – at least in the real estate sector. Today, China needs to borrow twice as much as it did ten years ago to produce every measure of growth.

China’s second major problem is demographic: rising debt and falling productivity have been accompanied by a dramatic decline in the size of the working-age population. The economically active population is projected to decline by 194 million by 2050.

Xi’s response to these growing economic problems has been to increase control of China’s more productive private sector and to redouble his commitment to favor state-owned enterprises. This policy is fueled by their fear of handing over control to successful large tech firms, and widening inequalities given the rewards of private sector achievement that constitute the third Achilles heel of Chinese communism.

But the Gini coefficient, which measures wealth and income inequality, shows that China is now more unequal than many Western developed countries, and is approaching US levels of economic inequality. Forcing a few billionaires to hand over some of their wealth to the state or state-directed projects won’t change much.

In addition to high indebtedness, unfavorable demographics and growing inequality, China faces enormous resource and environmental challenges. It imports more crude oil than any other country and faces food security problems. Meanwhile, climate change is taking its toll, especially in northern China due to water scarcity. The country holds only 7% of the world’s fresh water, but 18% of its population, and there is an absolute mismatch between where people live and where the water is found.

China’s contribution to global reductions in carbon dioxide emissions is likely to put further pressure on economic growth, which in any event will likely flatten as a result of debt and demographic problems. Xi may try to maintain political control through even more surveillance and intimidation as the population feels the growing economic pinch.

It should also be clear that Xi’s regime has exaggerated its geopolitical arm. With the view that the US and its liberal democratic allies were in terminal decline, Xi said China is looking to “a future where we will win the initiative and take the lead”. Through its “wolf warrior” diplomacy, China is supposed to take control of the Indo-Pacific and show the world a model of successful authoritarianism.

But China’s neighbors—from India to Japan, South Korea to Singapore and Australia to Vietnam—have become increasingly prepared to oppose Xi’s power. In addition, the US has started with some success in forming cooperative partnerships with others. It is not intended to build a bamboo curtain around China as part of the Second Cold War. Rather, liberal democracies want to stop China’s ill-treatment, make it pay for its bullying violations of international agreements, and work with it when it serves the global interest—provided that China keeps its word.

The objective truth is that China’s aggressive diplomacy has failed. Now China has to change its stand. The danger is that Xi, whom some consider to be a risk taker, could become even more aggressive. Therefore, instead of securing the tacit political settlement of the Chinese people through economic development, he would seek their support in times of greater difficulty by inflicting nationalist enthusiasm, especially on Taiwan.

An alarming number of experts now regard a Chinese attack on Taiwan as a real possibility. In many ways this is a more dangerous time for all of us. Liberal democracies should carefully but firmly make it clear to Xi that they have red lines that China should not cross, and one of them lies in the waters of the Taiwan Strait. ©2021/Project Syndicate ( www.project-syndicate.org)

Chris Patton is the last British Governor of Hong Kong and Chancellor of the University of Oxford.