Xi Jinping has silver linings for rest of world
LONDON, Oct 17 (Reuters Breakingviews) – A third term for Xi Jinping would risk a cold war, or even a hot one. But the prospect of China’s nationalistic leader staying in power, which the ruling Communist Party is almost certain to approve at its congress this week, isn’t all bad for the rest of the world. Xi’s policies are hurting the economy. That makes it harder for the People’s Republic to throw its weight around – and helps fight climate change.
Until recently, most analysts agreed it was only a matter of time before China’s economy, which was three-quarters the size of America’s in dollar terms last year, became the world’s largest. This forecast assumed the People’s Republic would continue to grow at the same astonishingly high rates as in the past.
With an unstoppable economy, China seemed destined to spend more on sophisticated military equipment and win allies in developing countries by rolling out infrastructure with its Belt and Road Initiative (BRI). Once its power became overwhelming, countries in East Asia and further afield would do its bidding.
STUCK IN SECOND
But China’s economy is running into all sorts of problems. The country’s population of 1.4 billion people is ageing rapidly while its debt-fuelled property bubble is deflating. Meanwhile, Xi’s increasingly autocratic rule has spawned policies like the drive to eliminate Covid-19 and the crackdown on big private technology companies. Both have weighed on growth.
China grew at an average rate of 10.3% a year in the first decade of this century. Growth fell to 7.7% in the second decade. While that’s still high, much of the recent expansion was in unproductive property and infrastructure investment. George Magnus, an economist who has been warning for years that China’s economic model is unsustainable, thinks the country’s trend growth rate is between 2% and 3% a year.
Even if China manages growth of 4% a year for the rest of this decade, it won’t overtake America soon – especially given that the yuan has been falling against the greenback. If the United States continues to grow on average 2% a year and the currency stays where it is, China’s economy will still be nearly 20% smaller in dollar terms at the end of the decade.
The country would then find it harder to build the dominant military force in Asia and fund investment overseas. It would also be a less attractive model for other countries to emulate – and there would be less pressure to accept its hegemony.
A slower-growing China, particularly one that relied less on carbon-intensive construction, would also be good for the planet. The country, the world’s largest emitter of carbon dioxide, has committed to cut the carbon intensity of its economy by an average of 3.9% a year under its current five-year plan which runs to 2025. If the economy grows at a slower rate, China’s emissions may already have peaked.
Of course, Xi could abandon the carbon target. But Beijing-based Dimitri De Boer, of the environmental organisation Client Earth, thinks that’s very unlikely because the target is binding and China’s president has positioned himself as an environmental champion.
NEW COLD WAR?
Meanwhile, Xi’s nationalism — ranging from sabre-rattling over Taiwan to tacit support of Russian President Vladimir Putin’s invasion of Ukraine — is uniting the West and some other countries against the People’s Republic. The European Union, United Kingdom, India, Australia, Japan and South Korea are increasingly sympathetic to the US view that China should be contained.
America has just imposed more technology sanctions on China in an attempt to hobble its semiconductor industry. Meanwhile, its climate-focused Inflation Reduction Act gives incentives to manufacturers of clean technology so that America will not become too dependent on Chinese-made batteries, electric vehicles , wind farms and other kits.
President Joe Biden declared last week in his new national security strategy that China “harbors the intention and, increasingly, the capacity to reshape the international order in favor of one that tilts the global playing field to its benefit”.
The United States is not only working more in lockstep with rich European and Asian nations, partly via the Group of Seven (G7). It is also attempting to woo other countries, even those that aren’t democracies. For example, the G7 is promising to help developing countries via its $600 billion infrastructure partnership, which is seen as a green alternative to China’s BRI.
It’s not just Western countries which want to avoid being too dependent on China. Xi doesn’t want to rely on the West for finance, technology or natural resources. As a result, commercial ties between the two will shrink. This will be economically bad for both sides, pushing up inflation and holding back growth.
But the extent of the damage will depend on whether the mutual mistrust affects only strategic industries or escalates into a full-blown cold war. It will also depend on whether the West brings production onshore — which could be expensive — or builds up supplies of critical goods such as solar panels and rare earths in lower-cost countries.
ESCAPING THE TRAP
“When a rising power threatens to displace a ruling one, the most likely outcome is war.” So wrote Graham Allison, the Harvard professor who has called this phenomenon the Thucydides trap, after the Ancient Greek historian who examined how Athens tried to displace Sparta as the most powerful Greek city-state in the 5th century BC.
Allison points out that war is not inevitable. For example, the United States overtook Britain peacefully early in the last century and America saw off a challenge from the Soviet Union without a hot war. Biden would also like to see off the challenge from China without fighting. There’s also a risk that a weakening PRC, led by a nationalistic leader, will throw its weight around before its power peaks. It would be particularly dangerous if Xi faced a nationalist president in America.
But Germany challenged Britain in World War I when its economy was still powering ahead, according to Allison. So the current outlook may be less dangerous than what until recently seemed the most likely outcome: a Chinese economy that walked on water.
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China’s President Xi Jinping on Oct. 16 called for accelerating the building of a world-class military while touting the fight against Covid-19 as he kicked off a Communist Party Congress by focussing heavily on security and reiterating policy priorities.
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Editing by Peter Thal Larsen and Thomas Shum
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