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The New Reality of Dealing With a China in Decline

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The New Reality of Dealing With a China in Decline

China’s rapid rise is slowing down, and incumbent global powers that have dominated political, military, and economic spheres for decades are scrambling to respond.

The New Reality of Dealing With a China in Decline
Credit: Illustration by Catherine Putz

The rise of China has changed the global landscape of power, forcing readjustments. Since the economic reform and opening up in 1978, its GDP has grown on average by 9 percent a year, allowing 800 million Chinese citizens to escape poverty.

Now, China’s rapid rise is slowing down and incumbent global powers that have dominated political, military, and economic spheres for decades are scrambling to respond.

The unprecedented Chinese ascendancy to global economic and military power — especially since its inclusion into the World Trade Organization in 2001 — led to confusion in responses by the West before the new wave of active competition and containment.

Determining whether the best is yet to come for China or whether it has peaked requires examining both empirical evidence and non-conventional historical precedents.

The fear is that China’s future power will dominate global foreign policy, leading to a new dichotomy of a China-led multipolarity and the perceived end of the West’s hegemonic grip. However, future prospects remain far from this.

Projections of China overtaking the United States as the largest economy in the world have also been made several times but have never come to fruition.

Nevertheless, China’s workforce has already peaked, based on official statistics. The labor supply in China will drop by about 7 percent from 2025 to 2050.

The International Monetary Fund examined a scenario in which the United States resorts to limiting its own technology trade with China and persuading others to follow suit. This scenario will result in the Chinese economy being about 9 percent smaller in a decade than it otherwise would be.

In the 1990s, the structural issues in China’s economy were quite clear to its leaders, and growth was too dependent on debt-fueled investment and insufficient consumption. But high average economic growth dwarfed those concerns.

With its economic slowdown and the shifting away from reforms, China’s economy showed signs of weakness even before the pandemic. Its working-age population has been dwindling for about a decade. Its population as a whole has peaked, and India has now overtaken it. 

Efforts by the ruling Chinese Communist Party to encourage families to have more children have been futile. The masses of young workers who once filled “the world’s factory” are now gone.

More resources will have to be diverted for its growing elderly population. After years and decades of a public infrastructure and transportation boom, the returns are diminishing. President Xi Jinping’s growing autocratic tendencies have also caused local entrepreneurs to be more wary, stifling innovation and growth.

A regulatory crackdown on the tech sector and increased party control on the private sector further dragged down growth. With little progress to detach from a predominantly investment-led progress, priorities have turned to self-sufficiency and internal security.

Though some reforms have been implemented, they are overshadowed by heavy-handed intervention in critical domains of the economy, resulting in the outflow of capital that has forced the government to impose capital outflow restrictions.

China’s economic slowdown, aging population, high unemployment rate and the growing tang ping (lie flat) movement, where the young give up on chasing prosperity, have all exposed economic fault lines.

After four decades of extraordinary growth, China is confronted with deeper structural issues in its economy, hindering domestic consumption and investment. Xi has resorted to economic friend-shoring (concentrating supply chains within ally nations) and investment overture efforts in Europe and the United States

Although there has been a recent upswing in its critical sectors including technology supremacy in artificial intelligence, 5G, and quantum computing, China’s old growth model is at its end and has yet to find a convincing alternate path. The exodus of top firms from China and the technology restrictions by the U.S. have further dampened prospects.

China’s semiconductor industry is growing but is nowhere as good and sophisticated as Taiwan’s or South Korea’s. Critically, China is still reliant on the West for trade, and the West can still dictate the outlook of the Chinese economy. Beijing’s biggest trading partners are the United States and the European Union.

The 2049 Chinese plan of “great rejuvenation” with a world-class military by 2035 remains the overall dream of the Chinese Communist Party, seen as the culmination of the “100-year marathon.” But power parity equations point to a hard fall for China, and it may already be on the path of decline.

This peaking power trap can create a more dangerous scenario for the United States in having to deal with a risen power fighting to avert decline. A weak China could be more dangerous, wary of economic strangulation as done to Japan by the U.S

China might be compelled to passionately defend its rise by doubling down on its 2049 dream and Taiwan objectives. This could stoke risky nationalism at home in boosting regime security while sidestepping sluggish domestic socioeconomic prospects.

Even then, the U.S. still maintains an edge in proven military supremacy and real-time conflict experience besides forays into new warfare domains involving space and the cyber realm

China’s authoritarian model has sometimes been defended as the most plausible alternative to the West. Yet, as political scientist Matthew Kroenig argues, democracies tend to excel in great power rivalries, having unique economic, diplomatic and military advantages in long-run geopolitical competitions. 

Global military dominance is still a farfetched dream for Beijing. The question is who will give and take the first punch and whether it is done to prevent the decline of a risen power or to defend the status quo of an incumbent power.

China might find some comfort in the fruits of its regional economic leadership and maneuvers from the Belt and Road Initiative to the Regional Comprehensive Economic Partnership

However, its own increasing assertiveness in claiming maritime rights as in the South China Sea coupled with the accompanying erosion of trust creates long-term policy wariness in the region.

Its partners might eventually be left longing for the status quo of a peaceful and stable rules-based order as is the international norm.

Originally published under Creative Commons by 360info™.