Fortunately for the U.S., Xi continues to mismanage China’s economy.
Xi Jinping's economic mismanagement has hurt China, but the U.S. still must be better prepared with more defense spending.
D igging ditches and toiling on a farm in hot, humid summers while living in a cave with January lows in the teens, the adolescent Xi Jinping must have resented the powers behind his family’s loss of privileged Chinese Communist Party status in Beijing with cooks, nannies, cars, and culinary delicacies, yet he dedicated himself to reentering the CCP’s good graces. Far from this being an example of Stockholm syndrome, Xi most likely simply recognized that climbing the CCP ladder was his only path back to the position that his family had once enjoyed.
Mao may have been a guerrilla commander of genius, but he occasionally reverted to guerrilla warfare against his own regime, most notably in the Cultural Revolution, which was also yet another of the catastrophes inflicted by the CCP on China and its people.
It was the Cultural Revolution that led to the fall of Xi’s family. His father, a high-ranking CCP dignitary, was humiliated, forcibly denounced by Xi’s mother and stripped of his position. Xi’s sister committed suicide. Deng Xiaoping, who had also suffered during the Cultural Revolution, ultimately assumed China’s leadership, rehabilitated Xi’s father, and enabled Xi’s own rise through CCP ranks after Xi’s party-membership applications had been rejected nine times.
Curiously, it was the dogmatic revolutionary, Mao, whom Xi chose to emulate, rather than the more pragmatic Deng, who, more than any other person, is responsible for China’s economic rise. Perhaps Deng is best known for saying, “It doesn’t matter if a cat is black or white, so long as it catches mice,” a phrase unthinkable under Mao.
Certainly, Deng, his colleagues, and his successors were more effective in economically developing China than the ideologues. Official Chinese economic data is notoriously unreliable. Harry Wu, a Chinese professor based in the West, has laboriously reconstructed realistic estimates of Chinese economic performance, which are compared with official data in the following chart.
Between 1953 and 1978, a quarter-century when Mao and Maoists were in charge, real Chinese growth averaged 4.4 percent, well below other developing Asian economies. (Note the dramatic drop during the period of the Great Leap Forward, perhaps the perfect example of Maoist economic policy.) Deng and his chosen successors averaged 6.9 percent growth from 1979 to 2012, while Xi has attained 4.2 percent since 2013 and is expected to average 3 percent or less going forward with dramatic working-age population shrinkage.
Xi is following the wrong path for China, reverting to centralized state control and social leveling, somewhat more typical of Mao (although it would be a mistake to think of Xi’s economic policies as a full reversion to Maoism) than Deng’s liberation of a private sector and belief that “to get rich is glorious.”
Peaking near 10 percent in the 2000s, China’s estimated growth rate has been impressive, especially considering its enormous population, but it pales in comparison with other Asian growth surges as shown below.
Japan, South Korea, and Taiwan all attained faster growth for longer than China. The CCP followed an established Asian growth strategy of low-cost manufacturing exports and didn’t perform as well.
The comparison is particularly sharp with Taiwan. Both Beijing’s and Taipei’s Chinese republics began from desperately poor starting points after the devastation wrought by World War II and the Chinese Civil War. With no resources on its island, Taiwan has attained prosperity over four times that of mainland China, depicted in the next chart.
In the words of Deng Xiaoping, “The return of Taiwan to motherland — the reunification of the country — also depends on our running our affairs at home well. . . . We must surpass Taiwan, at least to a certain extent, in economic development as well. Nothing less will do.” It’s clear that China will never surpass Taiwan’s prosperity, spurring Xi’s shift away from seduction to either coercion or something close to it.
Absorbing Taiwan would give China dominance over the western Pacific, an unacceptable threat to trade routes for South Korea and Japan and leaving the strategically important Pacific island nations dangerously exposed. Possession of Taiwan would give China control over the commanding heights of high-tech semiconductor manufacturing, not something with which Beijing can be trusted.
Xi also deviates from Deng’s policies is his aggressive approach to the U.S. Deng believed that “countries that get on well with the U.S. have all prospered,” while Xi arrogantly proclaims “the East is rising while the West is declining.” Even with its subpar economic performance relative to Asia’s leading economies, China’s size makes it a military threat to the U.S after our decades of failing economic policies and waning economic vitality. China and its “no limits” partner Russia (for all its economic faults), now significantly outweigh the U.S. economy, having exceeded 100 percent of U.S. GDP about 15 years ago. U.S. defense spending as a share of GDP has declined as well over a much longer time span. Both trends are shown in the chart below.
The United States has not faced such economically powerful adversaries since the War of 1812, which was a “home game” fought to a draw. Defending the faraway western Pacific against Chinese aggression is a daunting task that may be imminent.
In 2021, a former commander of the U.S. Indo-Pacific Command, Admiral Philip S. Davidson, testified to Congress, “Taiwan is clearly one of their ambitions, . . . and I think the threat is manifest during this decade, in fact in the next six years.” Noted international-relations scholars Hal Brands and Michael Beckley assert that China will soon be motivated to capitalize on its current strong position, before economic and population declines set in. On the other hand, distinguished China scholars Oriana Skylar Mastro and Derek Scissors believe China’s economic and military strength, while diminishing, will still offset that of the U.S., enabling Chinese patience in timing aggression. Neither possibility is good news, and the U.S. should be prepared for either.
Post–World War II record lows for U.S. defense spending as a percentage of GDP are inadequate for the near and long-term challenges. The Biden administration is reducing Navy fleet size by 6 percent. By contrast, the buildup in U.S. military spending to 7.4 percent of GDP in the mid ’80s, compared with 6.3 percent in 1980, made an enormous contribution to victory in the Cold War, and subsequent defense savings dwarfed the original buildup cost. In 2022, we face a newly aggressive Russia closely allied to China, and defense spending is only 3.9 percent of GDP.
Fortunately for the U.S., Xi continues to mismanage China’s economy. His reliance on short-run juicing of the economy with debt and unproductive investment, heightened CCP intervention in business, war on tech companies, and zero-Covid policies have, apart from the Covid bounce-back, produced a steady decline in China’s economic performance during his regime, as illustrated with OECD economic leading indicators in the chart below.
Now, if the U.S. can avoid following these same “progressive” policies, it will be better prepared to face the challenge.