The Corner

National Security & Defense

More Bad News for China

Honor guards stand at attention at the Great Hall of the People in Beijing, China, January 14, 2019. (Thomas Peter/REUTERS)

The Wall Street Journal (paywalled) reports that China’s economy is growing at its slowest rate since 1990 — and that those are the official figures, which, as the article notes, are viewed increasingly skeptically by economists. Of course, the official 6.6 percent growth rate would be the envy of all developed countries, but for China, it’s a continuation of a slowdown that underscores the major challenges facing the Chinese Communist Party and government in the next decade. As I argued in my book, The End of the Asian Century, decades of sweeping problems under the rug have caught up with China. From a labor shortage (thanks to the One Child Policy), which drives up labor costs, to malinvestment and crony capitalism, along with horrific environmental damage, China’s vaunted economic model was unsustainable in the long run. The extraordinary growth that China underwent from the 1980s onward was real, and yet in starting from such a low base, extraordinary growth was possible if even modest economic reforms were implemented.

Today, the reform program has all but stalled, and Chinese President Xi Jinping’s tenure will likely be known for its big promises and few accomplishments. That’s one reason why he has placed such a big emphasis on the Made in China 2025 program, to make China the world’s leader in high-tech development and manufacturing, and on the Belt and Road Initiative, to open up new markets. Yet, just like Japan in the 1980s, his grandiose plans are unlikely to achieve their aim. Not only is the Chinese economy still dependent on capturing (read: stealing) foreign intellectual property, the role of state-owned enterprises is growing in crucial sectors (even if absolute numbers have been reduced thanks to consolidation and privatization). Moreover, the lack of confidence in China’s future has spread downward from the elite (most of whom have foreign passports and send their money and children abroad) to middle-class Chinese, who are trying to protect their money by purchasing real estate abroad.

This worsening slowdown, which is the new normal for China, may have major effects on Beijing’s foreign and security policy. On the one hand, it will become increasingly unaffordable for China to build the type of military it has been aiming at for decades now; indeed, Chinese defense spending has already dropped from years of double-digit increases. It is still the world’s second-largest military budget, and the People’s Liberation Army is modernizing, but projecting out slowing growth rates into the future means that Beijing will have to make hard trade-offs between domestic spending on an aging population and fielding the world’s most powerful armed forces. Thus, in a few decades, we may look back at today as the high-tide of China’s global power.

On the other hand, a weakening China may well be a more dangerous one. One of the most disturbing aspects of China’s rise over the past two decades has been its increased suspiciousness of the world. Chinese believe that the world, which has done nothing but try to integrate their country into the global-trading and economic system, is now trying to contain China and weaken it. This leads to growing nationalism and assertive positions over Chinese interests. Xi Jinping’s rhetoric has grown more strident, threatening Taiwan and repeatedly ordering his military to prepare for war. A Chinese leadership that faces potential unrest at home over a darkening economic picture may use foreign adventurism to release domestic pressure. Similarly, Beijing may act preemptively to ensure that it grabs as much territory in the South China Sea, for example, as it can while it is still far stronger than its neighbors. As it sees its economic and potentially military strength wane, it might decide it can’t wait. Hence, all the talk about reunifying Taiwan with China. A weaker China could turn out to be the greater threat, ironically, than a confident, stronger one (as was Japan in the early-1940s).

Much of this thinking I laid out in The End of the Asian Century. Critics charged that I was overstating both China’s weaknesses as well as the potential risks — and made assurances that China would dominate and eclipse America. Even today, new books are coming out arguing that the future is Asian, whatever that means. In reality, the past two years have only strengthened the arguments I made. Whatever we thought that the Asian Century might be, it is clear that our halcyon views were mistaken. The great challenge for America in the next decade-plus will be to manage whatever spill-over occurs from a weakening China. It will be a time of potentially great danger, but also great opportunity.

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