Does China’s slowing economy make them more dangerous?

Since Nixon opened or rather reopened China in the 1970s, the ancient power has rapidly emerged as one of the world’s truly great economic and industrial powers despite the failure of Mao’s Cultural Revolution and poverty sweeping across the People’s Republic of China.

Characterised as the period of “Boluan Fanzheng” or “Eliminating Chaos and Returning to Normal” by Mao’s pragmatic successor, Deng Xiaoping, in an attempt to “correct the mistakes of Cultural Revolution” through an opening and liberalisation of the Chinese economy, paving the way for the true beginning of the globalised economy.

As China rapidly began to industrialise and modernise beginning in the late 1970s, many nations began to peg their economic prosperity and stability to the rising power, Australia least of all doubled down, leveraging its vast mineral and resource wealth to transform China into one of the world’s major economic powers.

China’s economic miracle avoided the Asian Financial Crisis and steadily positioned the nation to become the “factory of the world”, resulting in the hollowing out of many national industrial bases in favour of cheaper, “just in time” supply chains.

The COVID-19 pandemic and waves of ceaseless lockdowns, border restrictions, and impact on supply chains at home and abroad, coupled with Beijing’s attempts to coerce trading partners like Australia during the pandemic, served to shatter the once alluring illusion that as China became wealthier and its leaders and people became more prosperous, they would become more liberal, democratic, and less autocratic.

This was just one in a series of false, yet lofty and idealistic ambitions for the world of the post-Cold War world and the “end of history” as championed by Western academics like Francis Fukuyama.

Underpinning this belief was an age-old belief, formalised more succinctly by US-based economist Thomas Friedman in his book, The World is Flat: A brief history of the Twenty First Century, where he establishes the Dell Theory of Conflict Prevention which states, “The Dell Theory stipulates: No two countries that are both part of a major global supply chain, like Dell’s, will ever fight a war against each other as long as they are both part of the same global supply chain.”

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Yet now, the world finds itself facing an increasingly belligerent and hostile Beijing, with its own ambitions and designs for the post-Second World War order, driven by a confluence of domestic and international factors increasingly pressuring the Chinese government to make a move on these designs, before it is too late.

This narrowing window is best explained by former US Indo-Pacific Commander, Admiral Philip Davidson, articulating the concerns and setting the scene for the challenges facing both the United States and its regional partners, including Australia, saying: “I believe the next six years is going to be a very worrying time for Taiwan, the US, Japan, and all of East Asia.”

Admiral Davidson’s well-documented concern is further reinforced by Jessica Drun, a non-resident fellow in the Atlantic Council’s Global China Hub, who added, “Though I’m not convinced that Beijing has depleted all the options in its toolkit short of a full-out invasion, my concern is that, with the increasing regularity of incursions into Taiwan’s [air space], there is a higher risk of an accident or a miscalculation – one that could compel, or be used by Chinese leadership to justify, further military escalation.”

Headwinds could spell trouble

The shattering of this economic and security myth has effectively caught much of the developed world off guard, while in China, the challenges Xi Jinping and his cadre of high-party functionaries struggle to respond to the challenges facing the rising superpower.

Highlighting this is Paul Krugman of The Sydney Morning Herald, who states, “The basic point is that China, in various ways, suppresses private consumption, leaving the country with huge savings that need to be invested somehow. This wasn’t too hard 15 or 20 years ago, when Chinese GDP could grow as much as 10 per cent a year largely by catching up with Western technology: A rapidly growing economy can make good use of huge amounts of capital. But as China has grown richer, the scope for rapid productivity gains has narrowed, while the working-age population has stopped increasing and has begun to decline.”

For Australia, a nation that is incredibly dependent on China’s continued economic growth for everything, ranging from higher education and real estate, through to energy, raw resources, and agricultural produce, this spells major trouble for our own long-term economic prosperity and stability.

This is reinforced by Krugman who states, “The International Monetary Fund believes that over the medium term, China can expect a growth rate of less than 4 per cent. That’s not bad – it’s something like twice the growth most observers expect for the United States. But China is still trying to invest more than 40 per cent of GDP, which just isn’t possible given falling growth.”

Equally confronting for Beijing’s leaders is the fundamental structural and systemic design flaws inherent within the Chinese system and it’s hybrid command/market style economy, or as Deng Xiaoping used to say, “Socialism with Chinese characteristics” which has only retreated under Xi Jinping’s government.

Highlighting this is Peter Zeihan in his book, The End of the World is Just the Beginning: Mapping the Collapse of Globalization, where he states, “Chinese fascism has worked to this point, but between a collapse of domestic consumption due to demographic aging, a loss of export markets due to deglobalisation, and an inability to protect the imports of energy and raw materials required to make it all work, China’s embracing of narcissistic nationalism risks spawning internal unrest that will consume the Communist Party.”

Ultimately this brings us back to the actions that Beijing may take in order to quell domestic political and economic challenges, with major concerns about China’s ambitions for Taiwan and the broader Indo-Pacific as a whole as the nation seeks to prop up its economic growth, while ensuring that its demographic cliff doesn’t trigger a domestic societal collapse.

Again, something highlighted by Krugman, who states, “Trying to reduce that superpower’s ability to do harm makes sense, even if it makes many people nervous. And the possibility that China may not be as much of a superpower as many expected doesn’t change that calculation.

“If anything, China’s problems may reinforce the case for precautionary action. China’s rulers have long relied on economic achievement to give them legitimacy. Now they’re facing trouble on the home front, most immediately in the form of rapidly rising youth unemployment. How will they respond?” Krugman posits.

Final thoughts

Whether for ill or good, China’s ambitions and actions will shape the prospects of peace, prosperity, and stability in the Indo-Pacific more completely than any other nation, however, we in the developed world can’t be held to ransom by authoritarian and ethnic supremacist nations as Xi’s China has increasingly become.

Helping China is mutually beneficial for nations like Australia, but it can’t come at the expense of our values and principles. Nations like Australia and the United States by virtue of their position within the post-Second World War international order can go a long way to helping where possible and guiding where necessary.