By Stephen Hoadley

Will China be Number One, that is, the most powerful and influential state on earth, soon?  This Big Question has already been answered in the affirmative by some commentators…but not all. 

By some economic measures China is already Number One. While the United States still leads by conventional GDP measures based on market exchange rates, other metrics tell a different story. The index of Purchasing Power Parity takes into account not only China’s net GDP and GDP per capita, but also the average prices Chinese consumers must pay, which are lower than those that American consumers face.  The PPP index placed China ahead of the United States several years ago.

Looking ahead, China’s higher growth rate, around 6 percent per annum, will outpace America’s, whose growth rate is closer to 3 percent annually. China’s industrial workforce is second to none. It is already the world’s number one exporter, and number one importer, by aggregate value. It is the principal trade partner of over half of the world’s 200 other economies, including New Zealand’s. It is an active member of the WTO and APEC and has applied to join the CPTPP.  China has used its vast foreign currency reserves to create an alternative to the World Bank, called the Asia Infrastructure Investment Bank, and to dispense capital to more than fifty Third World countries through the Belt and Road Initiative.

Furthermore, Beijing fields the largest armed forces by numbers of uniformed personnel, warships, and combat planes, and deploys the largest diplomatic corps. Chinese businesspeople and tourists can be found (pre-Covid) all corners of the globe and Chinese students have been the largest contingent of overseas students in Western educational institutions for much of the 21st century.

A glance at history suggests that China’s current predominance no anomaly. Qing Dynasty China in 1700, before the Europeans surged ahead thanks to exploitation of colonies, the Industrial Revolution, sound governance, and the benefits of trade and investment liberalisation, was clearly the richest country of its era. Previous China dynasties could make similar claims to world primacy after the Roman Empire fragmented and Europe entered the Dark Ages. China under President Xi Jinping has now transcended The Century of Humiliation imposed by Western Imperialism. It is now undergoing the Great Rejuvenation to realise The China Dream of resuming its historical place as Number One on the planet.

However, there is an alternative narrative looking forward. This narrative focusses on growing constraints on China’s continued rise, particularly its economic rise. These might be called ‘headwinds’ to indicate that they won’t stop China’s progress but will slow it, possibly allowing other states, principally the United States and its like-minded partners, to keep pace with China, and maybe surpass it.

The headwinds fall into four categories: demography, energy, governance, and diplomacy.

First, China’s population growth is slowing. Urban work force numbers will plateau in a decade and start to decline. Despite the discontinuation of the One Child Policy, China’s parents are opting for smaller families so as to enjoy the freedoms and opportunities that rising prosperity brings. This parallels similar trends in Japan, Russia, and Western countries. The consequences are skilled labour scarcity, demands for higher wages, and heavier burdens on welfare and health systems as the population profile ages. This in turn will force up production and social costs and make China’s products less competitive in world markets, leading to a slowing of export earnings and consequent reduction of national income.  And it will further deepen provincial and city indebtedness and over-building, already at alarming levels, stoked by cheap credit from the Bank of China.

Second, energy costs are skyrocketing in China as manufacturing and distribution surge post-Covid and demand for oil, gas, and coal grows everywhere. Many of China’s electricity generation facilities are facing financial insolvency and some have rationed electricity, shut down intermittently, or raised prices to industrial consumers, interrupting previously seamless production and distribution chains. China’s pledge at the Glasgow COP26 summit to reduce dependence on coal to slow greenhouse gas emissions will, if implemented, exacerbate the energy shortage and further disrupt manufacturing, supply chains, and distribution around the world. Overseas consumers facing rising prices of Chinese goods, not least because of high fuel and container costs and interrupted shipping schedules, will turn to local products and services, to China’s detriment.

Third, governance in China centres on one man: President Xi Jinping. Xi heads not only the executive institutions but also the military and the Communist Party, and consequently dominates the legislative and judicial institutions. Xi is imposing an authoritarian style of leadership that some describe as Stalinist. A Cult of Personality reminiscent of that of Mao Zedong has emerged. Xi has systematically curbed freedoms in Hong Kong, intimidated China’s billionaire entrepreneurs, media stars, mass educators, and electronic gamesters, and imposed Communist orthodoxy in all school curricula. While difficult to measure, in my view this uncompromising political atmosphere seems incompatible with the energy, innovation and adaptation and openness that stimulated China’s rapid rise under Deng Xiaoping, Jiang Zemin, and Hu Jintao.  Ordinary Chinese may benefit by Xi’s new doctrine of ‘Common Prosperity’ but extraordinary innovators and entrepreneurs will be restrained by the policies imposed by Xi Jinping Thought. China’s targets for technological supremacy by 2035 may not be met.

Fourth, China’s diplomacy is extensive and vigorous…but it is not appealing. The phrase ‘Wolf Warrior Diplomacy’ is widely cited because it sums up the scepticism of many who deal with China. Beijing’s spokespeople have become increasingly aggressive in asserting China’s prerogatives. They have stridently blamed the United States for raising tensions in the Asia-Pacific region, for example, by denying China’s sovereignty over the South China Sea, supporting Taiwan’s autonomy, calling out human rights violations in Hong Kong and Xinjiang, and provoking a ‘new Cold War’. The Belt and Road Initiative is revealed to be an indiscriminate quick-loan scheme that creates debt dependency and obligations, produces Chinese-modelled and -executed projects that often fail to enhance host countries’ development needs, and generates resentment. China’s massive and highly subsidised fishing fleet is stripping the seas of fish as far away as the Southern Ocean, to the dismay of coastal and island states. In short, China is failing to project ‘soft power’ and to attract loyal partners.

Other headwinds include Covid resurgence and lockdowns, microchip shortages, endemic pollution, drought and desertification, and rural poverty.

While China wrestles with these headwinds, democratic states of Europe and Asia, led by the United States under the relatively cosmopolitan Biden Administration, are rallying at home and pushing back abroad. They are shielding their scientific and technological innovations from China’s espionage and disengaging from networks and supply chains dominated by China. They are reaffirming traditional alliances such as NATO and establishing new security arrangements such as The Quad and the AUKUS to contest China’s influence and counter-balance China’s economic and military growth. And they are rejuvenating their post-Covid economies and negotiating trade liberalisation agreements with each other.

I am hopeful, and cautiously optimistic, that the US and its democratic partners will prevail over China and its authoritarian partners Russia, North Korea, and Cambodia. Granted, political polarisation and the possible resurgence of Trump-led nationalism and protectionism could deprive the democracies of needed US leadership. Greed by Western hyper-billionaires and giant multinational corporations could tarnish the capitalist model and give credence to ‘Socialism with Chinese Characteristics’ and ‘Confucian Capitalism’ by default. If so, China could yet become Number One.

If I could make one policy recommendation to democratic governments, it would be to support international organisations, particularly those promoting economic liberalism. Specifically, the US and UK and EU should join the CPTPP and revitalise the WTO lest China becomes the trade rule-maker by default. By innovating and reforming at home, cooperating with each other, and balancing firmly against China’s international initiatives, the US-led democracies can keep up with the China-led autocracies and, collectively, remain Number One.

Stephen Hoadley is an Associate Professor of Politics and International Relations at the University of Auckland. 

Disclaimer: The ideas expressed in this article reflect the author’s views and not necessarily the views of The Big Q.

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