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Dictators do not like others grading their performance. Any sort of assessment of such leaders’ successes or failures, even by their close colleagues and advisers, is a big step toward undermining them. Permitting criticism, let alone encouraging it, is out of the question.

Chinese President Xi Jinping, the Communist Party of China’s most powerful boss since Mao Zedong, must feel particularly strongly about this. In 2022, Xi will seek the endorsement of the CPC’s 20th Congress for his plan to remain in power for a third term, thereby abolishing the two-term limit established by Deng Xiaoping and adhered to ever since.

That arrangement was in part an attempt to prevent any return to Mao-like dictatorship, and it succeeded in collectivizing the CPC’s leadership. But one only has to look at the personality cult established by Xi and penetrate the meaning of “Xi Jinping thought,” which has now been incorporated into the Party’s constitution, to understand the current Chinese president’s intentions.

First, Xi’s all-embracing philosophy asserts that the CPC is the inheritor of all that is best in Chinese history and culture. Second, there is a strong element of grievance-infused nationalism. Third, and probably most important, is the instruction to party and country that they should never forget that Xi is in charge of everything from the moment people rise in the morning until they switch off the bedside light at night. And even then, Xi is still watching them and watching over them.

But even if Xi does not want others to scrutinize his record, his closest advisers must see that he may have squandered the years of peak power China had gained because of its economic strength and the problems faced by Western countries since the 2008 global financial crisis. “Post-peak” China’s existential problems will now become ever more apparent. The country is not looking so unquestionably like the new and worryingly successful power that it has been. In some ways, that makes it potentially even more troublesome and threatening for the rest of the world.

Three problems

The most dramatic recent manifestation of China sliding past a tipping point has been the crisis at the property developer Evergrande. Comparing this to the 2008 collapse of Lehman Brothers does not seem to me a sensible starting point. The Evergrande debacle goes well beyond a huge market failure, and brings together two of the three big existential perils confronting the Chinese government.

The first is excessive indebtedness — not least in the real-estate sector. Today, China requires twice as much borrowing to produce every measure of growth as it did 10 years ago. Kenneth Rogoff of Harvard University and Yuanchen Yang of Tsinghua University estimate that the property and construction sectors account for 29% of China’s GDP. Land sales are especially important for generating local government revenue, and some 78% of Chinese personal wealth is tied up in housing. Yet, China’s total debt increased eightfold between 2008 and 2019, and is now almost three times the size of its GDP.

China’s second major problem is demographic: spiraling debt and falling productivity have been accompanied by a dramatic decline in the size of the working-age population. The country’s economically active population is projected to shrink by 194 million by 2050.

Moreover, both the number of families and the fertility rate are falling as China’s skewed male-to-female ratio persists. The imbalance is greatest among the youngest age cohorts: among those aged 10-14, there are 120 boys for every 100 girls. Given China’s declining number of families, it is no wonder that the house-building boom has resulted in so many empty apartments and at least 50 ghost cities.

Xi’s response to these growing economic problems has been to double down on his commitment to increase control over China’s more productive private sector and to favor state-owned enterprises. This policy is driven by his fear of ceding control to successful Big Tech firms, and seeing the rewards of private-sector achievement exacerbate the inequalities that constitute a third Achilles heel of Chinese communism.

But the Gini coefficient, which measures wealth and income inequality, shows that China is now more unequal than many Western developed countries, and is approaching U.S. levels of economic disparity. Forcing a few billionaires to hand over some of their fortunes to the state or to state-directed projects will not change much. To make China more equal, its leaders would have to dismantle the CPC power structure that shovels rewards toward the party’s controlling regiments.

In addition to high indebtedness, unfavorable demographics and widening inequality, Xi’s China is confronting huge resource and environmental challenges. It imports more crude oil than any other country and faces problems of food security. Meanwhile, climate change is taking its toll, in particular leading to a water shortage in northern China. The country has only 7% of the world’s fresh water, but 18% of its population, and there is a complete mismatch between where people live and where water is found.

China’s contribution to global reductions in carbon dioxide emissions is likely to be a further drag on economic growth, which in any event will probably flatline as a result of the country’s debt and demographic problems. Xi may therefore seek to retain political control through even more surveillance and intimidation as the population feels a growing economic pinch.

The hubris of Xi

It should also be clear that Xi’s regime has overplayed its geopolitical hand. Obsessed with the idea that the United States and its liberal democratic allies were in terminal decline, Xi bragged that China was seeking “a future where we will win the initiative and have the dominant position.” Through its “wolf warrior” diplomacy, China would supposedly boss the Indo-Pacific region and show the world a model of successful totalitarianism.

But China’s neighbors — from India to Japan, South Korea to Singapore, and Australia to Vietnam — have become increasingly willing to resist Xi’s muscle-flexing. Moreover, the United States has begun with some success to build cooperative partnerships with others. The aim is not to create a bamboo curtain around China as part of a second Cold War. Rather, liberal democracies want to constrain China’s bad behavior, make it pay for its bullying breaches of international agreements and work with it when this serves the global interest — provided that China keeps its word.

The objective truth, as Marxists might put it, is that China’s aggressive diplomacy has failed. Now China will have to change tack. The danger is that Xi, whom some think is a risk-taker, may become even more aggressive. So, instead of securing the Chinese public’s tacit political agreement through economic growth, he would seek their support at a time of greater hardship by whipping up nationalist fervor — particularly over Taiwan.

An alarming number of experts now regard a Chinese attack on Taiwan as a real possibility. In many respects, therefore, these are more perilous times for all of us. Liberal democracies must discreetly but firmly make it clear to Xi’s regime that they have red lines that China must not cross, and that one of them lies in the waters of the Taiwan Strait.

Chris Patten, the last British governor of Hong Kong and a former EU commissioner for external affairs, is chancellor of the University of Oxford. © Project Syndicate, 2021

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