China’s rise has been spectacular — hundreds of millions of people lifted out of poverty by their hard work.
Participation in the global order has provided the capital investment, market access, and technology that have fuelled China’s prosperity.
But the country has been rising for more than 40 years, unaccompanied by effective public pressure for reform. It opted in to the liberal order without liberalising. Despite President Jinping Xi’s expansive statements about preserving the liberal order, China undercuts it politically, economically, and militarily.
The irony is that opting in to the liberal order has been the engine of China’s success and its rise of power and influence. It was only when China began allowing rays of capitalist sunshine into its economy that prosperity commenced.
However, we often lose perspective on China’s actual standing. Straight-line projections of current growth rates in perpetuity dazzle but are not weighted down by the many factors that may reduce the glare of its ascent.
The downsides to China’s economy
China’s per capita GDP is $8,827. This is roughly equivalent to Russia, Brazil, Kazakhstan, Equatorial Guinea, Lebanon, and Mexico.
‘You have to criticise yourself’
Journalists and some academics breathlessly report that China’s economy has already overtaken the United States on the basis of purchasing power parity, inflating China’s prosperity in ways that are economically interesting but belie the experience of the Chinese.
When per capita GDP is arrayed in a comparative way, China still falls among those same developing countries.
China is a country of a billion people, yet it is utterly dependent on access to foreign markets. Domestic consumption for the products China produces is still some distance from what Chinese people themselves can afford.
Distrust of the government and poor provision of social services causes a precautionary 50 per cent savings rate, an enormous diversion of capital into less productive channels.
State-owned enterprises are inefficient, opaque, politicised, and likely leaching capitalisation from the banking system at much greater rates than admitted.
Even the best Chinese start-ups devalue precipitously when exposed to global standards, and despite brilliant entrepreneurs succeed only with enormous government privileges. Western companies are now subject to forced joint ventures, seizure of technologies, imposition of political commissars on boards of directors, and restrictions on market access, reducing their appetite for moving into China.
Half of China’s millionaires were considering or planning to move to another country, according to a 2017 study conducted by Hurun Report. Australia, the United States, and Canada are the top destinations for Chinese millionaires. Their motivations for emigrating are not solely economic, however: education and pollution are also central drivers for moving overseas.
China may also be reaching the Lewis Turning Point, that magic inflection wherein rural migration that has flowed to China’s cities and powered its economic growth begins to drop. The ageing of China’s population, rising labour costs, and shortage of new labour may help explain Mr Xi’s ambitious 2030 goals for artificial intelligence and robots as substitutes.
Chinese-led international order is unlikely to be liberal
The West has permitted China’s participation in the liberal order without holding it to the standards that sustain that order.
China’s economic power isn’t as big as you think
The country is now one of the greatest beneficiaries of the international order, so liberals anticipated that Beijing would accept the role of “responsible stakeholder” in the existing order.
Apparently not. China’s leadership has capitalised on anxiety stoked by US President Donald Trump’s reckless behaviour to position itself as the guardian of globalisation.
Mr Xi clearly wants to develop a Chinese ideology for the international order commensurate with China’s growing influence. But he describes participation in global governance as an “achievement of the Chinese Dream of the great rejuvenation of the Chinese nation”. The strong nationalistic undercurrent is unlikely to have the same appeal as the values of the current order.
What should America’s allies conclude? That a Chinese-led international order is unlikely to be liberal.
It is likely to be an order in which China’s interests alone dictate outcomes unmitigated by rules; in which the strong do what they may and the weak suffer what they must; in which tribute rather than alliance determines treatment; and in which military force is used to advance commercial advantage.
In short, it would be the equivalent of America’s early 20th-century policy of United Fruit and gunboat diplomacy in Latin America. This is not an international order in which Western sensibilities would prosper.
Trump better than anticipated on China
Fortunately for the liberal order, as a 2018 RAND study of the Office of Net Assessment concludes:
“China’s ability to realise its ambition is constrained by the fact that many Asian countries remain distrustful of Chinese power. To the extent that Beijing attempts to assert regional dominance through efforts that fail to adequately account for the interests of other countries, it will produce — and is already producing — countervailing reactions from regional states.”
Trepidation grows at China repossessing ports in Bangladesh and Sri Lanka, and manipulating governments once invited into participation.
As reprehensible as Mr Trump’s behaviour has been, America’s alliances in Asia remain mostly intact because of China’s threatening behaviour.
Unless China develops an ideology for its international posture that neighbours are less fearful of, the cost of attaining and sustaining influence will grow dramatically.
The Trump administration has been better than anticipated (although wildly erratic) on China policy. The administration has not hesitated to confront China’s attempts to erode the international order. It counters Chinese efforts to impede free passage of the South and East China Seas, and risks a trade war to establish reciprocity as the basis for Chinese access to the US market and support for Chinese participation in international organisations.
Trump administration trade representative Robert Lighthizer bluntly described China taking advantage of Western openness, saying:
“There’s a very different system over there and it’s a system that in all honesty has probably worked well for the Chinese … It has not worked well for us.”
Western government waited too long
What is so astonishing about the potential demise of the liberal world order is the extent to which it is consensual: the West encouraged and incentivised China’s rise, provided its markets, its technology and its capital, and supported China’s inclusion in rule-setting.
John Ikenberry, writing in 2011, gives a feel for just how convinced the West was that its ideology was ascendant: “The struggle over international order today is not about fundamental principles. China and other emerging great powers do not want to contest the basic rules and principles of the liberal international order; they wish to gain more authority and leadership within it.”
He concluded that “today’s power transition represents not the defeat of the liberal order but its ultimate ascendance”.
Most Western governments once shared that view; most now base their policies on the belief that China is a revisionist power whose economic practices are mercantilist and foreign policy is exploitative.
Even many of the direct beneficiaries of China’s Belt and Road Initiative now consider the largesse of infrastructure projects to be a gigantic debt-for-equity swap.
Those errors redound to the West’s credit: it made a bet on its values, offering China the opportunity to succeed on Western terms and become a “responsible stakeholder”, as it did with Russia in the 1990s.
Western governments waited, perhaps too long, and were admirably slow to conclude that China did not want success on Western terms, but wanted instead to establish Chinese terms for imposition onto first neighbours and then, building from that power base, onto the West itself.
By Kori Schake