Xi Jinping has silver linings for rest of world

LONDON, Oct 17 (Reuters Breakingviews) – A third term for Xi Jinping would risk a cold or even a hot war. But the prospect of China’s nationalist leader staying in power, which the ruling Communist Party is almost certain to approve at its congress this week, does not bode badly for the rest of the world. Xi’s policies hurt the economy. This makes it difficult for the People’s Republic to assert itself – and helps to combat climate change.

Until recently, most analysts agreed that it was only a matter of time before China’s economy, which was three-quarters the size of America in dollar terms last year, became the world’s largest. This forecast assumed that the People’s Republic would continue to grow at the amazingly high growth rates of the past.

With an unstoppable economy, China seemed destined to spend more on sophisticated military equipment and win allies in developing countries by building out infrastructure with its Belt and Road Initiative (BRI). Once his power became overwhelming, countries in East Asia and beyond would do his will.

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ON THE SECOND FLOOR

But China’s economy encounters all sorts of problems. The country’s population of 1.4 billion people is aging rapidly while the debt-fuelled housing bubble collapses. Meanwhile, Xi’s increasingly autocratic rule has spawned policies such as seeking to eliminate Covid-19 and cracking down on large private tech companies. Both have weighed on growth.

China grew at an average rate of 10.3% per year in the first decade of this century. Growth slowed to 7.7% in the second decade. While that’s still high, much of the recent expansion has been in idle real estate and infrastructure investments. George Magnus, an economist who has warned for years that China’s economic model is unsustainable, puts the country’s growth rate at between 2% and 3% per year.

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Even if China manages to grow at 4% per year for the rest of this decade, it won’t overtake America anytime soon — especially given that the yuan has fallen against the greenback. If the United States continues to grow at an average of 2% per year and the currency stays where it is, China’s economy will still be almost 20% smaller in dollar terms by the end of the decade.

The country would then find it more difficult to build the dominant military power in Asia and to finance investments abroad. It would also be a less attractive model for other countries to emulate – and there would be less pressure to accept its hegemony.

A slower-growing China, especially one that relies less on high-carbon construction, would also be good for the planet. The country, the world’s largest emitter of carbon dioxide, has pledged to reduce the carbon intensity of its economy by an average of 3.9% per year under its current five-year plan, which runs through 2025. If the economy slows, China’s emissions may already have peaked.

Of course, Xi could abandon the carbon target. But Beijing’s Dimitri De Boer of the environmental organization Client Earth thinks that’s very unlikely because the target is binding and China’s president has positioned himself as an environmental champion.

NEW COLD WAR?

Meanwhile, Xi’s nationalism — ranging from saber-rattling over Taiwan to tacit support for Russian President Vladimir Putin’s invasion of Ukraine — is uniting the West and some other countries against the People’s Republic. The European Union, the United Kingdom, India, Australia, Japan and South Korea have increasingly sympathized with the US view that China should be contained.

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America just imposed more tech sanctions on China to weaken its semiconductor industry. Meanwhile, its climate-focused inflation-mitigation law incentivizes clean-tech makers to keep America from becoming overly dependent on Chinese-made batteries, electric vehicles, wind farms and other equipment.

President Joe Biden stated in his new national security strategy last week that China has “the intention, and increasing ability, to reshape the international order in favor of one that tilts the global playing field in its favor.”

The United States is no longer just working in lockstep with wealthy European and Asian nations, in part through the Group of Seven (G7). It also tries to woo other countries, even those that are not democracies. For example, the G7 pledges to help developing countries through its $600 billion infrastructure partnership, which is seen as a green alternative to China’s BRI.

Not only Western countries want to avoid becoming too dependent on China. Xi does not want to rely on the West for finance, technology or natural resources. As a result, trade ties between the two will shrink. This will be bad for both sides economically, driving up inflation and slowing down growth.

However, the extent of the damage will depend on whether the mutual distrust affects only strategic industries or escalates into a full-blown Cold War. It will also depend on whether the West shifts manufacturing to land – which could be expensive – or builds up stocks of critical commodities like solar panels and rare earths in low-wage countries.

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ESCAPE THE TRAP

“When a rising power threatens to oust a ruling one, the most likely outcome is war.” So wrote Graham Allison, the Harvard professor who named this phenomenon the Thucydides trap, after the ancient Greek historian who studied how Athens in the 5th century BC tried to displace Sparta as the most powerful Greek city-state.

Allison points out that war is not inevitable. For example, the United States peacefully overtook Britain early last century, and America repelled a challenge from the Soviet Union without a hot war. Biden also wants to fend off the challenge from China without a fight. There is also a risk that a flagging PRC, led by a nationalist leader, will throw its weight around before its power peaks. It would be particularly dangerous if Xi were to face a nationalist president in America.

But Germany challenged Britain in World War I when its economy was still in full swing, according to Allison. So the current outlook may be less dangerous than what until recently seemed the most likely outcome: a Chinese economy walking on water.

Narrowing gap: China’s economic growth is slowing closer to that of the United States

consequences @Hugodixon on twitter

CONTEXT NEWS

China’s President Xi Jinping on October 16 called for accelerating the building of a world-class military while touting the fight against Covid-19 as he opened a Communist Party congress, focusing heavily on security and political priorities repeated.

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Edited by Peter Thal Larsen and Thomas Shum

Our standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias under the Trust Principles.



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