By some measures already the world’s biggest economy, China is seeking energetically to flex its muscles abroad by launching grand projects such as the One Belt One Road investment programme and by establishing the Asia Infrastructure Investment Bank. However, though its influence is growing in much of Asia, China’s capacity to wield clout at the global level is often overestimated. Furthermore, it is pursuing costly- and possibly risky – international initiatives at a time when its domestic economy looks increasingly fragile and vulnerable to shocks, and amid warnings that it faces a looming financial crisis. It is beset by slowing growth and other serious problems, notably rapidly rising debt and a rapidly ageing population, to many of which its leaders appear to have no clear solutions. Meanwhile, plans to rebalance its economy and promote much-needed structural reforms have lost momentum. Unless China acts more decisively to overcome those obstacles, they may constrain both its future development and its global economic ambitions.
Mao Tsetung famously said that political power grows out of the barrel of a gun. On the global stage, however, enduring power is based on economic heft. By that criterion, China should have a lot of it.
China is, by some measures, the world’s biggest economy as well as its largest trader and manufacturer, home to its biggest foreign exchange reserves and now its biggest source of greenfield investments, after years as a leading net recipient of inward FDI.
This endows China with economic muscle – and it is seeking to flex it increasingly assertively abroad: by establishing the Asian Infrastructure Investment Bank, to which more than 50 other countries have signed up; by launching One Belt One Road (OBOR), a hugely ambitious investment project inspired by the ancient Silk Road that may eventually girdle the earth; and by securing the Renminbi’s recent inclusion in the IMF’s SDR basket, a step towards a full reserve currency role and, in the eyes of some Chinese observers, to challenging the global pre-eminence of the US dollar.
The prospect that Donald Trump’s presidency will lead to a shift in policies that would weaken traditional US alliances in Asia offers China new opportunities to extend its international reach. Already, the expectation that Mr Trump will abandon the US-led Trans-Pacific Partnership (TPP) is spurring Beijing to rev up plans for a rival mega-trade deal, the Regional Comprehensive Economic Partnership (RCEP), which would embrace almost every east Asian economy, India and Australasia while excluding the US
All this has provoked both awe and concern in capitals around the world. In many, China’s continued rise to ever greater global influence is viewed as inexorable. As Gideon Rachman, the Financial Times’ international affairs columnist, put it in his recent book Easternisation, a historic shift towards Asia is taking place in the world’s economic and political centre of gravity, powered by China’s continuing ascent.
To be sure, in this view there will be some bumps along the road ahead, just as periodic financial crises punctuated the industrial rise of the US during the late nineteenth century. For China optimists, however, these would be temporary setbacks, from which the country would swiftly recover to regain its relentless upward trajectory.
Yet such visions sit uneasily alongside the growing list of huge problems piling up in China, to many of which its leadership appears to have no clear solutions and some of which it seems to lack the will – and indeed political clout – to tackle decisively. Some are short-term and cyclical. But many are longer-term, structural and increasingly deeply rooted.
That is not to say that China’s economy is about to implode or to come crashing down to earth with a bump – though that cannot of course be ruled out, especially since so much publicly available information about its true condition is sketchy, ambiguous or non-existent. However, there is growing evidence to suggest that the economy’s glory days are behind it and that visions of its continued rapid advance, based on the implicit assumption that it will somehow go on going on as it did in the past, are mistaken.
That appears to be what some of the country’s top economic policy makers fear. One of them, described only as an “authoritative person”, told the People’s Daily, the Communist Party’s mouthpiece, in May that the economy’s future course was not U- or V-shaped but a series of L-shaped downward steps. In other words, a steady decline in longer-term growth, not a quick bounceback, was in prospect.
The official’s identity, and his or her motives for speaking out, remain subject to much speculation among China-watchers, though whoever he or she is must have had approval from the highest levels of the Party hierarchy. But one, fairly widely shared, interpretation is that the intention was to jolt a sluggish government bureaucracy out of the complacent belief that the economy would somehow recover by itself from its current slowdown and to goad them into action.