Enter the stronger dragon

History is likely to view 2018 as an inflexion point in establishing China as a global power

Ten years may be just a blip in the life of a country. This is especially true for one with a history as long and tortuous as China’s. But when I hopped into a taxi on a cool morning this August, headed for Beijing airport’s massive Terminal 3, I couldn’t help but wonder if the country I was leaving was, in many ways, markedly different from the one I had arrived in before the 2008 Olympics.

Where is China headed? There’s no easy answer. ‘The land that failed to fail,’ pithily summed up a recent essay reflecting China’s ability to defy predictions of its impending collapse. If it’s foolhardy to predict where China’s is headed, then perhaps it’s more instructive to look back.

40 years ago

This year marks the 40th anniversary of the ‘reform and opening up’. In 1978, China’s GDP was $149 billion, just 1.75% of global GDP. China’s GDP that year was about the same size as India’s then $140 billion.

China’s per capita GDP was $156, even less than India’s $203. Fast forward 40 years to 2018: and China’s economy is $12.2 trillion, accounting for 15% of global GDP, and nearly five times India’s. It’s per capita income is $8,825, over four times India’s $1,939. China is the world’s second-largest economy, and is forecast to surpass the U.S. by 2030. From an isolated communist state, China is now a lynchpin of the globalised world.

The past four decades haven’t been without challenges, which have cropped up, curiously enough, every 10 years since Deng Xiaoping’s reforms. In 1989, the Communist Party faced an existential challenge as the country was roiled by pro-democracy student protests, ultimately crushed brutally by Deng. The Party adapted and evolved, and Deng sidelined conservatives to usher in the economic opening-up of the early 90s. In 1998, China weathered the Asian financial crisis, and a decade later, China, in the wake of the 2008 Olympics, emerged even stronger, increasingly convinced of the inevitability of its rise and the decline of the West.

Watershed year

Will history view 2018 as another such inflection point? It certainly felt so in Beijing this March, when we lined up in sub-zero temperatures outside the Great Hall of the People to watch the National People’s Congress deliberate on amendments to the Constitution. As many as 2,959 delegates voted for — and two voted against — an amendment to remove the two-term limit for the post of president. Also written into the Constitution were guiding ideologies titled Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era.

The changes confirmed Xi’s unrivalled standing in the Party — elevating his status to that of Mao Zedong and Deng — and signalled the dismantling of the model of collective leadership that Deng left behind. It was a model that many even in the Party believe allowed China to escape the fate of other authoritarian and Communist states through its unique politics: an authoritarian country without a dictator, a Communist nation that embraced state-led capitalism and gave its citizens economic and social liberties — to start businesses, travel and marry as they choose — lacking even in some democracies.

Where do China’s leaders see their country going? Xi has spelt out his mission clearly. His immediate target is leading the country to celebrate the Party’s 100-year anniversary in 2021, by when China would have eliminated absolute poverty — an incredible feat unimaginable four decades ago — and established a “moderately prosperous society”. The second big target is to establish China as “a top innovation nation” by 2035, and a nation with “global influence” and a “world-class military” — on a par with the U.S. — by 2050.

The challenges

Will China achieve these targets? It will depend on whether it can overcome several challenges, both internal and external. On the home front, the Party faces political and economic constraints. Xi’s unprecedented centralisation of power, the Party argues, was needed to respond to domestic and global uncertainties that the collective leadership system didn’t allow. Yet it has created new stresses by dismantling a three-decade-old system and disrupting internal patronage networks in the party and the military. Xi has narrowed the space for debate and dissent, from media to universities, which sits uneasily with his mission to boost China’s cultural appeal and innovative strengths.

His biggest challenge may lie in managing a slowing economy that’s still reliant on easy credit to drive growth. China’s rebalancing away from export-led, state investment-driven growth to a consumption-powered economy has made some progress.

The $586 billion stimulus that helped it weather the global financial crisis has created an addiction to credit-driven growth. In 2017, China’s debt-to-GDP ratio reached 257%, according to the Bank for International Settlements.

The pace of debt increase is slowing, but it’s unclear how Xi will deal with the enormous debt that’s piled up, especially with local governments.

Building an innovation economy will also be challenging. China has already settled the long-running debate of whether an authoritarian state can innovate, as its tech powerhouses stride the globe. The government is now spending millions to position itself as the champion of emerging spaces such as artificial intelligence, which Xi has declared a national priority. Every day, the wide gap with the U.S. is narrowing.

Complicating the mission is an increasingly difficult external environment. It’s now been more than 100 days since China and the U.S. descended into a no-holds-barred trade war. Notwithstanding a temporary truce agreed in Argentina, the symbiotic China-U.S. relationship has turned forever on its axis.

The other external challenge is managing a growing regional wariness of China’s rising strength. Xi has cast aside China’s decades-old guiding diplomatic maxim, another Deng legacy, of taoguang yanghui, literally to ‘hide brightness, seek obscurity’. The new catchphrase in Beijing now is a more activist fenfa youwei, or to strive for achievement.

Xi has for the first time spoken of promoting the China model abroad, especially in developing countries, evident in his Belt and Road Initiative. Presented by China as a ‘win-win’, helping Beijing rebalance by exporting its surpluses to infrastructure-deficit countries, there are however concerns on its terms of financing.

India’ reaction

How China resolves these problems and manages its transition will present both opportunities and risks for India. The trade war has already opened up windows for Delhi that years of trade diplomacy failed to do, as China seeks new markets particularly for agricultural commodities. China’s economic transition has unleashed a flood of tech investment into Indian start-ups, by some estimates nearing $10 billion.

Alarmed by concerns about its new confidence, Beijing is appearing to course-correct, at least in the short-term, indicated by the Wuhan summit with India and the recent visit of Japanese Prime Minister Abe. Delhi will look to seize short-term opportunities even as it deals with the longer-term challenge of China’s rise.

In Beijing, 2018 is certainly being seen as a landmark year. For the Party, the year was the start of the Third New Era — the Era of Xi — and the era that will set it on its course to cement its status as a global power, especially in terms of its global influence. For detractors — including many Chinese who believed that with growing prosperity the country should gradually pursue political liberalisation — the year was a regression, a lurch back into authoritarianism. Only time will tell who is right.

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Printable version | Apr 2, 2020 4:02:12 PM |

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