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Some thoughts in 2021 on the future of China

Prediction is a tricky business. It’s easy to get carried away with one’s own ideas and the Texas Sharpshooter Fallacy is around every corner. However, I have been brewing a few thoughts about China recently which I keep meaning to get down somewhere. So here we are.

A quick note before I start – I have less than no qualification to write about this. I have zero professional or academic expertise in this area. I have no source of knowledge other than what I glean from the media and my own reading. You absolutely should not trust me.

The rise of China is the biggest news story of the 21st century, bar none. How this rise progresses will to a large extent determine what happens in the remainder of the century, independent of the rest of the world. Here then, are what I think are some key long-term trends and themes in the interaction between China and the rest of the world.

Circa 2021 China appears to be trying to establish a regional hegemony in Asia. A sub-goal of this seems to be rather tighter control over notionally “Chinese” states that are not formal parts of the PRC, including Hong Kong and Taiwan, and a looser influence over Chinese expatriate communities around the world. In the case of Hong Kong, this absorption into the PRC is nearly complete.

I expect China to establish regional hegemony, but for it not to proceed any further than that. There are a few reasons for this. Firstly, China is surrounded by unfriendly neighbours who have much to fear from Chinese dominance. The Belt and Road initiative has come under much scrutiny recently as many of the recipients of China’s largesse are concerned about falling into debt traps. India, Korea and Vietnam have all been on the receiving end of Chinese invasions in the fairly recent past, not to mention the ongoing enmity with Japan. None of these are likely to improve in the near future.

Secondly, China’s recent attempts to bully certain trading partners into taking a more pro-China political stance appear doomed to failure. Both sides benefit from the trade and China hurts itself by taking these steps, both financially and reputationally. It’s a strange approach that seems rooted in the ancient ideas of Chinese superiority that led the Ming-era fleet to sail Asian seas demanding “tribute” but not actually setting up profitable trade routes. As soon as one of China’s modern tributaries declines to kowtow and doesn’t suffer severe consequences, the bluff is called.

Thirdly, China is surprisingly dependent on the outside world and is vulnerable to supply chain interruption. The United States has uncontested control over the world’s seas. Power to destroy a thing is power to control a thing, and China’s total reliance on sea lanes for import of raw materials (including fuels) and export of goods make it vulnerable to US pressure. The BRC may be seen as an attempt to circumvent this, but China is geographically unlucky – hostile neighbours, relatively few natural resources and no “safe” borders. Compare this with the USA – food and fuel independence, free access to two oceans, and a northern border which is barely even policed. Any significant conflict between China and the USA would be brief, as the US boxes in China by interdicting shipping, and shuts down airspace from it’s two main aircraft carriers in the region, the USS Japan and South Korea. Having said that, perhaps there is some wiggle room – maybe the US could accept PRC control of Taiwan in return for a unified Korea controlled from Seoul?

Speaking of trade, the main factor that has made China such an economic powerhouse in recent years is that it has been able to manufacture the world’s goods for low prices, and ship them overseas to make large profits. A lot of this has relied upon low wages for factory workers, of which there were previously an unlimited supply. However as tens of millions of people move into the middle classes, their wages are driven up and China becomes less competitive as a manufacturer. This, combined with the catastrophic supply chain disruptions caused by covid are leading many companies to reduce their exposure by manufacturing closer to home. If, as an American company, you could build your widgets for the same price in Guangzhou or in Mexico City, you may well choose the latter.

As more poeple move into the middle class, other demographic headaches have come to light. In the week prior to writing this the Chinese government has released information from its most recent census which reveal that the rate of Chinese population growth is dropping sharply. The one-child policy seems to have markedly overshot the mark, and combined with the reduction in birth rates that come with urbanisation, China is ageing extremely rapidly. Old people are expensive, and need an awful lot of young people to support them. At the time of writing, it looks like China is headed for a gigantic bubble of elderly people in the 2030s and 2040s, which it will have a lot of trouble funding. A grey-haired population tends to put the brakes on political and economic ambition more than just about anything else, just look at Japan.

Other factors which I think will become relevant include a strange and inflexible banking system, an awful lot of corruption, a tendency to stifle innovation (especially when it seems to threaten the power of the government), a gerontocratic governing class and widespread environmental calamity.

In short – I predict that China will establish regional hegemony of a limited sort, but that it will not be able to project power beyond its immediate neighbourhood. Many of the factors that led to China’s rise are weakening, and we may not be far off the peak of Chinese power, both economically and politically. Unfortunately for China, the people you meet on the way up are also the people you meet on the way down, and the secretive and untrustworthy Chinese governing style reminds me a lot of the Soviet Union in the 1970s.

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