If Xi is motivated to avoid further Chinese humiliation, the West should help him recognize the magnitude of the crises he faces rather than treating him as a superpower in ...
If Xi is motivated to avoid further Chinese humiliation, the West should help him recognize the magnitude of the crises he faces rather than treating him as a superpower in waiting.
I n describing the recent Chinese military moves around Taiwan following the swearing in of Taiwanese president Lai Ching-te on May 19, a spokesman for the People’s Liberation Army of the People’s Republic of China said that the exercises were intended as “strong punishment” for Taiwan.
“Punishment” is a curious choice of words for modern statecraft, but it reflects China’s worldview under Xi Jinping. Xi sees himself as a leader of destiny for a country whose recent history can be divided into two salient 100-year periods. (In the case of China, “recent” has a meaning all its own.) For Xi, the first period is the so-called Century of Humiliation, which began with the first opium war, 1838–42, and ended with the assumption of power by Mao and the Chinese Communist Party in 1949. It was a century of abuse and subjugation of China by foreign powers, who seized territory and indentured Chinese into servitude and shipped them overseas to help build foreign economies. This period peaked during World War II, when China, an ally of the United States, endured ruthless occupation by the Japanese Imperial Army. That included the six-week period in 1938 known as the Rape of Nanjing, which was the capital of the Republic of China. As many as 300,000 men, women, and children were brutalized and killed in the atrocity.
The second formative period for Xi is the one we’re in. In 1949, the CCP under Mao Zedong emerged from the carnage of 100 years of foreign occupation followed by civil war. This period also encompasses Xi’s own history, including his personal humiliation as his family fell from privilege during Mao’s Great Leap Forward. He emerged as an apparatchik in his own right, even more certain of the virtue of the party and China’s rightful place in the world.
During this second period, China has experienced an economic transformation, beginning with the market-led reforms of Deng Xiaoping after Mao’s reign. The West obliged by helping ease China’s economic awakening, providing access to global markets and trade. But that project has gone off its rails. Despite the best hopes of China and the rest of the world, China’s economic, social, and demographic fissures reflect serious, extinction-level problems. China’s economic and political structures are unsustainable in their current form.
Even today, though, many still believe that China has invented a third way of development, between capitalism and communism, in the form of state control with market characteristics. But that is a chimera that Beijing and the world have been perpetuating for too long. China’s economic growth is a debt-fueled illusion that has outstripped the underlying economic fundamentals. It cannot be sustained on its current path. It might be said that the most enduring accomplishment of Xi and his predecessors has been to transform the Chinese Communist Party into an unchecked Chinese Keynesian party.
The counternarrative of a Chinese economic miracle of state capitalism has become so pervasive that many, not least Xi himself, still believe it. In an ironic form of denial, the U.S. and the European Union even seem to want to copy aspects of the China model, as demonstrated in their own recent spate of industrial policies, even as PRC failures and inconsistencies are coming into greater focus.
As for Xi, much like the Qing emperor whose naïveté and self-delusions precipitated the Century of Humiliation, he sees himself as the chosen leader of a country whose destiny is undeniable. And much as the great powers cajoled the emperors before ultimately defeating them, the world continues to coddle the PRC’s belief in its own superiority. Too much of Western policy looks past the fundamental failures of the CCP and sees only the military provocations, advanced weaponry, and wolf-warrior diplomacy. They see what Xi sees: a country more or less on the rise, an emerging superpower. In that sense, Western policy-makers are complicit in China’s self-delusions.
There is a consensus in the U.S. that China is a “competitor” or an “adversary” that must be contained or defeated. One question emerging from that consensus is whether we should eschew détente-style appeasement of the PRC in favor of confrontation and victory, the broad strategy whereby Reagan defeated the former Soviet Union. Ending détente is right. This is not a new argument. But we also must acknowledge that China is in irreversible decline. And it’s important not just for the U.S. and its democratic partners to accept that. Xi himself must see it. By contrast, if the world continues to act as though China is an emerging superpower and it must be dealt with as such, Xi, given his humiliation-driven sense of destiny, will have no reason to change course.
To understand how Xi sees himself and why, a cursory review of some 200 years of history is necessary. With an eye toward opening China’s ports to more trade, King George III in 1793 sent Sir George McCartney on a mission to the Qing emperor. China in the 18th century saw itself as a land of superior history and culture and was not interested in Western enticements and entanglements. For good reason. China at that time was truly the Middle Kingdom, representing roughly 30 percent of the global population and gross domestic product; at 300 million, it had about five times the combined population of Great Britain, France, and Russia. It was the regional hegemon, surrounded by tribute states. The Great Wall, which had protected China from barbarians to the north, was to some degree anachronistic by then. After all, the Qing dynasty, which controlled China, evolved from the last invaders, the Manchus.
The Qing Emperor Qianlong had no use for the outside world and no great appreciation of it. He rebuffed McCartney with an ill-fated indifference. Great Britain, using its Indian possessions, had begun opening the opium trade into China to offset a persistent Chinese trade surplus with Europe. There was high demand for Chinese tea, porcelain, and silk. In return, the Chinese wanted silver. The British instead wanted to trade more opium.
Successive Qing emperors had attempted to place restrictions on the use of the drug, which was creating severe social impacts inside China. China continued to resist, but did not prevail, after the McCartney mission failed. The First Opium War was precipitated in 1838 in part by British concerns about opium-import restrictions. The United Kingdom relied on its naval advantage to vanquish a Chinese navy not optimized for combat with one of the world’s great maritime powers. Great Britain imposed a punishing peace, which included the cession of Hong Kong.
Further humiliations followed. The scope of colonization expanded with the Second Opium War in 1858, as France and the U.S. joined Great Britain to help defeat the Qing dynasty a second time. Russia got into the act eventually and took control of Outer Manchuria. (In a modern turnabout, the sparsely populated Russian Far East, formerly Chinese Manchuria, is now an attractive potential target for China’s own revanchist expansion.)
By the beginning of the 20th century, China was reduced to just 6 percent of global GDP, a fraction of its earlier lion’s share. Everyone wanted a piece of the country; Portugal ruled Macao, the Russians had Port Arthur and Outer Manchuria, and the Germans controlled Qingdao. Having found itself on the short end of a series of so-called Unequal Treaties throughout the 19th century and presiding over the decline of China and subjugation by foreign powers, the Qing dynasty fell in 1912. Thus ended 2,000 years of Chinese imperial rule.
This relatively recent arc of China’s history gives rise to Xi’s nationalist grievance and his belief that fate has chosen him to reverse it once and for all. A review of his personal history fills out the picture. Mao’s Communist Party tore his family apart. His father, a prominent party official close to Mao, was purged during the Great Leap Forward. Xi’s own life is a microcosm of the late Qing dynasty. His early childhood was that of a princeling of the Communist Party, as he attended party schools and lived a life of relative calm. What followed was turmoil and humiliation. His mother was forced to repudiate his father, and a sister died, probably from suicide, after militant, violent students bullied and abused him and his family. At 14, Xi was locked in a detention center. He managed to escape and make his way home. His mother’s obligation was to turn him in.
Despite this treatment, Xi emerged even more persuaded of the party’s primacy and of the need for authoritarian discipline. He reportedly keeps a picture of his mother on his desk today and speaks of her with loving pride. He also came away with a belief that he had survived humiliation because destiny had chosen him to rejuvenate China’s Communist glory and repudiate the country’s own humiliation.
Xi laid out his “China Dream” in 2012, calling for full national rejuvenation under CCP rule by 2049. For Xi, certainly after a century of Communist Party rule, the Century of Humiliation will have been avenged. But his sense of urgency is greater than that. Given his belief in himself and his destiny, he feels that it is his “responsibility” to bring Taiwan under CCP control in his lifetime. Also, he may be hedging against the possibility that after him . . . Who knows what will follow? He has consolidated power in a way that will be hard for a successor to sustain when he is off the stage. The regimes that follow totalitarian consolidators can find the trick hard to repeat. At age 70, Xi probably sees the need to accomplish his signal achievements within the next decade, and his orders to his military commanders and to the organs of China’s grey-zone activities aimed at domination of Taiwan are based on that time frame.
Which takes us back to Xi’s “punishment” of Taiwan, which represents a double indignity to Xi and the CCP. The Nationalists fled to Taiwan to escape Mao’s Communist takeover, and Japan was the island’s last colonizer. Symbolically, Beijing’s taking over Taiwan would not only reset the Nationalist Chinese apostasy of the past century but also stand as a repudiation of the great-power arrogance during the Century of Humiliation (not to mention providing access to the semiconductors that help drive China’s export-led economy).
While perhaps understandable from Xi’s perspective, all of this reflects miscalculation on par with that of his imperial predecessors. Like the Qing emperors, Xi has a false sense of his country’s position. The West is unwittingly complying through its seeming wonder that China’s state-capitalist system and market liberalizations have created the world’s second-largest economy. Is it impossible to see through the fiction and recognize how China’s economy is propped up by Keynesian artifice — i.e., by government spending without limits? The world seems content to ignore it in favor of the “state-led capitalism” story.
The result is unsurprising. Even before the real-estate bust that China is now experiencing, the PRC had one of the largest debt burdens in the world, at more than 300 percent of the country’s GDP. Local municipalities, the primary source of real-estate-driven growth, are in debt to the tune of more than $13 trillion. They cannot continue to play a part in inflating the economy. That is now the task of Beijing alone. It will continue spending. High-speed trains to nowhere, half-empty skyscrapers, and more dams per capita than any country in the world are matched with further investments, through the Belt and Road Initiative, in markets worldwide. Ports, roads, mines, and other overseas investments are less a sign of strength and of Beijing’s “soft power” than just more examples of the faith that the CCP has in Keynesian economics, through which, it hopes, it can spend its way out of its current economic crisis. This began before Xi, who is only more obvious about it now.
There are several aspects of China’s “investment-led growth,” or super-charged Keynesianism, that Beijing’s central planners are ignoring. While there may be a role for Keynesian stimulus, generally that approach has only short-term impact. It cannot continue on the scale that has been seen in China for the past couple of decades. Second, with such a high savings rate and relatively low consumer spending, there is no multiplier effect. The supercharging has created a massive bubble in real estate. It is well known that the excess housing units glutting China’s cities were built as financial assets, as a form of consumer savings, not spending. Government spending at these levels crowds out productive spending and leads to inefficiencies across the economy.
The impacts of the real-estate bust have yet to be felt in full. This sector represents about a quarter of all economic activity in the country. That’s more than the total housing activity in the U.S. just prior to the global financial crisis in 2007. Two Chinese developers, Evergrande and Country Garden, together carry half a trillion dollars in debt. Dozens more are under water. Wealth-management instruments that Chinese citizens poured their savings into have lost most of their value, as have the properties that millions invested in, creating a double whammy for individual investors.
The government will attempt growth by continuing to stimulate the production of exports and will be okay with further devaluation of the yuan in real terms. State subsidies to exporting companies are enabling Chinese companies to flood global markets with ever-cheaper exports. That creates more bubbles in more sectors. China’s electric vehicles and solar panels are flooding global markets, but that isn’t sustainable either. As Treasury Secretary Janet Yellen warned in her recent visit to Beijing, China will be unable to export its way to economic growth, and the Biden administration’s recently announced tariffs on Chinese electric vehicles, battery technology, and a range of other exports will help ensure that.
Other fissures are obvious. The regime squandered its demographic dividend, not only through the risible one-child policy and the irreversible decline of the population to which that led. Worse, the Communist regime also has neglected to invest in its rural poor, numbering half a billion and lacking access to adequate education. The regime has created a false promise for the urban educated elite, whose unemployment rate now well exceeds 20 percent. Lack of a meaningful social safety net leads to a higher savings rate. The CCP suffocates its citizens with a high-tech surveillance state. Given the declining economy, shortage of jobs, and lack of a social contract, those who can leave, do.
China’s Keynesian blowout extends to military and foreign policy. Security analysts are concerned about ostentatious displays of apparent power and influence, including the PRC’s military buildup in the Indo-Pacific and the display of Chinese soft-power through the Belt and Road Initiative of investments in the Global South and elsewhere. Turned on its head, though, these activities are only more examples of the government pump-priming to keep the economy inflated. Chinese military modernization, while no doubt expanding the PLA’s potential warfighting capabilities, has as its primary purpose spend, spend, spend. That doesn’t necessarily make the military more formidable.
The indicia of military power are compelling, to be sure. But what that analysis misses are the more intangible considerations. The most important: Can the Chinese fight? It’s easy to mock the belief today, but remember the concerns about the Iraqi army after the invasion of Kuwait and the buildup to Operation Desert Storm. The Iraqis had a large standing army and sophisticated weaponry, including Exocet cruise missiles and French and Soviet fighter aircraft to fill out the largest air force in the Middle East. We all know how that turned out after a couple of weeks of confrontation with the U.S.-led coalition. Something similar could be said about the Russian army, which most analysts thought would take Kiev in a few weeks after the invasion of Ukraine in February 2022.
Xi seems to understand this, and he is replacing generals and senior officers at a dramatic rate because of corruption, incompetence, and lack of confidence. It is far from certain — in fact, it is quite probably not the case — that China’s military forces are capable of fighting a well-trained, well-equipped adversary, which defines the forces of the democratic powers arrayed against it in the Indo-Pacific. There is ample indication that Xi knows how suspect the capability of his military is. In his missives to party leaders, he openly questions whether his generals understand strategy and tactics. He has challenged them to know whether the troops can — or will — fight.
Certainly, we must be attentive to China’s capabilities and military intentions. Just the same, the PRC’s decline — political, economic, and social — in its current form is inevitable. The decline will not be a straight line, and it will be uneven across different dimensions. For now, Xi is politically strong and the party is in charge, even as the economy continues to decline. There are plenty of reasons for concern in Western capitals.
Still, it is more important to right-size the PRC’s problems than it is to overstate them. U.S. policy should reflect our awareness of China’s weaknesses. This is especially true of direct engagement with China. Not only must we acknowledge China’s severe shortcomings, but our policy should also include ways to ensure that China, including Xi himself, understands China’s problems — and that it understands that belligerence will be futile and self-defeating.
For sure, we must be attentive to PRC intent and capabilities and prepare accordingly. We are in a new cold war. There shouldn’t be much debate about that. It’s what we do about it that is more important.
Yes, the PRC is a threat to regional stability.
Yes, the PRC, in its support for Russia, Iran, North Korea, and other authoritarian regimes that abuse human rights, is a danger to the rules-based international order.
Yes, the PRC, with its debt diplomacy, is a destabilizing influence in countries in every region.
Yes, Beijing is developing advanced military capabilities.
Still, we should have confidence that the PRC has not conjured up a new path to superpower status. Centrally planned, human-rights-denying, totalitarian regimes are not built to last. The PRC will be no exception.
What’s to be done? Well, the declarations and statements of leaders deserve attention. And Xi is backing up his comments with action. Beijing is investing in military modernization, and the U.S. has until recently been underinvesting in areas where it must do more. In the recent bill providing assistance for Taiwan, U.S. funding for more submarine construction and and the replenishment of U.S. stocks of munitions given to Taiwan is welcome, and more investment is needed. The Biden administration is shoring up its support for the Philippines and investing in security relationships with Japan, Australia, and other regional powers. These are steps in the right direction.
We are less well-prepared, however, for gray-zone activities that fall short of military confrontation. In the near future, the PRC will continue to put a premium on operations other than war to achieve its objectives. It may be weak economically and militarily, but it has many strengths, including the control of its population it exerts through surveillance and technology, and what it is doing to undermine adversaries by exploiting their openness. There is reason for some optimism in the growing awareness of this threat, which is what caused 85 percent of the U.S. House to unite behind a bill to force the sale of TikTok from its China-linked owner, ByteDance.
We’ll see expanded use of lawfare, too. This is how to think about recent actions in the Taiwan parliament, or the Legislative Yuan (LY). The PRC-sympathetic majority coalition that includes the KMT recently jammed through legislation that would create a range of new corruption-related statutes to begin what is likely to be a protracted campaign of intimidation against the DPP government, particularly cabinet appointees and perhaps the president himself. The U.S., the Asian democracies, and even the European Union should call that out, as Taiwanese civil-society leaders are doing. The Biden administration and the EU seem to have no problem seeing threats to democracy from the right throughout Europe and even in the U.S. They should apply the same standard to the real threats that the Chinese Communist Party poses to democracy in Taiwan, even if the threats are reinforced and carried out by Taiwanese legislators.
While Xi is deluding himself about his country’s strength and superiority, he will continue to hedge by building up his nonmilitary abilities to confront and agitate. Beijing took Hong Kong without firing a shot. Xi will attempt the same with Taiwan and, in the process, attempt to undermine and weaken the United States. Information warfare, including attempts to undermine democratic governments through social media and other means, ranks high on the Chinese playlist.
Whatever path Xi chooses, time is not on China’s side. The most constructive thing the democratic powers can do is to never flinch from acknowledging the truth: China’s problems are manifold and unyielding. We do not need to send a series of cabinet officials to Beijing to make demands and issue threats. As Matthew Pottinger and Mike Gallagher recently wrote, it makes us appear “as supplicant” and it confuses Xi and reaffirms his self-delusion. Just the same, although we are in a cold war, the past need not be prologue for China. If Xi is motivated to avoid further Chinese humiliation, the West should help him recognize the magnitude of the crises he faces rather than treating him as the leader of a superpower-in-waiting. We must do that through confidence in our own strengths and unflinching focus on China’s ultimately fatal inconsistencies of unhinged spending and totalitarian oppression.