In recent times relations between countries have become somewhat transactional, especially after the pandemic. National interest is seen to be dominating the foreign policy of countries which were hitherto complacent about their interests. The Russia Ukraine war has further exacerbated the economic difficulties.
In the last three decades China was the growth engine of the
world. It dominated manufacturing and therefore had a huge impact on the supply
chains of the world. However, since the start of the pandemic Chinese leadership
led by the Xi Jinping has been reversing many of the economic policies which
made China the second largest economy after the USA.
This may surprise many. But to understand this we have to
understand the Psyche of the CCP (Communist Party of China). The ruling elite
values political power more than the riches earned by the people. Democracy is
anathema to the top leadership of the CCP. People should always be subjugated
and kept under the thumb of the ruling elite. What the CCP fears most is independent
thought, and the fact that people may ask uncomfortable questions when they
start thinking.
This monetary influence enjoyed by the private companies and
their owners in China is what prompted the CCP to crack down on the big
companies. The private businessmen were getting too big for their shoes as some
of them criticized the Communist Party policies. The party never tolerated
criticism, however constructive. The Chinese government began to cut the
private industry down to size. The likes of Jack Ma are not heard of anymore.
This policy of the CCP is responsible for the decline in the Chinese economic
power. But it is not the only reason.
Chinese economy has begun to face headwinds. The three decades
of growth from the 1990s to about 2012-13, when Xi Jinping took over were
spectacular to say the least. But this growth also had the seeds of decline.
Chinese growth was powered by exports and was debt driven.
Domestic consumption was not encouraged during this time. Also, Chinese real
estate saw spectacular growth in the last two decades, but it accumulated a lot
of debt. The sector was highly leveraged. As the growth in the sector began to
slow after the onset of the pandemic, companies began to default on their
loans. Total Chinese debt is said to be around 300% of its GDP.
The zero-covid policy is hurting the Chinese economy by
creating labor shortages, causing delays in transportation of goods and
services and throwing the whole manufacturing sector out of kilter. These
losses have forced many companies out of China.
The Chinese Belt and Road Project also seems to be
faltering. After starting with a fanfare and an impressive global outreach,
countries who thought Chinese loans were a Godsend are now hesitating to
participate. Many countries have been saddled by debt incurred on projects
which the countries did not need. Roads, airports and other infrastructure was
built in countries which were poor and now cannot pay back the heavy Chinese
loans. Small and poor countries all over the world have been victims of Chinese
debt traps. As a result, this initiative is losing steam. There is also a decoupling happening between the Chinese and several other economies, as well as denial of some crucial technology.
China’s obsession with unification with Taiwan has also come
a cropper. The United States deliberately called China’s bluff regarding Nancy
Pelosi’s visit. All the bluster and anger shown by China by engaging in
military exercises in the Taiwan Straits impressed no one. Its aggressive
actions along the Indian border and in the South China Sea has created a
serious trust deficit in the Indo-Pacific. China wanted India to tacitly accept
its hegemony in Asia. India did not oblige.
Last but not the least Chinese demographics are not
favorable for a growing economy. Infact China today is well past its most
favorable demographic period. Mao instituted the one child policy which was
continued for about thirty years. It was meant to reduce Chinese population,
and it indeed has. In the next two decades China will have the fastest aging
population in the world.
