China - The Way Ahead

On the eve of the National Congress of the Communist Party of China it will be worth taking stock of the situation with regard to China. Today’s China is a complex country. Listening to talks by George Friedman and Peter Zeihan and Shekhar Gupta brought home the fact that we, and the world in general, think very superficially.

We tend to take world events at face value. Whenever any world leader makes any statement, it is taken as gospel by the public and the media. This is more the case when the regime is authoritative to the extreme, as in China.  

In the late seventies Japan was at the peak of its economic power. In the eighties it began to invest in the rest of the world. It bought Warner Brothers, and many other companies in the world. Many thought that the Japan has arrived in the world, and they are buying out assets in the world. This was taken to be a sign of the rising power of Japan.

It was in fact, exactly the opposite. Japan was investing outside of Japan because return on capital had fallen inside Japan. Even in the peak of their economic boom return on capital in Japan was very low.

Today China is doing the same. They started the Belt and Road initiative and made massive investments around the world. But the return on investment they are getting from these projects is dismal. In countries like China a growing economy has to be defined differently. In China growth has to be achieved to create jobs, not wealth, like in other economies. Most of the private sector in China is heavily subsidized. China produces a lot, but very inefficiently. Their return on capital is a dismal 1.7%. Loss of jobs means social unrest, which is what the CPC fears the most.

Now Xi Jinping has secured his third term as leader of the CPC in the on-going Party Congress. If he has his way, he could anoint himself president for life. This would be unprecedented. Xi Jinping has built a personality cult around himself. He is trying for absolute power in China, for life. In the modern age, this looks rather unrealistic. But in China absolute power is still achievable. Xi gas surrounded himself with yes men, loyalists.  Whether he will be able to retain this absolute power, however, is the real question.

Where will China go from here? Looking at the economy of China there is not much room to maneuver. China faces many problems. The housing crisis has now ballooned and threatens to slow down the entire economy. The spillover effect of this crisis has started affecting other sectors too. The Local governments and some banks have been facing serious funds crunch. The zero covid strategy is not working and is causing huge anxiety among people. It has also derailed China’s manufacturing sector causing unemployment. Experts say, the lack of an effective vaccine has forced the leaders to continue with the policy. 

Some interesting facts have been brought to light by experts. It seems, by studying the satellite imagery of the intensity of night- time lights of a country, experts can draw conclusions about the amount of economic activity in a country and by inference its relative affluence. China has not released its data for the 3rd quarter of 2022. This prompted economists and data scientists to resort to unconventional methods to gauge the progress of China's economy. 

What Xi Jinping really has done is increased the cost of political failure in China. Deng Xiaoping had introduced the principle of collective responsibility based on consensus. Failure of a policy or its success was considered to be that of the whole Politburo and not of any individual. This consensus had made the CPC somewhat benign. But now the balance of power in the CPC is gone and the Xi faction has no opposition. Purges have had to be carried out as in the case of Hu Jintao.

Moreover, many old co-operatives have been restarted by Xi Jinping. This would suggest that Xi wants to take China back to the co-operative economy of the Mao era. Experts suggest, Xi may be either preparing for war or a famine.  

It is not so anymore. Now power is concentrated in one person and so is the responsibility that goes with it. If Xi fails to achieve any of his declared goals, he stands to lose everything, maybe even his life. He has created many enemies on his way up, who now will be looking for a weakness to exploit. 

The top leadership in China is locked in a bitter power struggle which could continue for a long time even after the conclusion of the Congress.

Xi Jinping is taking China back to the Mao era. He wants to create his own legacy. The recently concluded CPC Congress has laid down China's future path in no uncertain terms. Nationalism has taken center stage. Inside China it is no more about development anymore. It is about socialism as dictated by the CPC and its complete domination of the Chinese society. Foreign investors, as a result, are having second thoughts about investing in China and are looking for alternatives. The CPC has gone into its comfort zone, which is repression. 

With absolute power in his grasp the leader now has the tools to force his will on his people. The world should expect a more belligerent and unpredictable China.

New World Order – Emerging Contours

There has been a marked shift in the way nations are looking at their relations with other nations. The Russia -Ukraine war has now dragged into its eight month and the world has suffered because of it. Shortages of food, oil, gas have pushed up inflation and brought misery to millions, especially those living in poor countries. 

In my earlier article on the emerging world order, I said that it would be difficult to predict anything. While the situation has not changed much, some trends can be noticed through the geopolitical fog. 

As the war drags on and more difficulties emerge in dealing with the upheavals in geopolitics, countries are shedding their initial policies and posturing and are trying to stem the rising turmoil.

Europe has seen political winds of change. The Italian elections have thrown up a right-wing government which is friendly to Russia. Now, news is that Russia could restore gas supplies to Italy. The war and it’s disruptions in supplies, has also prompted protests in France demanding that France should leave NATO. Putin wanted to drive a wedge between NATO countries in order to have better bargaining power. He was trying to wean Germany away from NATO by cutting off its gas supplies, but it could be France instead. Putin may succeed, which means the US will see its bargaining power with Russia considerably reduced and a big strategic blow to NATO.

Despite the sanctions, Russia will not be a pushover. All the sanctions imposed till now have weakened Russia, but not crippled it. Its ability to wage war has diminished but it is still a force to reckon with. Also, Iran has stepped in to supply Russia with drones and other material. This is one pawn in the game whose move was not predicted.

The countries in the middle east, who were traditionally pro west, also seem to be taking a different path. The OPEC+ group which includes Russia, just passed a resolution to cut production of oil by 2m barrels a day, worldwide.  The United States is not exactly appreciative of this move. It is already grappling with inflation which is at an all-time high and could do without a supply shock to such a crucial commodity.  America provides security to friendly countries in the gulf by stationing troops here. America now has threatened to remove its troops from the gulf region in retaliation. President Biden has warned the gulf states of ‘Consequences’.

If one more proof of the changing geopolitical order was needed then India and China’s behaviour is a good barometer. India of late, has been reluctant to tow the line of the west. It has not condemned Russia for the attack on Ukraine till to date, and also bought oil form Russia when the west was for boycotting Russian oil. China has not condemned Russia either. Russia and China have formed an alliance as a counter to NATO and what they view as western hegemony.

The whole situation is very interestingly poised. The current dynamics makes prediction hazardous, as anything can happen. However, the new world order which is expected to crystallize in the near future may have begun to show its contours.

International Relations at Work

 

It is interesting to note how international politics, or for that matter any politics, works on perceptions.

The Russia Ukraine war has upset a lot of equations, in the west and east. Russia has been the traditional enemy of the west since the end of WWII. Even after its fall, the west continued to view its actions with mistrust. As Russian power decreased there was a predictable approach by NATO to countries which were formerly under the Warsaw Pact with an offer of membership.

Ukraine was prominent among them. Latvia, Lithuania, Poland, Belorussia, and all of the Central Asian states came under the influence of the west. These newly liberated states wanted investments to sustain their economies. Russia could not do that and so began to lose influence over these states.

The US took advantage of the situation and began to add these newly liberated states (mostly European) into the NATO fold. When eventually they reached Ukraine, Russia put its foot down.

This is a game of perceptions. India is now an emerging player in this balance of power equation. But for India the main reason to join groups like the quad is to counter China. For India, Russia is a friend, but China needs to be deterred. For the other members of the quad Russia also needs watching.

That India views Russia and China differently is obvious from the fact that India abstained from voting in the UNSC against Russia on the resolution on Russia’s annexation of some of Ukraine’s provinces, but, helped to thwart Chinese resolution against the AUKUS regarding breach of the NPT in the IAEA. 

If America wanted to check China, it could have weaned Russia away from China. American actions against Russia have forced it to side with China. The Russo-Chinese relationship is nothing to write home about. China wants Russian resources like oil and other minerals in the Russian far-east. China ultimately wishes to annex this region by flooding it with their own people and changing its demographics.

It is in India’s strategic interest to not let Russia go under the boot heels of China. Probably, India is also eyeing the Russian resources in the Arctic region. There have been talks regarding India investing in this region and having a permanent presence here.

Thus, every power, small or big, is vying to achieve its own strategic ends in this region. There are some convergences among perceived enemies and some divergences among friends. 

The Armenia Azerbaijan conflict has also shown how nations maneuver for advantages. Turkey was interfering in the Kashmir issue at Pakistan's behest. India has responded by bringing out the issue of Cyprus which is a burning issue between Turkey and Greece. Turkey and Pakistan have also funded internal Islamic dissidents in India, namely the PFI and earlier the SIMI. Turkey is helping Azerbaijan in this conflict.  Thus, India thinks it is justified in supplying arms to Armenia to counter Turkey in Central Asia. It has been noticed that whatever happens in this region has a direct bearing on India's security. 

This is how international politics works. The power play among nations and the maneuvering for advantage is evident here. The outcome is anybody’s guess. But experts say that China is now viewed as a declining power economically, and demographically, and may see its window of opportunity closing fast. If that is indeed the case, Chinese leadership may throw caution to the winds and act against Taiwan.

The way matters are headed, a clash between the USA and China cannot be ruled out in the near future. A student of international relations would be interested in learning how the other powers loose or gain from this rivalry.