The Chinese leadership is in a state of desperation caused by its own economic ambitions. Analysts believed that China would take over the United States (US) in terms of economy. However, the situation seems different from how it did a few years ago. In fact, there were reports in 2022 that China’s Gross Domestic (GDP) Product figures were manipulated. There are broadly two reasons for China’s situation: first, the turbulence in its “Guónèi zhèngzhì” or domestic affairs. Second, the anxiety caused due to desperate shift in the Duìwài zhèngcè’- foreign policies of Beijing. This could be due to failing economic agreements with its allies and the challenges faced by China’s flagship programme, the Belt and Road Initiative (BRI). The following sections examine China’s economic motion and whether it is still moving with the utmost rigour.
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President Xi Jinping is tightening control over his government, making the concept of authoritarianism synonymous with his tenure. China’s annual ‘two sessions’ happened from March 4 till a week this year. Xi Jinping was formally elected president for an unprecedented third term. The National People’s Congress (NPC), China’s legislative body, elected Xi in a ritualistic ceremony where 2,952 members cast votes affirming his appointment, with no opposition whatsoever. Another key highlight of the two sessions was the promotion of Li Qiang and the involuntary retirement of Li Keqiang. Xi loyalist Li Qiang became the nation's premier in March 2023, taking over Li Keqiang’s position. Li Keqiang still had one year before retirement when he was let go. The internal rivalry between pro-market reformist Li Keqiang and state-supremacist Xi Jinping most likely resulted in Li Qiang getting elected. However, Li Qiang is also a pro-business politician. Whether his policies align with Xi’s vision as China moves towards centralising power struggles to mark its place in global geopolitics is yet to be seen when Xi is going each day towards state supremacy. We will look at a few State-focused policies which have affected China adversely.
The major challenge that Xi’s China faces is a crumbling economy due to the stringent zero-Covid policy measures imposed by the Chinese government, resulting in several European and American companies withdrawing from China. As per a report by the European Chamber in 2022, the major problem experienced by companies in 2021 was Covid-19, with the business environment facing more politicisation. Revenue rose for two-thirds of European enterprises in 2021, but business conditions deteriorated yearly for 60% of them. Consequently, some big companies such as Apple, Samsung and Volvo have shifted their manufacturing hubs to ‘friendlier’ countries, one of them being India. Similarly, a report released by AmCham Shanghai in 2022 said that a 29 percentage point decrease from the stated rate of year-over-year rises in 2021 was predicted by 47% of the organisations for year-over-year revenue growth in 2022. Fifty-two per cent of those polled said that in the previous year, their headquarters' trust in China's economic management had declined.
Chinese private companies under Xi’s regime have suffered several crackdowns over various sectors, such as e-commerce, real estate, pharmaceuticals, and education. The Chinese administration ‘investigated’ these companies under the pretext of solving monopolistic practises, unfair competition and counterfeiting. At the same time, the Chinese government underplayed the political magnitude of the investigations as they made it seem that inspections were purely technical. The Chinese government released a document saying that small- and medium-sized enterprises comprised 60% of the country’s GDP, making it harder to understand the government’s mixed policies towards private enterprises. In 2023, the crackdown on the tech sector had especially started to reduce to make a return to growth after Covid-19-related limitations and the pandemic's devastating effects on the economy.
Another reason for China’s failing economy is the continuing increase in China’s ageing population. As per China’s National Bureau of Statistics, the population of China dropped to 850,000 for the first time since 1961 this year. The remnants of the one-child policy and the effects of Covid-19 have drastically affected China’s population demographic. Although the One-Child policy was scrapped on January 1, 2016 to address its ageing population and diminishing workforce, the government introduced the two-child policy, which was further enhanced to a three-child policy in 2021. However, women and couples have been delaying or not wanting children due to increasing education fees, housing, and other living expenses, significantly when the situation worsened after Covid. The Henan banking crisis of 2022 definitely did not help China's situation when thousands of citizens took to the street to protest for their livelihood, and the authorities harshly dealt with it. Unemployment in China was off the charts in 2022 since it reached 18.7% in August. Beijing's broad crackdown on the nation's private sector and steadfast adherence to a zero-Covid policy severely impacted the job market.
China was reaping benefits from the existing world order in the last twenty-odd years. But now China is worried about the change in the geopolitical setting, and therefore, it has been proposing its own global political and economic order through its diplomatic leadership. The Saudi-Iran agreement brokered by China could be a way of forging a New Order in West Asia. It is often argued that China is a revisionist power aiming to influence the rules in its favour and also attempting to transform the liberal world order. For example, its role in the United Nations Security Council (UNSC) and other sister organisations of the UN. To do so, Beijing has increased its funding to the UN, increased the number of troops in the UN Peacekeeping Forces and unveiled new financial institutions like Asian Infrastructure Investment Bank (AIIB). AIIB is a Chinese approach to initiating a new multilateral development finance structure shaped by various economic and political interests.
Likewise, Beijing’s expansion of the ambitious BRI although it happens to experience some reluctance and criticism. It has often been opined that there are several geopolitical constraints, policy transparency, social resistance, and corruption. The project is occasionally argued to lack values of liberty, democracy and human rights. Also, it has faced backlash from the citizens of the host countries like Kazakhstan, where the Kazakh nationals are critical of “Chinese Education camps”. Another cause of this criticism is the Chinese importing their business and workforce, which directly hampers the growth of the host nations’ indigenous businesses and the clogging of the labour market. In some instances, they are alleged to have discriminatory pay to the local workers. It could be argued that, of late, China’s chequebook diplomacy has bounced.
The aggressive BRI policy of China has also invited criticism from its ‘comrade’ Russia, which believes that the people of Central Asia and the neighbouring states worry about their sovereignty. However, the other side of the coin could be that Moscow is worried about BRI taking away the significance of the Eurasian Economic Union (EUU) and growing Beijing’s economic turf in Central Asian countries. Moreover, some projects under the ambitious BRI have begun to fail and, in some cases, are proven to be a white elephant. Some Chinese mega projects, like Ecuador's $ 2.7 billion Coca Codo Sinclair hydropower plant, are plagued with construction flaws. Similarly, the 969 MW Neelum-Jhelum hydroelectric plant in Pakistan witnessed cracks in the tunnel which transports water to the turbine, ultimately shut down due to a defect costing a loss of $ 44 million to Pakistan. Similar is the case in Uganda’s 183 MW hydropower plant, where almost 500 construction defects were identified. And now China is forced to spend money for its repair much before the shelf life of these dams, making it a costly affair. The BRI mainly comprises poor economies that are shown carrots and trapped in the vicious cycle of loans pushing them further into economic crises like in Sri Lanka.
Moving ahead, another cause of challenge for Xi-land is the Sino-US relations moving from strategic engagement to strategic containment. In the early 1970s, when China opened its doors to the world economy, there was hope that China would adopt the core values of the liberal international order. However, to everyone's surprise, China did not follow suit, despite benefitting from the capitalist world economy. Therefore, the US and its partners changed their strategy towards engaging with China to limit its role in trying to change the liberal world order.
The US and its allies have decided to reduce their dependency on Chinese exports resulting in more than fifty companies pulling out of China.
Looking towards South Asia, not all is well with Xi’s ‘all-weather friend’ Pakistan, which is witnessing hyperinflation owing to a decaying economy due to poor governance juxtaposed with colossal import bills, wearying currency and the insatiable appetite for foreign loans- Chinese loan vending machine tops them all. As a result, China has stalled some of its projects in Pakistan and is mulling over the future course of action. China has refused to release some funds required for the execution of the CPEC projects; in fact, some of the projects touted in 2020 have been only on paper due to escalation in the construction cost. For example, the Karachi Circular Railway (KCR) was dropped off the list of CPEC projects apart from a few other multi-billion dollar projects.
This has undoubtedly created a feeling of abandonment in the government of Pakistan, like in the case of the Afghan Taliban. Since August 2021, post-US withdrawal, China has hoped to fill the void with its ‘constructive involvement’ in Afghanistan. However, after making tall promises to the interim government of Afghanistan, not much has moved out of the board room meetings. China is stuck with some of its projects in Afghanistan which it signed way back in 2008- the Mes Aynak mining, the project by China National Petroleum Corporation for extracting oil from Amu Darya, is also delayed. The Chinese reluctance to invest and move the project has frustrated the Taliban.
It was expected that China would change its ways to accept the universal standards of mutual coexistence since its economic reformation in the late 1970s. However, we increasingly see China making an attempt at replacing the US as a hegemon through its own concepts and structures. The problem that arises is the Chinese growth model. When there was a fundamental attack on the economy in the form of Covid-19, the faults in the growth model were exposed. Similarly, initiatives taken in the foreign policy sector, which seemed promising, are facing numerous roadblocks in the Chinese story of development. We see that China’s confused policies have made smaller countries question whether they can depend on China or if they have made a mistake. Overall, it seems that China is attempting to alter the world order; however, several setbacks and reluctance on Xi’s end have caused damage to its image internationally. It is yet for us to see if China does end up rising from the ashes or if it will remain stuck in the consequences of its failed policies.
This article is authored by Soumya Awasthi, consultant, Tony Blair Institute for Global Change and Swayamsiddha Samal, PhD candidate, Jawaharlal Nehru University.
