It may be hard to believe, but it’s been a full four years since China hosted the Olympics. At the time, Beijing 2008 appeared to herald China’s return, after a 500 year hiatus, to great power status. Commentators were falling over themselves to pronounce the inevitability of China’s rise and its implications for American influence in Asia.But is it possible we will look back on those Olympic Games as the peak of Chinese power, rather than the beginning of its rise? That’s the provocative argument espoused by The Diplomat:
Everything began to go downhill afterwards. Caught up in the global economic crisis, the Chinese economy has never fully recovered its momentum. To be sure, Beijing’s stimulus package of 2008-2009, fueled by deficit spending and a proliferation of credit, managed to avoid a recession and produce one more year of double-digit growth in 2010. For awhile, Beijing’s ability to keep its economic growth high was lauded around the world as a sign of its strong leadership and resilience. Little did we know that China paid a huge price for a misguided and wasteful stimulus program.
The bill for that massive spending is now coming due:
Today, Chinese economic policy-makers are hamstrung in trying to revive economic growth. The combination of local government indebtedness, massive bad loans hidden in the banking system, anemic external demand, and diminishing returns from investments has made it all but impossible for Beijing to use the same old economic playbook to fire up the economy.
According to The Diplomat, the long term outlook is even more depressing. China will have to confront a series of structural challenges if it is to continue to achieve the kind of dynamic growth that lifted the country from economic backwater to emerging great power in just three decades.The most obvious challenge is demographics. A RAND study observed that the proportion of the Chinese population of working age peaked in 2011 and began slowing this year. The share of the elderly population is rising. Healthcare and pension costs will soar as a result. So will labor costs. Investment and savings will diminish. In short, China may face the prospect, unknown in human history, of growing old before it gets rich.The environment presents another dilemma. Like many rapidly industrializing economies, China sacrificed environmental protection at the altar of economic growth. But the effects of this approach have taken a toll: already, argues The Diplomat, “Water and air pollution today cause 750,000 premature deaths and around 8 percent of GDP.” And as Via Meadia recently pointed out, the political costs of this approach are starting to mount as well. An outbreak of NIMBYism has forced many local officials to cancel major industrial projects as ordinary Chinese citizens demand an end to environmentally unsound development.Of greater concern is that China has backed away from market reforms in the last decade and embraced a version of “state capitalism” that emphasizes the state far more than it does capitalism. But as state-run entities have become more powerful, their political backers—and financial beneficiaries—have an even greater stake in blocking attempts at reform.And despite its best efforts at censorship, Chinese officials now concede that the internet has become too hard to regulate completely. For the first time, government policies “are being challenged for their reasonableness and legitimacy”, while at the elite level the Bo Xilai affair lifted the facade of unity to reveal a deeply fractured leadership.Externally, too, China faces a more complex strategic environment than it has for decades. The U.S., which had been distracted and bogged down in the Middle East and West Asia since 2001, has begun to refocus on Asia, much to the delight of most of China’s neighbors. At the same time, as Beijing tries to assert itself, particularly in regards to the South China Sea, smaller powers such as Vietnam and the Philippines are pushing back, emboldened by Washington’s renewed commitment to the region.It’s a grim analysis, not just for China but for the rest of the world as well. It is not in anyone’s interests to see China flounder. A rich China, secure in its legitimacy at home and abroad, is also a stable China, capable of powering the growth of her neighbors as well as offering a huge market for U.S. products.The upcoming leadership transition, to be held later in the fall, offers a chance of renewal. Whether Beijing can rise to meet the challenges of the first decades of the 21st century as it did the last decades of the 20th remains to be seen. The challenges are not insurmountable, but they will require enormous political courage in the face of powerful vested interests.