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The Great Fall of China
How Xi Jinping Is Changing China

A new report from the Council on Foreign Relations concludes that China’s economic trouble will mean more nationalism and corruption crackdowns from President Xi Jinping:

To strengthen his position at home, Xi “will probably intensify his personality cult, crack down even harder on dissent, and grow bolder in using the anticorruption campaign against elites who oppose him.” Internationally, Xi “may provoke disputes with neighbors, use increasingly strident rhetoric in defense of China’s national interests, and take a tougher line in relations with the United States and its allies to shift public focus away from economic troubles.”

To deal with Xi’s more assertive foreign and defense policies, the authors call for a new American grand strategy for Asia that “seeks to avoid a U.S.-China confrontation and maintain U.S. primacy in Asia.”

The report itself contains lots of insights and useful figures. For example:

Investment now accounts for roughly half of Chinese growth, an unprecedentedly high amount, and it is subject to diminishing returns, with one dollar of investment producing 40 percent less GDP growth today than it did a decade ago.

Meanwhile, the loans that underwrite these unproductive investments—such as China’s famed ghost cities, which are lled with buildings but lacking in tenants or businesses—threaten the country’s banking system and have pushed debt to 280 percent of GDP, according to a recent estimate from McKinsey & Company.

Bad loans. Diminishing returns on investment. China’s model is broken, and it’s hard to see how a more authoritarian regime is going to make things better. Campbell and Blackwill have done some good and important analysis in this report, ultimately trying to propose how the future of America’s China policy should look. We recommend you read the whole thing.

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  • Anthony

    “In light of China’s developing economic slowdown, China’s foreign policy may well be driven increasingly by the risk of domestic instability (Blackwell and Campbell)

    Here’s more context: “China is facing an uphill battle on two fronts. At home, government prestige is waning as the economy falters with Chinese people sending their money abroad as the stock market stumbles amid a slowing economy and a deteriorating currency… thediplomat.com/2016/02/chinas-defense-posturing-shields-its-economic-distress/

  • Andrew Allison

    As Russia has been demonstrating, the usual response to economic trouble at home is stirring up trouble abroad. The impending collapse of the Chinese financial bubble is going to have “interesting” results, especially in the South China Sea. We can only hope that the Administration, and especially the Pentagon, are preparing for them.

    • f1b0nacc1

      The Pentagon is (slowly), the Administration is trying to run out the clock and otherwise hoping that nothing happens until they are gone…

  • Kevin

    “seeks to avoid a U.S.-China confrontation and maintain U.S. primacy in Asia”

    I’m not sure these are compatible. All out thermonuclear war with China woukd be undesirable but avoiding all confrontation ultimately means acquiescing to Beijing pushing the US out of Asia and the Western Pacific.

  • Jacksonian_Libertarian

    “To deal with Xi’s more assertive foreign and defense policies, the authors call for a new American grand strategy for Asia that “seeks to avoid a U.S.-China confrontation and maintain U.S. primacy in Asia.””

    I have been saying for some time that America should be using China’s belligerence to negotiate an economic and defense alliance very favorable to America, from India to Japan and from South Korea to Australia. Such an alliance would dominate China in every way, economically, populationally, technologically, and militarily. Pushing China back to its borders would be relatively easy with such an alliance, and if China decided to fight, a strategic blockade of China’s ports would crush China’s logistics seeing that China imports most of its raw materials, and is completely dependent on exports.

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