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.