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Illustration: Jayachandran/Mint
Illustration: Jayachandran/Mint

The political risks in China’s economic crisis

The Chinese crisis can have other dangerous consequences as well

China’s ongoing economic crisis—the wild swings in its equity markets and the precarious state of its financial system—is worrying for another reason. China is a big country, with Asia’s biggest army, and plenty of unresolved territorial disputes. In the past decade, its leadership has not shied away from whipping up nationalist passions now and then, especially in difficult moments. This has at times spoilt relations with important neighbours such as Japan and Vietnam. India, a country with which China has gone to war in 1962, is another neighbour in a perennial state of tension.

There is a good reason to worry about China on this score.

It is undeniable that stoking nationalist feelings in a time of crisis is an option available to leaders and elites in almost all countries of the world—democracies and non-democracies alike. There are plenty of examples around the world about the abuse of nationalist feelings. In Russia in 2015, for example, the Ukraine crisis has come in handy for President Vladimir Putin. A 10 June Pew Research Center report found that Russia’s economic crisis—dating from 2014 when commodity prices slipped—led to a degree of unhappiness with Putin. In 2015, however, his approval ratings on handling of relations with Ukraine stood at 83%. Stoking Russian nationalism has proved useful for Putin against the backdrop of a very tough economic situation.

The dilemmas faced by the Communist Party of China (CCP) are far more severe. Unlike ordinary authoritarian countries, the Chinese leadership has actually delivered on many fronts, including massive reduction in poverty over the last three decades and unprecedented prosperity for millions in an otherwise poor country. The revolutions in Eastern Europe at the end of the Cold War (1989-91) that swept away all dictatorships there left the CCP untouched. Two decades later, the next wave of democratic upheavals—the so-called Arab Spring (2010-12)—did not touch Chinese shores. The secret of the CCP’s stability is the peculiar nature of the social contract forged in China. In exchange for giving up the usual democratic freedoms—speech, right to assembly and forming political associations—the CCP has delivered economic prosperity. This deal, however, is one-sided: any slippage on part of the CCP is bound to lead to protest and instability. In recent years, the number of reports of protests across the country—and not only in restive provinces such as Tibet and Xinjiang—suggests that all is not well in the Middle Kingdom.

It is this factor that makes the ongoing financial and economic crisis a particularly fraught moment not only for China, but for Asia and the wider world. China has tried very hard to convince the world that its political intentions are benign. Again, this assertion has been based on China’s extraordinary integration with the global economy. Any responsible Chinese leader will not like to do anything that damages this linkage, leave alone disrupt it. Influential statespersons in the Western world believe this story.

In Asia, however, matters are very different: China is embroiled in disputes with most of its neighbours, with the exception of South Korea and its northern neighbours (Mongolia, Russia and the Commonwealth of Independent States). The setting of its deepest conflicts is to the south, across an improbable frontier—the South China Sea. Here, within the exclusive economic zone of virtually all Southeast Asian countries, China has built a “Great Wall of Sand" so far away from its coast that it defies belief. Under this plan, Beijing is reclaiming land and building artificial structures in the middle of the sea hundreds, and at times more than 1,000-1,500, kilometres away from its coast. Billions of dollars have been poured into these projects and China is defending them with its armed might. Overhead, an air defence identification zone makes it mandatory to seek permission for overflights in what is arguably an oceanic territory that belongs to no one nation. To its east, with India, an old border dispute flares into localized military confrontations now and then.

It is this factor—a militarized South China Sea, an unresolved border dispute with India and bitterness towards Japan—that rouses fears in the world. If the CCP’s interests are endangered—such as its monopoly over power—the danger of a localized flare up turning into a larger conflict is frightening. The world should sit up and notice.

Can China’s economic crisis spill into the political domain? Tell us at views@livemint.com

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