Decoding the cracks in the Chinese model9 min read . Updated: 10 Oct 2019, 10:50 AM IST
China faces a slowing economy, a trade and tech war, and riots in Hong Kong. What does this mean for India?
China faces a slowing economy, a trade and tech war, and riots in Hong Kong. What does this mean for India?
Mumbai: Teng Biao observed the People’s Republic of China (PRC) turn 70 from a long distance, and wondered whether he may ever enter the mainland again. Teng was living in Hong Kong as a visiting scholar a couple of years after Xi Jinping became President in 2012. Then his world changed. The soft-spoken activist’s colleagues in China began disappearing during a crackdown on critics and pro-democracy intellectuals. “It was obvious that if I went back to mainland China, then I would be definitely arrested and given long-term imprisonment,’’ said Teng. He left Hong Kong for Harvard Law School, eventually becoming a human rights scholar at Hunter College, The City University of New York.
The prospect of people in Hong Kong being dragged off to face trials in the mainland, thanks to a now-scrapped extradition bill, was the trigger for the territory’s ongoing protests. Clearly, the censorship imposed under Xi has only tightened in the run up to the 70th anniversary celebrations.
“No force can ever undermine China’s status," Xi told the world on the PRC’s founding anniversary on 1 October. He reminded people at the 15,000-strong military parade and weapons display of China’s economic miracle; that a country which once imported matches and kerosene is the world’s largest manufacturer.
But China’s most powerful man who rules an over $13 trillion economy is fast turning into a crisis manager. An economic slowdown at home, an expanding trade and tech war with the US, riots in China’s global offshore financial centre and pushback against his $1 trillion under-construction legacy—the Belt and Road Initiative (BRI)—are challenging his rule. Xi’s own credibility is on the line if reports that he personally directs China’s moves on these multiple fronts are true.
Xi often refers to his China Dream, a seven-year-old campaign of national renewal and unification. In an indication of the difficult times, Xi used the word “struggle" over 60 times in a speech last month. “He was trying to keep his flock together,’’ said Srikanth Kondapalli, professor of Chinese studies at the Jawaharlal Nehru University in Delhi.
The Hong Kong dilemma
The Chinese Communist Party (CCP) educates its citizens that they have no political alternative. “Without centralized, unified, and firm leadership," a government white paper said in September, “China would have tended towards division and disintegration and caused widespread chaos beyond its own borders."
But chaos has become the new normal in Hong Kong. Police in Hong Kong fired their first live shot on 1 October—the day of Beijing’s display of weapons and warplanes—at a teenager who allegedly attacked a policeman. Sections of society in Hong Kong are demanding “freedom" from China and democratic reforms.
Hong Kong has erupted after decades of frustration at Beijing’s undermining of the “one country two systems" policy since 1997. “The protests are a sign of failure of ‘one country two systems’, which in practice has meant a creeping direct influence of Beijing when the idea was to protect autonomy and support greater democratization in Hong Kong,’’ said Dibyesh Anand, a professor of international relations at the University of Westminster in London.
Hong Kong in 2019 is not comparable to pro-democracy protests in Tiananmen Square in 1989, Anand emphasized. “Tiananmen was a mass protest by students, workers and others, many of whom were sons and daughters of the communist party leaders,’’ said Anand. “It was a crisis within the CCP. Hong Kong protests, from the view of Beijing, are in periphery, and led by those who are not part of the ruling system."
Beijing occasionally threatens to use force against Hong Kong and Taiwan, which China considers a rebel province, but the People’s Liberation Army (PLA) for now prefers just a show of strength. “The issue of using force is a dilemma for Beijing. It’s soft power related,’’ said Kondapalli. While Chinese nationalists may argue in favour of tightening Beijing’s grip on Hong Kong, Kondapalli noted, Chinese globalists argue against moves that would make China “lose face" and impact China’s global agenda.
The deadlock between the local administration led by chief executive Carrie Lam and protesters is worsening after Lam banned face masks and launched an old emergency regulations ordinance that further threatens autonomy. Chinese censors are busy scripting the Hong Kong riots as separatism.
Anand reckons the CCP would aim to do two things to avoid uneasy questions over Xi’s leadership over Hong Kong. One, Beijing would try to prevent solidarity among mainland Chinese people with the Hong Kong protesters; two, Beijing would have to win the propaganda war to present the protesters as anti-Chinese rather than anti-CCP. A likely scenario, he said, is that Beijing would direct Hong Kong’s officials to use more coercion and hope for protest fatigue in the financial hub of over seven million.
Hong Kong has “deeply impacted" politics in Taiwan, according to Teng, and people are increasingly questioning whether their lives may be similarly affected. National unification of Taiwan is entrenched in the China Dream. A year before Xi officially took power in 2012, a young scholar had confidently predicted to me that Xi would solve the Sino-Indian border problem and make Arunachal Pradesh China’s, even Taiwan. Another scholar had predicted that Xi would herald “a golden age".
Top Chinese leaders are “shocked", Teng said, and are being forced to “rethink" their policies in Hong Kong to an extent. But it’s doubtful, he admits, that the ongoing protests will be a turning point for political change in China. After all, in China’s remote north-west Xinjiang, 1.5 million Muslims are believed to be incarcerated for forced re-education, Tibet is off-limits to most outsiders. And Xi has anointed himself President for life.
War on trade and tech
The world’s export factory is getting hammered by multibillion-dollar American tariffs. China’s best-known global telecom giants, Huawei and ZTE, are being treated as enemy agents by the US. India is wary of allowing their entry in coming 5G telecom trials. But US companies in China have yet to act on President Donald Trump’s suggestions to leave. And about 40% of Indian companies in China wish to increase their investment this year, according to a recent speech by Chinese ambassador to India Sun Weidong.
“There’s no significant movement of investment leaving China,’’ said Ravi Bhoothalingam, founder of Manas Advisory, a consultancy that works with Asian companies. However, Bhoothalingam noted that there’s acceleration in an existing trend of low-tech industries, like those making toys and garments, relocating from China as costs rise. Bangladesh and Vietnam have been major beneficiaries of this shift.
Chinese state-owned enterprises (SOEs) and private companies that depend on exports as well as technology companies that depend on their US partners for patents and licences are suffering, according to Santosh Pai, member of the Core Group on China in the Confederation of Indian Industry (CII). “China’s domestic economy will suffer until it de-couples from the US in these areas," said Pai.
Pai predicts that Chinese companies going global will seek to offset losses from the trade war by relocating manufacturing units to cheaper locations unaffected by the US tariffs; expand in emerging markets; invest overseas to acquire technology in areas like semi-conductors and artificial intelligence; and further invest in the BRI. This “ripple effect" gives India an increasing opportunity to attract manufacturing units.
The Dragon slows down
India can aspire to create tech giants like Alibaba, Baidu and Tencent, and global supply and transport gateways like Shenzhen and Shanghai. But the CCP can still set up bullet train tracks faster than any other nation: 3,200 kilometres (km)this year. For comparison’s sake, India (a $2.6 trillion economy that is five times smaller) will take over three more years to complete 508 km of railroad for its first bullet train between Mumbai and Ahmedabad.
Yet, China’s “miracle" economic engine has slowed to a 27-year low. Industrial output is below 2002 levels. Officials say times are “complex" and “grave". Xi’s policies, which put more emphasis on inefficient, debt-heavy SOEs as driver of growth than the more productive private sector, will serve as a drag on growth.
China’s shrinking working age population, set to fall from 830 million in 2030 to 700 million by 2050, is a longer-term concern. China’s one-child policy was turned into a two-children one in 2015, but the number of births continued to slide every year since. The Chinese workforce decreased by 0.5% last year, according to Chinese media reports.
A Chinese white paper issued just before 1 October, however, highlighted the dragon’s sweet spots. Rural poverty decreased from 99 million in 2012 to 16.6 million in 2018. Last year, China exported $2.5 trillion of goods, and Chinese overseas investment was worth $143 billion. About 700 of 900 million Chinese workers have jobs. Crucially, consumers are spending more, especially online.
Lend it like the BRI
China has only two friends in the world: Pakistan and North Korea. Big and small nations are increasingly wary about Chinese bullying. India is upset with Beijing’s pro-Pakistan rhetoric on Kashmir. In Sweden, a hotel chain came under Chinese pressure not to offer a venue for the Taipei Mission to celebrate National Day. Australia and Canada are facing Chinese flak for actions against Huawei.
But Xi’s global legacy is spreading with no serious competition. The BRI has tapped a worldwide market in Asia, Europe and Africa for Chinese banks, SOEs, labour and resources to build infrastructure. Official Chinese data states that 136 nations and 30 international organizations have signed up. By 2018, Chinese enterprises invested over $100 billion in BRI nations. Chinese freight trains reach 50 European cities.
India, in comparison, has extended Lines of Credit worth $19 billion for 194 ongoing projects, according to a response in the Lok Sabha in June. India rejected the BRI for several reasons, including because the over $60 billion China Pakistan Economic Corridor from Xinjiang to a future naval base in Gwadar passes through Pakistan occupied Kashmir.
Many BRI projects are economically unviable, leaving countries with unsustainable debt. Even Pakistan, in greater debt to Beijing than the International Monetary Fund, recently scrapped a coal project and downsized a railway project. Sri Lanka had to give Hambantota port to China for 99 years. Tanzania recently suspended a $10 billion port project.
India’s criticism of the BRI is now echoed by many nations. The downsizing or cancellation of projects by nations like Bangladesh, Myanmar and Sierra Leone are giving Beijing an image problem. “The original BRI conception was too big and too fast,’’ said Bhoothalingam. “The pushback has prompted a rethink in China so that the BRI will be more modest.’’
There is no rethinking on Xi’s leadership, however. Kondapalli noted that “China continues to show confidence and coordination’’ in tackling its many problems. “No force…can stop the Chinese people or nation from moving forward,’’ Xi asserted last week. All things considered, the Chinese President will land in Chennai on Friday in a mood as assertive as last summer in Wuhan when he discussed his China Dream goals with Prime Minister Narendra Modi.
Reshma Patil is the author of Strangers Across the Border: Indian Encounters in Boomtown China.