Inside Story

What next for China?

Challenges at home are contributing to a tentative shift in relations with the West

Rana Mitter 23 December 2022 3007 words

Inward out: China’s president Xi Jinping at the G20 Summit in Bali last month. Leon Neal/Pool via Reuters

Last month’s G20 meeting in Bali was a showcase for China’s return to international diplomacy at the highest level. Xi Jinping is now firmly back on the international circuit, and China continues to portray itself as a power rising to global influence, with plenty of evidence, from cyberspace to outer space, to back up its claim. Yet the domestic situation is weaker than the Chinese Communist Party would have hoped a year ago, with a chaotic winding down of the zero-Covid policy, new American laws to deny China high-technology exports, and a shaky financial and property sector.

Beijing has also raised the tone of its rhetoric on the unification of Taiwan with the mainland. But this move, if it ever came about, would be more likely to exacerbate China’s problems for years, if not decades, rather than solve them. Bali marked Chinese re-entry into the world while revealing the uncertainties that could undermine it.

China did make the most of its G20 presence. Unmasked and confident, Xi Jinping held court, giving or withholding favour from leaders eager to be seen with him. There was little doubt that he would meet Joe Biden, but other leaders seemed to compete for invitations. Emmanuel Macron and Anthony Albanese were invited in, with the latter’s visit seen as a sign of thaw in the icy relationship between Canberra and Beijing.

Others, including Britain’s Rishi Sunak, were not given a meeting, though it’s unclear whether the planned bilateral with Sunak fell victim to the erroneous report that Russia had bombed Poland, or Chinese anger at Sunak suggesting support for Taiwan.

Yet the demonstration of power by Xi belied the seeming hesitancy in Beijing about China’s international strategy. The years of the pandemic saw not only US–China relations entering a period of deep freeze, but also a general lowering of favourability for China in the Global North, in particular in the Anglophone countries. The Global South remained overall friendlier, but it was hard to avoid the impression that it was Chinese Belt and Road funding, not values, that kept them enthusiastic.

And all this was before the dramatic turn in Covid policy that followed mass protests in China in early December. China’s domestic woes, notably a weak economy, are not terminal but they are undoubtedly serious. And solving them is dependent on a clearer sense of where China’s international relations are going.

The Bali meeting did show the US and China speaking in a civilised manner. After the ill-tempered encounter between the two sides in Anchorage, Alaska, in 2021, the polite language on both sides about mutual respect and cooperation was a welcome shift.

Biden was fortunate the G20 took place just after midterm elections in which his Democratic Party did surprisingly well: Chinese analysts follow US politics almost as avidly as Westminster Americaphiles, and it’s likely that the Chinese (rather like the Republicans) were expecting a Democratic rout and a weakened Biden arriving in Bali. In fact, the results left the US president chipper, and the Chinese side less able to lament the supposed continuing slide of the US towards fascism.

However, the meeting also showed that American leadership continues to be tempered by its partners’ varying priorities on China. In Europe, it’s evident that German chancellor Olaf Scholz is uncomfortable with the idea of a Western decoupling from China. His recent trip to Beijing, accompanied by top German business executives, emphasised that point. Even within Germany, there is unease at his position: the Greens in particular have been prominent in demanding a tougher position on China, and at least one senior politician, Reinhard Bütikofer, has been sanctioned by China.

To American complaints, however, Scholz can point out that a range of US corporate majors, from Ford to Coca-Cola, still have a major presence in China. Beijing is quite aware of the power of the China market for at least some Europeans. Xi will understand that there is no prospect of Europe staying neutral between the United States and China, and that the European Union as a whole has moved away from the idea of China as simply an economic partner, regarding it as a competitor in areas ranging from trade to security. Yet he also sees opportunities to remind the continent that simply following the US line is not the only option.

There is one European power that China has yet to figure out: Britain. That the scheduled bilateral between Sunak and Xi did not take place might have come as something of a relief to London (as did the avoidance of a Justin Trudeau–style drive-by tongue-lashing; the Canadian prime minister appeared caught by surprise when Xi harangued him about supposedly leaking a private conversation). Britain’s China policy has been in flux. Under Boris Johnson, it was balanced between the desire to find a post-Brexit market and the desire to respond to growing security (Huawei) and human rights (Hong Kong) concerns.

During Liz Truss’s brief ascendancy, there were moves to declare China as a whole as a “threat.” Sunak’s first major foreign policy speech has declared that the UK will display “robust pragmatism,” a capacious term that seems to indicate a desire to keep trade relations plausible while acknowledging that stronger national security measures are likely in areas such as high-tech scientific collaboration.

Beijing’s hopes, post-Brexit, that Britain would be a vulnerable actor potentially open to a deal with China have faded. But, overall, the perception remains strong in China that Britain is still in flux on its long-term commitment to the Asia-Pacific.

The presence of the G20 in Bali also flagged up another area where US power has become patchier: Southeast Asia. Indonesian president Joko Widodo pointedly appealed to both sides to avoid a new “cold war.”

Overall, the region’s powers have a growing sense of resentment that they are being forced to choose sides, as Beijing and Washington raise the temperature of their language against each other. They are wary of the growing strength of China’s navy, particularly in the disputed South China Sea.

As a result, the news of the AUKUS submarine collaboration between Australia, Britain and the United States in 2021 led to muted reactions in the region, with some concern that the delicate regional balance might be disturbed but also some satisfaction that the United States continued to show commitment to security there.

Yet the Bali meeting also showed up the major absence in the US proposition for the region: an unwillingness to acknowledge the centrality of China’s massive economic presence in Asia. The US security presence still lacks an accompanying economic story (or indeed, an acknowledgement that economics and security are aspects of the same issue regarding China). The US Asia-Pacific Economic Plan is abstract, and does not make up for the link that went missing in 2017, when the newly inaugurated Donald Trump pulled the United States fully out of the Trans-Pacific Partnership.

Nor is there any realistic prospect of the United States joining its successor, the CPTPP (Comprehensive and Progressive Trans-Pacific Partnership): Britain is currently more likely to join. The flaws of these two agreements are many, but that is beside the point. Instead, while the United States is only partially embedded in the network of trade relationships that marks the Asia-Pacific region (primarily through APEC, the Asia-Pacific Economic Cooperation forum established in 1989), China currently sits in all the major groupings except for the CPTPP and is currently applying to join the latter as well.

The United States has been more successful at passing legislation that will hold China back (notably, the CHIPS act that denies China access to advanced technology) than shaping a new model of political economy for the region.

Two issues hung over the US–China relationship as the Bali meeting unfolded: Ukraine and Covid. Ukraine presents the United States with a dilemma: how best to deal with the tacit support China gives Russia while not provoking Beijing into anything like a full alliance with Moscow.

The danger of such an alliance has receded; Putin did not attend the G20, his foreign minister Sergei Lavrov made only a brief visit, and overall Xi has given little indication that he wants any deeper connection with the war. China does benefit from cheap fossil fuels from Russia and enjoys greater leverage that will enable it to pressure Russia in areas where China has special interests, such as Central Asia, or growing new interests, such as the Arctic.

However, China has hedged its bets by making it clear that it remains neutral, rather than officially supportive of Russia, at the United Nations. Nor is China’s hand entirely free. There is more caution in Chinese elite circles about the closeness to Russia than might appear the case at first glance.

One of the most iconic Chinese nationalists of the 1990s, Wang Xiaodong, author of the classic anti-Western text China’s Unhappy, has been writing thoughtful blogs recently reflecting on the rise of what he terms “Nazi” ideology in Russia. Although he scarcely mentions China, it is evident that Wang’s comparing of China’s partner to the Third Reich is not intended as a compliment.

The shadow of the zero-Covid policy hung over Xi at Bali, and his unmasked public presence certainly attracted attention at the summit and at home. The policy seemed to presage a long period of China being closed off to the outside world. But the demonstrations in the streets of China’s cities in early December led to a surprising, and sudden, reversal of policy in mid December. This shift will bring comfort to the many Chinese who have become victims of the country’s Covid-lockdown-influenced recession.

Winter 2022–23 now threatens to be a period of great domestic turmoil. The shift in policy has happened without an effective vaccine rollout, and most analysts inside and outside China think that a sudden spike in infections is inevitable in a country with little herd immunity to the virus.

Chinese New Year 2023 may be particularly testing: the normal phenomenon of millions of people on the move during those weeks has the potential to be a superspreading event, but cancelling the holiday would immediately lead to an outcry that the abandoned policy is coming back. Either way, the difficulty of judgement on these issues argues for a strong concentration on the domestic situation in 2023.

Does the improved tone of US–China relations imply a reduced risk of war between the two? This largely depends on how much it affects China’s readiness to launch a move to incorporate Taiwan in the near future. The official Chinese position remains as it has been for years: bringing Taiwan under Beijing’s control is the last unfinished business of the cold war.

Xi has added to the urgency with his statement that bringing Taiwan into the fold “cannot be left to future generations.” The heightened tension after Nancy Pelosi’s visit in August 2022 has alerted governments and corporations in the region and beyond to the fact that they need to develop a viewpoint on any change in the island’s status in the light of a move from the mainland.

The likelihood of a full-scale invasion of Taiwan is still low. The island has difficult topography and beaches that are unfriendly to an amphibious operation. After seeing the build-up of troops on the Ukraine border in January 2022, the West would be on heightened alert if satellites showed troops and equipment massing on the Chinese coast. China has also seen that bold military moves can go horribly wrong, and that cities under assault can fight back. However, an action that does not involve a physical assault, such as a naval blockade of the island, as a challenge to US and Japanese naval power, might be more conceivable.

Still, such an action would have immense consequences. There would be a high likelihood of coordinated sanctions against China. Beijing might calculate that this is a price worth paying for a number of years in return for conquest of the island, but the medium-term effect on China’s economy would be huge.

Though there would also be a very damaging effect on the global economy as a whole, it would be China that would likely suffer most. In the next few years, the most obvious effect would be a breakdown in the supply of high-grade semiconductor chips from Taiwan, which would be a disaster for both China and the outside world since there seems little prospect of a diversified, reliable supply until sometime into the mid 2020s at the earliest.

Beijing and Washington are still inclined to talk past one another. Beijing insists that it is pushing back against any move towards Taiwanese independence. Washington reiterates that it has no intention of supporting independence (a position of which Taiwan’s politicians are well aware), but that it would defend Taiwan’s democracy, one of the most progressive in Asia, with full free media, multi-party elections, and an active civil society.

China’s latest (2022) white paper on Taiwan says very little about preservation of Taiwan’s freedoms, other than a vague statement that governance would be a “looser” version of the system for Hong Kong, hardly a reassuring response to the fears of Taiwan’s many democratic actors. There is little evidence that Beijing spends much time thinking about the reality that Taiwan is a vibrant society unwilling to give up its freedoms, and a danger that China’s leaders may, like Putin, believe their own propaganda that the island’s democracy is shallow and dysfunctional, and that Beijing’s control would win considerable support.

How likely is a blockade? Unexpectedly, we have more grounds to judge than even a few weeks ago because the sudden shift in policy over Covid gives a variety of clues about what might happen regarding Taiwan. Unfortunately, those clues point in different directions.

The first lesson is that the system does have some flexibility in it and that Xi can listen to advice. Although we have no idea what happens inside the notoriously opaque Chinese leadership bubble, it’s inconceivable that a change of that magnitude could have happened without Xi’s sign-off, and that must imply that he had to accept that his cherished zero-Covid policy had to change.

It’s also notable that the shift in tone turned attention to the economy and the need for growth: ironically, the subject of most concern to the members of the governing elite who seemed to have lost out in the announcement of the new Politburo top team (Wang Yang, Hu Chunhua and Li Keqiang among them). That might imply that an argument of economic rationality would also apply to any attempt to coerce Taiwan into unification, or to change a blockade policy if it showed major adverse economic effects with not much sign of a swift victory.

Just as reversing the zero-Covid policy doesn’t return China to the status quo, stepping back from a physical invasion would be immensely difficult. The government would experience a loss of credibility and the human and economic costs would mean a long period of recovery.

By contrast, in the short term, a naval blockade would be more easily reversible as long as it had not involved any physical attack on the island. If the effect of sanctions were to damage the Chinese economy even more than had been predicted, then the ships could be turned back (as in the Cuban missile crisis).

But that would not return matters to the status quo. International investors, already wary of putting their money in China, would not come flooding back. Foreign firms with production facilities in China would change their risk calculus, even though this would mean the sacrifice of huge sunk costs in China. (And after all, after such a debacle, how likely is it that a sullen Chinese public would buy Western-branded cars and toothpaste as if nothing had changed?)

Beijing’s analysts can make these calculations just as much as Washington can, which is why it is perfectly plausible that China will, in the end, decide that an attempt to subdue Taiwan simply poses too much risk to a Chinese economy under strain. Much of the Chinese public might want Taiwan to be unified in the abstract, but offered the actual price of doing so, might well recoil. (Not that such consequences are likely to be spelled out within China.)

In the last resort, it is another issue that may well persuade Xi that strong rhetoric on Taiwan should continue but it should not be accompanied by action, language that would still be likely to deter any declaration of independence from Taiwan.

That issue is China’s demographic decline. In 2022, new statistics made it obvious that China’s already swift acceleration towards a smaller population, exacerbated by the one-child policy, was heightening a crisis in pensions, eldercare and health provision. China needs to work out now how it can raise pension ages and deal with a fast-approaching reduction in the number of working-age taxpayers. To do this, it needs a stable economy with strong consumption-driven growth, as well as even more exploitation of its real advantages in technological innovation in hubs in Shenzhen, Hangzhou, Beijing and beyond.

Overall, a range of economic problems, from a fragile property sector to rising graduate unemployment, are challenging China in the 2020s. None are insoluble, but an assault on Taiwan would do nothing to fulfil any of them. Avoiding such an assault, and growing the economy, by contrast, stands a chance of creating a “moderately prosperous” middle class that might genuinely stand as a challenge to the Western model.

Apocalyptic stories of Chinese global dominance or collapse should give way to a less glamorous but more probable reality: China will likely be a major power with global influence for decades to come, but its internal crises will continually force it to redirect attention inward. •

This article first appeared in the Substack newsletter Comment is Freed.