Background

In a recent Op-Ed by Bill Stanton over at the Taiwan News with the headline “A PRC in decline: A multitude of difficult challenges,” Stanton itemizes the difficulties facing the “Great Power” nation:

“Given the international enthusiasm the PRC (People’s Republic of China) often generated in the past and from which it has profited, chiefly because of its impressive economic growth rates, it is notable how more recent 2022 assessments of China have significantly soured.

This should not be so surprising given the enormous and growing challenges the PRC faces:

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a declining and aging population;
continuing social, ethnic, and regional inequality among the Chinese people;
a terribly polluted environment – including the air, water, and land;
its daunting dependence on imports of food, energy, and raw materials;
a slowing economy with a huge debt burden built on government loans for often unnecessary infrastructure and unsellable empty housing, office buildings, and malls;
decreasing foreign interest in investing in state-subsidized Chinese companies that steal intellectual property;
Xi Jinping’s commitment to a widely unpopular, oppressive, and commercially unfriendly zero-tolerance COVID-19 policy that has failed;
an increasingly authoritarian government that stifles innovation and entrepreneurship;
widespread global dissatisfaction with PRC policies toward Xinjiang, Hong Kong, the South China Sea, Taiwan, and the Russian invasion of Ukraine, among other concerns, and the resulting increase in unfavorable views of China and Xi Jinping.” (1)

Stanton goes on to provide an analysis of “three issues that may be the most serious for the future of the PRC: a decline in economic growth, demographic failure, and growing international distrust and opprobrium.”

Diminishing Economic Growth Rate

In June 2022, the World Bank issued a dire forecast: “We project real GDP growth to slow sharply to 4.3% in 2022 – 0.8% lower than projected in the December China Economic Update.” (2)
In late May two investment banks had already cut their China GDP forecasts even further based on the continuing cost of government-imposed COVID controls.
JP Morgan reduced its projected growth rate from 4.3% to 3.7%, while UBS cut its forecast even further to 3%, down from 4.2%. Meanwhile, the official PRC target for 2022 remains 5.5% growth.
As the World Bank explained, however, it is not merely a matter of slowing GDP growth but its source: “there is a danger that China remains tied to the old playbook of boosting growth through debt-financed infrastructure and real estate investment. Such a growth model is ultimately unsustainable and the indebtedness of many corporates and local governments is already too high.” (2)
As Michael Pettis argued in late April in a Carnegie Endowment essay titled, “The Only Five Paths China’s Economy Can Follow,” the PRC can continue to ignore “hard budget constraints” by allowing more investments by local governments, state-owned enterprises, and property developers, but thereby “letting large amounts of nonproductive investment continue driving the country’s debt burden up indefinitely.” (3)

Demographic Failure

Underlying the PRC’s limited policy choices is the more fundamental challenge the PRC faces in an ongoing demographic disaster that makes China’s economic prospects even bleaker.
As Peter Zeihan argues in [the book] The End of the World is Just the Beginning: Mapping the Collapse of Globalization (2022): “China in 2022 is the fastest aging society in human history. In China, the population growth story is over and has been over since China’s birth rate slipped below replacement levels in the 1990s. A full birth replacement rate is 2.1 children per woman. As of early 2022, China’s only partly released 2010-2020 census indicates China’s rate is at most 1.3, among the lowest of any people in human history.”
“The country’s demographic contraction is occurring just as quickly as its [earlier] expansion, with complete demographic collapse certain to occur within a single generation. China is amazing but not for the reasons most opine. The country will soon have traveled from preindustrial levels of wealth to postindustrial demographic collapse in a single human lifetime.”
The failure of the PRC’s much-touted and strictly enforced one-child policy has finally come home to roost. It was already evident to a State Department demographer with whom [Stanton] spoke before my first tour in China in 1987-90. She pointed out that the future results of a one-child policy were mathematically certain and therefore absolutely predictable.
What was entirely overlooked…is what [the] demographer had pointed out: you need a sufficient number of children born to ensure you have future workers who are also consumers, entrepreneurs, and innovators, thereby bolstering the economy and ensuring its future health, and also providing support for the elderly. One child per family cannot achieve the population replacement rate of 2.1.
Moreover, by limiting families to one child, a majority of Chinese families preferred a boy, according to a BBC report: “Limited to having only one child since 1980, a majority of couples opted for a son, lifting the sex at birth ratio from 106 boys for every 100 girls (the ratio in most of the rest of the world) to 120, and in some provinces to 130.” This of course also created other social problems when young men searched for wives.

Consistent with the largely unfavorable PRC ratings, it is not surprising that of the 19 countries surveyed, a majority of respondents in most countries had little or no confidence in Xi Jinping. More than 80% of Americans, Swedes, Japanese, Australians and South Koreans held such negative views, and more than 60% of most other countries’ citizens who were polled similarly lacked confidence in Xi. The biggest exceptions were again Malaysia and Singapore, which economically depend in large measure on China.

Growing International Distrust and Opprobrium

According to the Pew Research Center of the 19 countries surveyed, “a majority of respondents in most countries had little or no confidence in Xi Jinping. More than 80% of Americans, Swedes, Japanese, Australians, and South Koreans held such negative views, and more than 60% of most other countries’ citizens who were polled similarly lacked confidence in Xi. The biggest exceptions were again Malaysia and Singapore, which economically depend in large measure on China.

Interestingly, China’s human rights policies were the key concern of 80% of all respondents across 19 countries. China’s military power followed closely in second place. PRC economic competition and PRC political involvement in other countries’ affairs took third and fourth place, respectively. But all four issues scored as matters of concern to some 60% or more of all those polled across 19 countries.” (4)

What Next: Beware The Strategic Straw Man of China as the Singular, Unilateral Enemy and Geopolitical Threat Vector

Economically, Stanton from the Taiwan News characterizes the PRC’s strategic choices as the need “to replace such non-productive investments by:

initiating productive investments like new technology;
increasing consumption;
achieving a growing trade surplus;
or, doing nothing, in which case growth would necessarily slow even more sharply.”

Stanton also points out that “the economic growth problem will be difficult to overcome because the policy shifts required will take time and will be politically difficult to adopt given that so many vested interests would be threatened by the necessary changes. Economic decline is also closely linked to a systemic demographic decline that will be difficult to turn around. It is easier to order an increasingly urbanized population of families to have only one child than to persuade, much less command, them to have three.” (1)

“According to the latest Pew Research Center survey released on June 29, 2022, it is evident that few developed countries, especially Western democracies, have positive views of China…’The data from more than 20,000 respondents in 19 advanced economies revealed highly critical views of China on a range of issues, but also a shared view that China’s influence is growing.’ The latest iteration of the Pew survey on attitudes toward China (the first such Pew poll was conducted in 2002) found that perceptions of China are at historically negative levels. Critical views of China spiked in 2020, after the outbreak of the COVID pandemic, but have remained at similar levels since. Of the 19 countries surveyed, the average view was 68% unfavorable toward China.” (1)

Even with all these negative strategic metrics about and perceptions of China, it has been discussed in a few OODA Network monthly meetings and during the 2021 Stratigame exercise, that strategically it is important to “red flag” and be wary of narratives that institutionalize China as THE singular, unilateral geopolitical threat for two reasons:

Resource allocation in the beltway historically shifts to such narratives, in ways that exclude other parallel crises and threat vectors that may be as vital from a strategic perspective as the threat from China; and
Such a narrative becomes “handy” in a bipartisan fashion for use to distract (through “straw man”, heightened foreign policy threat narratives) away from domestic policy issues and concerns, especially during election cycles.

Still, Stanton concludes with this ominous, valid point: “Nonetheless, for democracies around the world, one potential downside of a PRC in decline is that a frustrated and diminished dragon may decide its best alternative is to lash out at those deemed hostile to its grandiose ambitions. This could mean trouble for democracies in Asia and beyond.”

Stay Informed

It should go without saying that tracking threats are critical to inform your actions. This includes reading our OODA Daily Pulse, which will give you insights into the nature of the threat and risks to business operations.

Background

Diminishing Economic Growth Rate

Demographic Failure

Growing International Distrust and Opprobrium

What Next: Beware The Strategic Straw Man of China as the Singular, Unilateral Enemy and Geopolitical Threat Vector

Stay Informed

Related Reading:

Explore OODA Research and Analysis

Decision Intelligence

Disruptive/Exponential Technology

Security and Resiliency

Community

Background

Diminishing Economic Growth Rate

Demographic Failure

Growing International Distrust and Opprobrium

What Next: Beware The Strategic Straw Man of China as the Singular, Unilateral Enemy and Geopolitical Threat Vector

Stay Informed

Related Reading:

Explore OODA Research and Analysis

Decision Intelligence

Disruptive/Exponential Technology

Security and Resiliency

Community

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About Daniel Pereira