The Unravelling of Xi’s Empire

IN 40 YEARS SINCE Deng Xiaoping’s sweeping reforms of 1978, China doubled its GDP every 10 years, making it the fast­est growing country in history. That phase ended in 2019, when the Covid pandemic erupted in the major industrial city of Wuhan, rapidly spreading across the world. China was not exempt from the ensuing global recession; it has not reverted to its trend growth rate. The pandemic lingered in China; the abrupt end in late 2022 of its ineffective ‘Zero Covid’ policy produced a major pandemic outbreak. Anywhere between 100,000 (official figures), to almost one million perished in early 2023 (Economist estimate). Other factors have roiled the economy, even while sectors such as R&D, entrepreneurship, and innovation have done remarkably well.

How does this affect China’s economic and political trajectory? Can we peer into the crystal ball, attempting a prognosis? President Xi Jinping is halfway through his 12th year in office as the country’s supreme leader, more powerful in the func­tions he directly controls, compared even with Mao Zedong (1893-1976), the People’s Republic of China’s (PRC) founding leader.

On the world stage, the PRC is now the global rival of the US, judged across the varied dimensions of the great-power matrix. China also remains the land of enigma, half-understood, often shrouded in mythology. This essay addresses a complex story, visible only through the veils.

DOMESTIC AND GLOBAL OBJECTIVES

Xi Jinping has often asserted that China’s goal is the permanence of the leadership, rule and supreme authority of the Chinese Com­munist Party (CCP). Two events are seared in the Chinese leadership’s political memory: the collapse of the Soviet Union that played out through the late 1980s, climaxing in 1989-90. For China, that wasn’t the end of the Cold War, but a dire warning of how the land of Lenin lost its vision. The second: the Tiananmen ‘counter-revolution’, that spontaneous student uprising and ‘occupation’ of Beijing’s historic core, in April-June 1989. It became the greatest threat to the survival of communist China, producing a leadership crisis, cul­minating in brutal repression and massacre by the army. Those two events have ruled the minds of China’s leaders of post-1989.

China is a highly authoritarian state, steeped in its own conviction of moral legitimacy. It is the only major survivor of the Marxist-Leninist model of a ‘unified Party-Government’ governance system, even while Vietnam and Cuba, in their different ways, are milder versions of that concept. Xi Jinping, leader of CCP since 2012, is at the same time president of PRC, and chairman of the Central Military Commission, mostly the same way as was Mao Zedong. But he surpasses Mao in his power monopolisation, to the point where he has been called “Chairman of Everything”. This makes Xi the single-most powerful leader of modern China.

We can easily get lost in the rhetoric of China’s self-legitimacy; words are used to mean what Chinese leaders want them to say. That may not connect with common usage. Example: “histori­cal nihilism” was the phrase used by Xi in 2013 to attack those that “are denying the legitimacy of the CCP’s long-term politi­cal dominance”. On the eve of CCP’s centenary celebrations in 2022, more than two million social media posts were taken down by the ‘Cyberspace Administration of China’ for present­ing views that did not suit CCP’s self-image (Foreign Policy, September 22, 2022). Moral: CCP’s ‘permanence’ is the regime’s supreme objective.

CENTURY OF HUMILIATION

For two millennia and more, China was the centre; dominant in its own universe. One historical exception of that age was India, its cultural equal from around 2,000 years back, with land trade routes (via Xinjiang, and through Burma) linking the two. During the Han period (2nd century BCE to 2nd cen­tury CE), Indian monks travelled to China and settled there, bringing Buddhism, and its associated concepts. India was held in esteem, as the land of wisdom “to the West”; learned schol­ars from both, and traders, traversed the rugged land routes. Consider also: China is quasi-landlocked; the only ocean access is via its eastern seaboard. That, plus the vast desolate spaces of Central and eastern Asia, produced China’s relative isolation. And yet, that Asian hinterland was crisscrossed by the Spice Route, the Silk Road, and even a Cotton Route. China’s mari­time contacts with Southeast Asia and beyond thrived briefly around the 15th century, bringing Admiral-explorer Zheng He to the shores of Malabar in south India, even to East Africa; he died in Kozhikode in 1433. When European seafarers reached Asia, the 16th century onwards, they found an inward-looking China, rich in its offerings, especially porcelain, silks, and tea— an easy victim of trade exploitation and occupation.

India and China, the largest Asian nations, underwent different experiences in the colonial-imperialist era. Following contestation between European colonists, 1750 onwards India was ruled by Britain right up to Partition and Independence in August 1947. In contrast, from the 18th century onwards, China was exploited by competing Western powers who allied with local warlords. The two Opium Wars and the Boxer Upris­ing of the 19th century ended the Qing dynasty. After 1895, Northeast China was occupied by Imperial Japan. Tokyo’s 1937 attack on Beijing and Nanjing produced a protracted war, coinciding with civil war between Chiang Kai-shek’s Kuomintang (KMT) and Mao’s Communist forces. The PRC of October 1, 1949 was born of decades of strife, turmoil and suffering that had ravaged much of China. Chinese patrio­tism is built on that ‘humiliation’ thesis.

Between the 1949 founding of PRC (that is, ‘China’s Libera­tion’), and his demise in 1976, Mao was the undisputed leader and creator of modern China, despite three upheavals and their human cost in the millions: agriculture reform and elimination of land owners (1949-53); the Great Leap Forward, and the ensuing famine (1958-62); and the Cultural Revolution (1966-76). This heritage has moulded China. During his years in power, 1978-89, Deng reshaped China, with economic and political reform, as well as predicable, timeframe-determined political succession.

XI AND ECONOMIC SLOWDOWN

In the 11 years since coming to power, Xi Jinping has ended leadership rotation. He has shifted economic policy, from Deng’s comparative laissez faire, which consciously borrowed from the Singapore model, and Japan’s experience, practised between 1978 and 2012. It has now reverted to state control, plus restrictions on the private sector. The drivers of this policy shift: an ideological preference for state enterprises; an urge to reduce corruption; a commitment to stronger Party leader­ship. State-owned enterprises (SOEs) are back in favour. Large entities in the private sector confront new controls. Examples: freewheeling mega-enterprises like Alibaba, Baidu and others have faced tightened rules and fines, restricting their opera­tions; some CEOs have been detained for prolonged investiga­tion; CCP offices have been established within private-sector enterprises; tighter regulation over Hong Kong and Macao has also constrained the private sector. In parallel, foreign-owned enterprises have also come under tighter scrutiny, including the installation of CCP units, raising alarm over commercial data, and safeguarding proprietary technology. An indicator: “In 2012, before Xi ascended, only 32% of bank loans went to SOEs. By 2016, SOEs received 83%.” (The Economist, December 1, 2023)

This is part-reversal of Deng’s adage that had guided policy since 1979: “The cat’s colour is immaterial as long as it catches mice.” For over three decades, economic growth was the goal; that progressively led to a thriving private sector that was pro­ductive, giving full rein to China’s long-established penchant for entrepreneurship. In most sectors they outcompeted state enterprises. Xi’s post-2012 policy reversal has gradually produced: a slowdown in economic activity, including exports; a reduced inflow of foreign direct investment (FDI); a quiet capital flight by foreign investors. Exogenous factors have also been in play, including the Covid pandemic, and a global slowdown. Foreign business has responded with risk mitigation: diversifying supply chains, part-shift to other sourcing bases, including Vietnam, Southeast Asia, Bangladesh, and India. The slogan ‘China: Workshop of the World’ is not the fashion.

Other dangers have arisen. China’s housing industry is in crisis, with an estimated 20 million housing units delayed, unfinished. “Millions of people are waiting for homes that may never be built,” said a Western journal headline. The top housing company Evergrande lost $47 billion in value since 2020; others are in financial crisis, shaking consumer confidence. Also in distress are the local authorities that had relied on real-estate sales and had grossly over-borrowed. The property bubble challenges the government, with only partial solutions in sight. At heart are avaricious companies that have cheated buyers, a result of lax over­sight, compounded by the lure of quick returns that sucked in speculators. The real victims are young couples and first-time buyers.

DOMESTIC CONTROLS

In parallel, tighter imposition of politi­cal homogeneity, scrutiny and clamp­down on dissent, as well as imposition of tighter controls have continued. A massive network of ‘minders’ police the internet, regulating social media. They are often wrong-footed by agile com­mentators who exploit the ancient Chi­nese practices of allusion and linguistic homophones to vent criticism. That generates mass mirth, lightening the atmosphere, even while repeat offend­ers risk detention and punishment.

Much more serious has been the repression of minorities and imposition of what has to be called ‘Han confor­mity’, chipping away at the protection that the PRC constitution has promised to its minorities, forming 9 per cent of the population. The Uighur people, like their Tibetan neighbours, are the major victims. While it appears that the high tide of recent repression in Xinjiang has passed, and the ‘training institutes’ that were being used to indoctrinate and force the Uighur to change their customary ways have been dismantled, the ‘Sinification’ policy persists. Focus seems narrowed on those seen as recalcitrant; that is, upholding old customs. Pressure also falls on relatives of those active abroad, according to the international media. In the Inner Mongolia province and elsewhere, minority-language study is discouraged. Reports persist of the disman­tling of mosques in the towns of the interior. How does that mesh with an older and wider trend towards greater religiosity among the Han Chinese? That bears watching.

Cities and even small towns are replete with surveillance cameras, paired with high-quality face recognition systems and other profiling technology. But this does not seem to have translated into an overt sense of unease among the general population. It evidently does strengthen domestic controls, without managing to stifle global internet access, especially among the youth.

DEMOGRAPHY, EMPLOYMENT, DIASPORA

China’s one-child policy since 1979 has slowed population growth, progressively reducing the total fertility rate (number of children per woman) since the 2000s to well below the replacement rate of 2.1. In 2022, it reached an astonishing 1.09, below any comparable country (Reuters, August 15, 2023). The consequence: an absolute decline in numbers; India over­took China in size of population. With people living longer, the working population has also declined. This double whammy has induced policy changes. Recent efforts to encourage more births, including subsidies, have failed. A societal shift has de­layed marriages; monogamy and small families endure. Social engineering bites back.

Despite these demographic trends, the economic slow­down has produced youth unemployment, officially estimat­ed at 22 per cent in 2022 (figures not published thereafter). The educated youth are disinterested in low-wage jobs, preferring ‘lying flat’, in effect, opting out.

Since the 1990s, gradual, voluntary migration to Africa and Latin America has been documented; it may have begun with Chinese project workers electing to stay back, bringing in their families, hardy enough to ‘eat bitterness’, many opening small shops in the interior of their chosen countries, in effect provid­ing needed services and small entrepreneurship. Estimates dating to the early 2000s put the figures for Africa south of the Sahara and Central/Latin America, each, at over a million. Similarly, new Chinese migrants are to be found elsewhere, including the West. According to a news report, more than 10.5 million Chinese citizens are living overseas, besides the 35 million to 60 million people of the historic Chinese diaspora in Southeast Asia and elsewhere (Asia Times, May 2, 2023). An extraordinary consequence: Chinese surveillance units, ‘police stations’, are known to operate across North America, and to a lesser extent in Europe. Run primarily by ethnic Chinese, their focus: ‘managing’ their diaspora.

BELT AND ROAD UNDER PRESSURE

The Belt and Road Initiative (BRI) has been Xi’s personal flag­ship project, dating 2013, written into the CCP Constitution in 2017. The BRI label encompasses myriad projects: building transport links, infrastructure and public services, industrial and training units. In the initial five years, financial and project control was lax, producing sizeable corruption and capital leakage. In the major administrative reorganisation of March 2018, supervision was tightened.

China is funding and executing projects in 145 countries (155 countries are BRI partners), spending estimated at be­tween $500 billion and $1 trillion. The projects include roads, railroads and ports plus utilities that found no other funding. On some, economic returns are low, though ‘societal’ gains are substantial. In almost all countries, the financial terms are opaque, secretive. Overall, interest rates on the loans are stiff. This has pushed a score of countries to the edge of debt default. A 2023 Boston University report, ‘BRI at Ten’, notes: “Many of the recipients of Chinese finance are subject to significant debt distress, with sev­eral countries owing China a significant share of their external debt. China has played a construc­tive role in the Debt Service Suspension Initiative, but this creditor remains in gridlock over more substantive debt reduction.”

Pakistan is an example. The $62 billion pro­gramme agreed between Beijing and Islamabad in 2015 has fallen far short of its vision, analysts say. The ambition that new infrastructure would help turn Pakistan into a global manufacturing hub has yet to be realised; even Chinese compa­nies have not invested in the new export zones (Financial Times, October 22, 2023). In net terms, the mounting debt repayment obligations are not matched by economic gains; there is virtu­ally no demand for new coal-based power plants. Another Financial Times report spoke of how some projects became debt traps that increased economic dependence. China has provided debt rollovers, but no write-offs; it fears other borrow­ers will demand debt relief. Despite the absence of public opinion polls, on-ground reports indicate that the Chinese public is unenthusiastic about funding foreign projects. Overall, these external and domestic problems will be hard to manage. Against that, some—like the high-speed rail projects (to Laos-Thailand, now built beyond Laos), Kuala Lumpur-Singapore (delayed in Myanmar)—represent new permanent linkages. BRI projects have also globally projected China’s industrial and engineering capabilities.

WORLD ORDER AND IMAGE

China’s slogan-coining and vision projection apparatus works well. Its pockets are deep enough to fund its projects. At the 76th United Nations General Assembly (UNGA) in September 2021, China unveiled its Global Development Initiative (GDI). GDI aims to enhance international attention to global develop­ment and speed up the implementation of the 2030 Agenda for Sustainable Development. In April 2023, Xi unveiled ‘three global initiatives’—the Global Development Initiative, a Global Security Initiative, and a Global Civilization Initiative. That was presented as an alternative world order blueprint, challenging the US-led Western norms prevailing since World War II. Beijing’s real target audience is Chinese, showcasing how China strides across the globe with new concepts and actions.

As a major actor China demands respect; it is prickly, even hypersensitive, to criticism, as Australia’s experience in 2020- 23 has shown. In the Global South that respect is mingled with apprehension about mounting national debt in a score or more countries, now virtually impossible to pay back.

What of China’s development model? Some Chinese statements have alluded to this, but close examination shows that China’s experience is sui generis, rooted in its Party-State authoritarianism, impossible to replicate. On his 2015 China visit, his first as prime minister, Narendra Modi urged “de­velopment cooperation” between the two countries; some of the experiences of both offer positive and negative lessons for the other. A discussion forum composed of governors and chief ministers was abandoned after a first meeting in 2015. Comparisons are useful only when the full context is open and taken into account.

PROGNOSIS

China is making strenuous efforts to resume growth, with 5.7 per cent annual GDP as the current target. Its problem lies with the competing political goals. At the start of 2024, the economy resembles a glass half-full. This is the first time of incertitude since the start of the 1978 reforms. It threatens the ‘China Dream’ Xi had promised in 2012-13, with national rejuvena­tion, reform and innovation at the core. That had included plans to catch up with the US in gross GDP.

The Economist recently asked: Will China’s GDP ever over­take America’s? Or one might ask: Is Chinese power about to peak—and, if so, will that make China more dangerous? The answer is complicated, but this journal concluded that even as a near-peer of America, China has good reason to eschew hu­bris and resist invading Taiwan. Also, the People’s Liberation Army (PLA) is not yet as formidable as the West fears (Decem­ber 20, 2023). Another view: “[the] economy is in the doldrums, with its three engines—investment, consumption and export—all stalling at the same time” (ThinkChina, December 29, 2023). In December 2023, the credit rating agency Moody’s bluntly warned that it was time for China “to mend its ways”.

When issues accumulate, a tipping point may threaten. Pervasive secrecy makes it impossible even to guess, if and when that might happen. Some signals? First: the sudden eclipse and subsequent replacement of the foreign minister in mid-2023, and two months later similar departure of the defence minister, followed later by appointment of a successor. And just before that, two top generals of the Rocket Forces (the missile command) were abruptly replaced. Second: Xi’s anti-corruption campaign in the 2010s saw the exit of around 10 per cent of China’s estimated 4,000-strong nomenklatura, on corrup­tion charges; including over 10 per cent of PLA generals. That was without any visible domestic churning. Is that corruption purge being renewed? Third: the economic slowdown, crisis in housing construction, youth unemployment, and clampdown on the private sector—all of this adds to despondency. Fourth, political slogans of global status don’t match the reality of the international challenges that China faces. This shreds an un­stated national compact of 40-plus years: that a flourishing economy would raise citizen living standards; in return, CCP domination must not be challenged.

Consider: Way back in 1969, a CCP Congress named Lin Biao as Chairman Mao’s “intimate comrade-in-arms and successor”. On Septem­ber 13, 1971, Lin boarded a Hawker Siddeley Trident aircraft in the coastal city of Shanhaiguan (300km from Beijing), allegedly bound for the Siberian city of Irkutsk, accom­panied by his wife and son, plus aides. A Hong Kong researcher, Yu Ruxin, after decades of informa­tion collection, concluded that the plane crashed in Mongolia, attempt­ing an emergency landing. That black box was probably retrieved by the Soviets, who have maintained complete silence. (Nikkei Asia, May 13, 2021). Was Lin trapped in a failed coup attempt? Diplomats based in Beijing at that time learnt that the British manufacturer demanding urgent information if the aircraft had suffered a technical fault (to alert other users) was told a month later: there was no malfunction.

Without overstretching our imagination we might con­clude that an accumulation of stress points, given the opacity of China’s politics, should alert us to the unexpected. But no one can predict a tipping point, if and when rupture becomes a real danger.

WHERE DOES INDIA STAND?

In 2002, John Garver published Protracted Contest: Sino-Indian Rivalry in the Twentieth Century. His conclusion: India should accommodate itself to a status junior to China. But countries do not think in that manner. In a world that is multipolar, diverse, and in constant evolution, India seeks its legitimate place as a major player. And we are doing quite well on that front as multiple recent outcomes confirm.

Since 2014, the Modi government has performed remark­ably well, raising living standards at the bottom of the pyramid, with housing, electricity, sanitation, plus basic financial support. This has enhanced the share of this section in national growth. (Swaminathan Aiyar is right; Thomas Piketty and his ilk, pushing their thesis of widening income disparities, fail to take account of the benefits that now flow to India’s poor, Economic Times, January 5, 2024.)

A recent global comparison of national incomes showed:

• – Per capita GDP at current prices: India: $2,390; China: $12,700
• –  Adjusted for Cost (purchasing power): India $8,380; China $21,500
• –  Adjusted for hours worked, and costs: India $8,020, China $13,100

(The Economist, December 15, 2023).

After the Covid pandemic, India’s annual growth has been the highest among the major economies. But India also faces a long haul. A recent headline put it well: ‘There’s No Stop­ping Us Now? Wrong’. India still needs more jobs, compre­hensive skilling of the workforce, employment for women, much higher exports, and a stronger domestic industrial base. That wish list remains long. Overall, greater domestic effort and ‘China+’ type of foreign investments are needed.

India-China relations have deteriorated after 2018, with unexpected clashes along the border—in 2018 at the Hima­layan Bhutan-India-China trijunction in Doklam, and in 2020 at Galwan, Ladakh, on the north-western border, where India and China have differing interpretations of the Line of Actual Control. The latter saw the first border clash deaths in 40 years for troops on both sides. With India immersed in its domestic challenges, the world recognised China as the prime mover in those actions.

India’s response has been balanced and open. It has maintained firmness on the border while engaging in border management discussions with Chinese counterparts, containing clashes. The Modi government has continued with a direct, high-level dialogue, much of it deftly steered by External Affairs Minister S Jaishankar and his team.

What is China’s motivation? India’s economic success and its role in world affairs cast a shadow over Beijing’s ambitions in the Global South and in world affairs. Some believe that it is the very success of the Modi government that has engendered China’s moves. Beijing seems to have forgotten an earlier dictum, accepted by both in the early 2000s, that there is room enough for both states to prosper. India has no choice but to persist with its doctrine of strategic autonomy, even when expanding engagement with the US and Europe. It also has to continue balancing actions with Russia, and develop effective partner­ships with other key players, among them Japan, Australia, Vietnam, Southeast Asia, and the wider Global South, its natural constituency. This hinges on sustained dialogue with all, not appeasement.

ChinaDeng Xiaopingeconomic growthhistoryleadershipMao ZedongTiananmen Square protestsLin BiaoXi JinpingZhou Enlai