Has China Peaked?

by Andrew Latham

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Over the past year or so, China has made a series of bold moves across the Indo-Pacific region—moves that seem to reflect a growing confidence in Beijing that China’s moment has arrived. Those moves include aggressive actions along the border with India, continuing efforts to assert sovereignty over the South China Seas and the finalization of a new strategic partnership agreement with Iran. In addition, Beijing has carried out a crackdown on democracy in Hong Kong and dropped the word “peaceful” from its annual call for unification with the island democracy.

Taken together, Chinese actions seem to suggest that Beijing believes it is now powerful enough that it can finalize its bid for regional, perhaps even global, hegemony. In short, Beijing’s actions seem to suggest that China’s leadership has come to believe that China is no longer merely a rising power, but a rising power whose time has come.

But what if this is wrong? What if China is not a rising power? What if China is, instead, a once-rising power that is now faltering? What if what we are seeing in connection with the Himalayas or the South China Sea are not acts of growing confidence, but acts of growing desperation? And what if the prospect of further faltering and accelerating desperation inclines China’s leaders to act now to reshape the global order in their favor because they believe that in the future they will be increasingly less able to do so?

These are all questions that the next U.S. administration will have to answer if it is to craft a China strategy that is fit for purpose. These questions ultimately all boil down to whether China is a rising power or a faltering one.

There are compelling reasons to believe that it is the latter rather than the former.

First, and in some ways most profoundly, China is simultaneously shrinking and growing old. As a result of the one-child policy and its cultural hangover (despite raising the limit in 2016 is two children, the cultural norm is still one), the country’s population declined in 2018 for the first time since the famines caused by the “Great Leap Forward” in the 1960s. While that may have been a blip, the long-term trend is not.

The Chinese Academy of Science predicts that China’s population will peak at 1.4 billion in 2029, drop to 1.36 billion by 2050, and shrink to as few as 1.17 billion people by 2065. Ominously, if fertility continues to drop from its current rate of 1.6 children per woman to a realistic 1.3, China’s population would be reduced by about 50% by the turn of the next century. And the composition of that population will also change in significant ways. Most significantly, the population will continue to get older.

This will result in a shrinking of the working age population and a rise in the dependency rate—that is, the portion of nonworking people, including children and the elderly. This in turn will place China’s already threadbare social security programs under increasing strain, necessitating the diversion of scarce financial resources—from military spending, investment in R&D, and development projects like the Belt-and-Road Initiative—to shore them up.

Second, and despite the night terrors of some and the fever dreams of others, the reality is that China’s meteoric economic rise is stalling. Rather than displacing the United States and becoming the next economic superpower, China is instead entering into a period of economic entropy and relative decline—with all that that implies for internal disaffection and unrest.

The reason for this is that China now finds itself ensnared in a classic “middle income trap.” This term refers to a situation in which rapid growth and the equally rapid attainment of the status of middle-income country is followed by a period of stalled growth and failure to achieve the status of high-income country. A country falls into this trap when it loses its competitive edge in the export of manufactured goods because of rising wages.

The Chinese leadership is, of course, aware that is has fallen into trap and has tried to escape it. Thus the Chinese Communist Party’s increased emphasis on developing internal markets, investment in education and innovation, and a raft of increasingly manic international development schemes (the “Belt-and-Road Initiative,” the “Health Silk Road,” the “Ice Silk Road,” etc.), all intended to address the root causes of China’s faltering bid for top-tier economic status.

But the very nature of the Chinese one-party system coupled with the worldwide response to the coronavirus pandemic harms such efforts. The impact of the coronavirus has seen widespread efforts to decouple from Chinese supply chains and relocate production out of China. Moreover, China’s endemic debt problems are likely to render such efforts not only futile but counterproductive.

Simply put, the fact is that China’s relative economic growth will soon plateau, then stall, then decline. As a result, China will not become the world’s economic middle kingdom, owning and controlling all under the heavens. Indeed, it will be lucky if it escapes the fate of countries like Brazil and South Africa that have also fallen into this middle-income trap.

Finally, China’s geopolitical star is fading rather than rising. Sensing that the moment was ripe, in recent years China has attempted to assert primacy in its immediate neighborhood. Whether in the Himalayas, or the South China Sea, or the across the Indian Ocean region, China has pursued what it perceives to be its “core interests” in an increasingly muscular fashion. But this has both revealed the limits of Chinese geopolitical power and triggered a geopolitical counterbalancing reflex.

In response to China’s actions and rhetoric, Japan and India have both adopted military and diplomatic strategies intended to check China’s power grab. The United States has undertaken a “strategic pivot” to the Indo-Pacific region. And Australia has just released its “2020 Defence Strategic Update” and “2020 Force Structure Plan,” both of which are tacitly focused on enhancing that country’s ability to counter China’s conventional and “gray zone” military threats. These four countries are also moving in the direction of increased defense cooperation under the auspices of the newly revived “Quadrilateral Security Dialogue.”

As other states—Vietnam, the Philippines, and perhaps even Russia—also choose counterbalancing over bandwagoning, China’s bid for geopolitical supremacy in the Indo-Pacific will falter. Add to this the fact that European, Middle Eastern, African, and Latin American countries have grown increasingly wary of China’s efforts to enhance its power through various belt-and-road initiatives and it is clear that China’s geopolitical reach has exceeded its grasp.

Is the incoming Biden administration up to the challenge of a faltering China? Maybe. On the one hand, consider the seasoned professionals on Mr. Biden’s foreign policy team-in-waiting.

The list includes people like Antony Blinken, a deputy secretary of state and deputy national security adviser under Mr. Obama, and Avril Haines, a deputy at Mr. Obama’s Central Intelligence Agency and on his National Security Council. Other officials include Susan E. Rice, Mr. Obama’s last National Security Adviser and Michèle Flournoy, the Pentagon’s top policy official under President Obama.

All of these members of Biden’s team have largely come around to the view that China is a “strategic competitor” seeking to overturn that the liberal order, or at least assert its primacy within it. During the Obama years, this foreign policy cadre, which Mr. Obama’s former deputy national security adviser Ben Rhodes famously derided as “The Blob,” generally assumed that China was a rising power that was on track to become a responsible stakeholder in the liberal world order.

In recent years however, and especially since the adoption of the 2017 National Security Strategy, the Blob has largely abandoned this view, accepting the reality of “strategic competition” with China. This, of course, augurs well for the incoming Biden administration.

On the other hand, the Biden foreign policy team-in-waiting remains wedded to the assumption that China is a rising power. The foreign policy consensus that has crystalized within the Blob over the past few years takes as its bedrock the assumption that the United States must confront a rising challenger in the form of an ever-more-powerful China.

But if that is a deeply flawed assumption then all the policy prescriptions that are likely to flow from it will necessarily be deeply flawed as well. Mistaking a faltering China for a rising one is fraught with catastrophic possibilities, for the United States and the world.

If the incoming administration is to avoid the worst of these possibilities, it must first recognize that China is a faltering rather than a rising power. It must then develop a grand strategy for dealing with China that is grounded in a clear-eyed recognition of that reality —a strategy that is focused less on containing a rising challenger and more on managing the relative decline of a faltering one.

It remains to be seen if the Biden foreign policy team-in-waiting is up to the challenge.