In January a top Chinese economist has remarked “Given the serious economic slowdown we are currently facing, the day China surpasses the U.S. is moving away, not coming closer’. This was recently echoed by Kevin Rudd, ex PM of Australia in an interview. It prompted me to take a different look at the whole issue.
The Ukrainian war has degenerated into a long drawn hybrid affair. Its aftershocks are likely to continue to create more pain for the world through rising inflation on the sheet anchor of energy and food grain shortfalls. As this plays out the focus is back on China. A Covid struck China whose economy is visibly slowing has grown more aggressive than it was imagined. Its aggressiveness is visible on the LAC also with a new bridge being built on the Pang Gong Tso. There are many questions and many prophecies as to where China is heading. The inscrutability of the Chinese system inhibits a reasonably clear prediction.
In this inscrutable environment, it is necessary to examine China from a different perspective. In all things concerning China, one must look at the long term perspective. Hence in this article an effort is being made to examine the current situation from a historical perspective and examine if there is a corelation-ship with what is happening in the current times. The results would be fairly interpretative of the future. Hence, without putting the cart before the horse, let us get ‘Back to the Future’.
The Chinese civilisation flourished and grew under various dynasties. The Chinese emperor was always thought to have the mandate of heaven. The ‘Mandate of Heaven’ is a Chinese philosophy in which it was believed that the Gods gave mandae to the chosen one, the power to rule on his behalf. Typically each dynasty had a 200- to 300-year reign. The signs that rulers lost their mandate could come in many different ways : floods ,war, famine ,floods and droughts. However most Chinese fell due to two primary reason – internal dissent or periods of weak rains/harvest/disasters. Is this strain visible in current day China? That is the question one seeks an answer to. It is well known that if the Chinese communists are mortally scared of anything it is internal dissent. They go to ludicrous lengths to cap internal dissent; to the extent they have kept 1.4 billion people living in an alternate form of reality for nearly a century now. The Chinese are also acutely aware that disasters, droughts and food insecurity can make their modern empire collapse. Increasing urbanisation, expanding desertification, unchecked industrial and river water pollution, et al contribute to China being a food insecure nation. Though huge stock piling overcomes their problems for the present, global warming can impinge upon monsoons and water availability to result in food insecurituy. Further the Chinese do not have the technology to produce high yielding crops. This fact is often reiterated by Xi Jinping. More than you, I or any foreigner, the Chinese know their history and are paranoid about it. The Chinese communists keep talking of revenge on a century of humiliation, however, deep down they are mortally scared that they are susceptible to the revenge of history. That is why they go to absurd lengths to keep their people artificially happy. They are fundamentally worried that their mandate of heaven can draw to a close anytime.
The Dynastic cycle in the graphic above is self-explanatory China and simple. Mao founded the current Communist Dynasty. Till now his successors have all expanded the empire and have ushered in a period of great power and prosperity. However the question is that will all this change? Is China entering into a period of decline? Is China on the verge of the mandate of heaven being withdrawn? One could argue that the timeline of a Chinese Dynasty has been 200-300 years. However in the modern fast forward era of high speed communications and information it is highly possible that the timelines have accelerated. This entire issue has to be also examined against the recent Chinese history, especially of the last century.
In the past century, China was dominated by four leaders – Chiang kai Shek, Mao Zedong, Deng Xiaoping, and Xi Jinping. All of them have presided over China’s worst disasters, endeavoured to unrealistically superfast track its progress and have led the country into a period of isolation, unrest and/or conflict. So much for the Middle Kingdom and mandate of heaven. Their track record is actually pathetic.
Chiang Kai-Shek, the political heir to Sun Yat Sen, the founder of modern China ruled the country in the 1920s till 1949. His rule as the head of the Nationalist Party is remembered by attempts to modernise China through mass industrialisation, wars with Japan and a civil war with the Communists along with accompanying purges. However, the more significant issue is that China had to go through a famine in the period 1928-30 in which 10 million people perished.
Then came Mao’s Great Leap Forward and Cultural Revolution. He intended to achieve economic greatness in a fraction of time that it took other nations decades to accomplish through his communist machinery. In the process he created the largest manmade famine in history. Analysis indicates that the Great Famine had three attributes which are common to other manmade disasters - omission, commission, and selective provision. Mao’s greatest omission was not to even acknowledge the famine or initiate remedial action (including seeking aid) for nearly three years. Mention of ‘Great Famine’ is taboo in China even till date. It is hypocritically called a period of Natural Disasters. The worst acts of commission were abolishing private food production, establishing mismanaged communes, and exporting food during the famine when people were starving. There were reports of even cannibalism in this period. However ruling elites and cities were selectively provided with food. The death toll? 45 million dead- equivalent to present day population of Argentina, Algeria, or Sudan. After that China was in international isolation till 1972. Despite the Great Leap failing, China went to war with India, Russia, and Vietnam in the ensuing period. It remained unstable internally with numerous purges. China would have continued in its overpopulated state of miserable isolation and poverty but for the US combination of Nixon and Kissinger throwing a lifeline to Mao.
Deng Xiaoping, the strongman reformer of China, kick started the four modernisations which led to China’s phenomenal growth. However, he also instituted the one child policy in the 70s. In doing so, he sowed the seeds of disaster for the next generation as also ensured that Chinese growth and power would be limited. Today China is faced with an unsurmountable demographic wall which will not only cap its GDP but also lead it into a decline. As per many estimates, Chinese population has peaked and is set to decline rapidly. It is ageing at a rate faster than any country in history. It has a huge gender imbalance and a rapidly declining birth rate. Availability of working age population has shrunk and productivity has decreased. From here on China can only decline.
Xi Jinping took over at the helm of affairs with a clear aim. He spoke of the great China dream which meant realising China’s Superpower ambitions. Along with that he also enunciated hard left leaning policies since he felt that the Communist party was losing control. He started curbing private enterprise and heralded the revival of the state owned enterprises to take China to its destiny. He also embarked China on a path of military expansionism unprecedented since WW2. All went well till the Wuhan Virus struck. When the virus struck, he implemented the Zero Covid policy. Through it, he brought the virus situation under control in China, revived manufacturing, indulged in vaccine and PPE diplomacy, and usurped Hong Kong. China also asserted itself militarily in the South China Sea and along the LAC against India. Xi Jinping declared victory over that virus, when the rest of the world was struggling to cope with the virus , it appeared as if China had achieved superpower status. It helped him consolidate his power and make it almost certain that he will get a third term as the President of China, general secretary of the Communist Party and the Central Military commission. For almost two years Xi Jinping could keep the virus at bay through the stringent Zero Covid policy. It became a political statement rather than a health policy to combat the virus. He also lay hard left leaning down policies in which private enterprises and in particular big tech and ed tech firms were culled. He also brought in the common prosperity program so that people at grass root level could be benefitted. However with the appearance of more potent ‘delta’ and highly transmissible ‘omicron’ variants of the virus , the Zero Covid Policy floundered. As the world started living with the virus , China went into extensive lockdowns.
Various issues have surfaced in Chinese media due to the extensive lock downs in China including the ongoing one in Shanghai for the past three months. Issues which have cropped up in just about a week are now summarised. They indicate a manifold and deep problem . Residents of Shanghai have spent nearly two months in lockdown, with reports of deaths and people unable to get proper medical treatment triggering waves of anger and anxiety. People in Beijing are being repeatedly testing and mostly are in a work from home mode. New hot spots are emerging in new cities. Zero-Covid excesses are prompting exodus of overseas firms. Heavy-handed curbs are undermining foreign investor confidence in China. China’s zero-Covid trajectory has fuelled concerns of ‘growth recession’ risks. The government has resorted to censoring those who disagree with its Covid policies, express fears of economic recession or give warning on decreased consumption. There is also a surge in the number of Chinese professionals looking for emigration opportunities. It will affect the country’s ambition to become a science and technology superpower. China’s rigid and stringent Covid policy has paralysed its manufacturing heartland, disrupted logistics in manufacturing hubs and have left small factories struggling. Job losses and layoffs have started surfacing even in big tech firms like Ali Baba and Tencent. This has also led to collapsing demand, falling middle-class income, supply chain disruptions and a weakening yuan. China’s auto sales fell 48.1 per cent year on year in April, and property sales at China’s top 100 developers were down 58.6 per cent year on year. The property sector is 30 per cent of Chinese GDP! Domestic demand has crashed. The narrative is changing. How big will be the economic hit to the country?. Chinese media is speculating that China’s top leaders are split over how to respond to a sharp economic slowdown that’s been exacerbated by Covid-19 lockdowns and the fallout from the war in Ukraine. Rumours are swirling on cracks in unity of the Chinese leadership to the extent whether President Xi Jinping and Premier Li Keqiang see eye to eye on the economy’s overall direction.
Notwithstanding all this, the Zero Covid Policy, the trade mark of Xi Jinping, has been adopted by the politburo for continued implementation. It will remain over the long term ( for at least 2022) . The Zero Covid policy is not the only reason for the economic slowdown. It has been compounded by Deng Xiaoping’s One Child Policy, Ukraine war fallout, Common Prosperity, Hard left policies, unabated military expenditure et al. All of them have found resonance to add to China’s woes. However the Zero Covid Policy is the centre piece which is hitting China badly. The Chinese target was to achieve 5.5 % growth in this year. IMF toned it down to between 4-4.5%. The market fears it could be down to 2-3%. The rest is our imagination.
Can China abandon the Zero Covid Policy to live with the virus? The Chinese themselves do not think so. Chinese susceptibility to the virus is high. China is not medically prepared. It does not have the infrastructure to handle large number of cases. A large numbers of elderly are yet to have a third dose. The Chinese vaccines are largely ineffective. If the country opens up, it could end in a state worse than what prevails now. The stage has reached wherein China will suffer economically whether the Zero Covid Policy continues or not.
So where does it leave China and its leaders with a Mandate from Heaven? Look at its history. Look again at the Dynastic Cycle and draw your conclusions. I have drawn mine.
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