The absence of free speech and political accountability has an economic impact on China. Beijing will stay important, but it won’t surpass the West, getting older before it gets richer, writes Matthew Lesh
China appeared totally unstoppable in the early days of Covid-19. Lockdowns stamped out the pandemic. European leaders were begging President Xi Jinping for personal protective equipment shipments. After decades of strong economic growth and increasing global muscle, the Chinese system appeared like an alternative to dysfunctional and divided Western democracies.
Has the sleeping dragon awoken to shake the world?
The China success narrative is now much less certain. Just last month, the United Nations announced that India’s population had surpassed China for the first time. This remarkable moment highlights the risk that China will grow old before it grows rich.
China’s per capita income is just US$13,500 – 3.5 times lower than the United Kingdom and 6 times lower than the United States. Economic growth has slowed in recent years and may never catch up as an ageing population reduces productive capacity.
A recent study from Rockefeller International projects China will not overtake the US economy until 2060, if ever. They may be stuck in the ‘middle-income trap’ – producing manufactured goods but unable to reach the high-value-added market.
Under Xi’s stewardship, China’s hope is large public investments in next-generation technologies. Indeed, suggesting that China simply copies the West is no longer accurate. There are homegrown tech giants and innovators. Additionally, if you throw enough public cash around, there will be some successes, like Huawei.
But the era of new tech giants like Tencent, ByteDance and Alibaba could be over. As Chinese entrepreneur Desmond Shum chronicles in Red Roulette, the relatively permissive environment for entrepreneurs in the 2000s has reverted to a system of extensive state control, cronyism, and outright corruption at the top of the Chinese Communist Party. Xi’s self-appointed lifetime tenure, his grip over the economy and society, and crackdowns in Hong Kong and Xinjiang could ultimately slow growth.
The extended disappearance of billionaire Alibaba founder Jack Ma, after he criticised China’s financial regulators, sent a clear signal. Any entrepreneur that could undermine the Party’s control or unsettle internal power dynamics is treated with deep suspicion and risks jail time. Foreign companies are investing elsewhere, and homegrown business tycoons are relocating outside the country to keep their money and families safe.
It’s no coincidence that the latest advancements in artificial intelligence are coming from the United States – from OpenAI and Google – rather than from the People’s Republic. It takes experimentation and openness to disruption to achieve innovation. By contrast, in China, a party committee has oversight of every strategic decision in every firm. Capital is allocated to projects favoured by officials, often with significant kickbacks, rather than selecting those that will deliver economic growth. The lack of free speech and political accountability removes self-correction mechanisms.
There are many other red flags. The housing bubble – which by some estimates makes up 29 per cent of GDP – is bursting, China’s debt is astronomical (275 per cent of GDP) and trade conflict will only make matters more difficult. China also has relatively weak soft power and a lack of close alliances, in its region or elsewhere in the world, other than perhaps Russia. Even the much-celebrated Belt and Road Initiative have largely funded white elephant infrastructure projects and entrapped poor nations in debt.
China will undoubtedly continue to remain important. In recent decades, humanity’s biggest achievement has been hundreds of millions of Chinese people lifting themselves out of poverty. But a China moving in an authoritarian and isolationist direction is seriously unlikely to surpass the West.