Where China is Headed and what it Means for India
Context:
- The most significant geopolitical event that took place in the world in 2022 was Russia’s invasion of Ukraine. But the situation in Ukraine goes beyond merely being a geopolitical one; it also did serious harm to globalisation.
- An old paradox that John Maynard Keynes first noticed was brought back by the upheaval of the grain and energy markets.
- Keynes argued that conventional politics in a single state cannot overcome the problems brought on by global economic integration. It might therefore endanger international peace.
A significant instance of globalisation:
- In 1914, the global economy was more interconnected than ever, but the start of World War I severely weakened that long-term economic cohesion.
- Keynes suggested that major wars and economic globalisation couldn’t coexist.
- As long as violence was confined to Iraq and Afghanistan, globalisation advanced during our time.
- However, as Russia brought war right into the heart of Europe, the logic of security prevailed over the logic of economy. The idea that trade creates peace by promoting interdependence has been repeatedly refuted.
- The second most important event of 2022 was the re-coronation of Xi Jinping for a third term as leader of the People’s Republic of China.
- The appointment violated two related post-Mao Chinese norms: shared accountability (replacing the idea of concentration of power in a single leader as during the Maoist era).
- There are term limits for party and national leaders. Nobody is ruling out the prospect that Xi’s authority may be increased further or even indefinitely.
- This is important for two reasons. Unlike Russia, whose economy will be the 11th largest in the world in December 2021 and whose principal economic contribution will come from the oil industry.
- China is the second-largest economy and market in the world, its top trade partner outside of its own country, and one of the leading receivers of global investment.
- China will be much more powerful than only natural gas, oil, and food grain to destabilise the world economy if security and economics diverge.
- Second, Xi and China’s view on Taiwan is comparable to Putin’s claim regarding Ukraine in that they believe Taiwan has no reason to continue to exist independently given that it has long been an important part of China.
- There will be huge economic effects in addition to the simply strategic ones, such as whether the US or Japan will support Taiwan’s defence.
- Unlike Ukraine, Taiwan boasts a first-world economy. In December 2021, Taiwan’s per capita income was close to $35,000 compared to Ukraine’s barely $5,000.
- Taiwan’s GDP, which includes advanced industries like semiconductors, was around $820 billion. Ukraine had a GDP of roughly $200 billion.
- In this, compare China and Russia as well. In comparison to Russia’s GDP of $1.5 trillion, China’s GDP in December 2021 was $17.7 trillion, or less than a fifth of the global GDP. As a result, the route China is taking under Xi is no longer primarily a Chinese problem but rather a significant global issue.
- Does Xi prioritise economic expansion over security, as China did for more than three decades after Mao, to be more explicit.
- The fact that an article on China’s economic model was published in a respected security journal should demonstrate how closely related security and economics are under Xi.
- The term “party state capitalism,” as opposed to “state capitalism,” is the most appropriate one, according to Chinese scholars Pearson, Rithmire, and Tsai, to describe Xi’s economic system.
- The latter simply means that, despite an economy that is increasingly more dependent on markets, the private sector cannot threaten the dominance of state-owned businesses (SOEs).
- The SOEs, foreign-invested firms (FIEs), and private local businesses, or what he dubbed “ethnic Chinese enterprises” (ECEs), were at the top of the hierarchy, followed by ECEs.
With regard to this narrative, the concept of “party state capitalism” adds something fresh:
- It demonstrates how a fundamentally different approach to establishing the Communist party’s control over businesses—the creation of party cells within corporations and the appointment of party members to company boards—can be used.
- Private sector executives are supposed to uphold political loyalty, particularly by retaliating against individuals who advocate for commercial autonomy.
- According to Pearson, Rithmire, and Tsai, by 2018, 1.88 million nonstate entities, or 73% of all businesses, had set up party cells. By Xi’s paradigm, the line between the Chinese state and enterprises is so blurred. The line between the party-state and companies is obscured by it.
International security and concerns about the global economy grow:
- There are significant security threats if the party-state infiltrates high-tech sectors like semiconductors, robotics, aircraft, and maritime engineering, especially for the US and Japan.
- Economic and security issues are unrelated if party cells form in the textile and shoe industries, but they are intertwined if high-tech private businesses work with the government.
- The USA made the decision to prohibit the export of semiconductors and chips to China as a result.
- It also prohibits the selling of cutting-edge chips, the sophisticated technology used to make them, and the advanced equipment itself, as well as the transfer of strategic knowledge by any US citizen or resident.
- The development of “future technologies” in practically every sector, from medical and artificial intelligence to defence and weapons, currently depends on these chips.
- Essentially, China will have to build these chips on its own, which can greatly impede its further economic advancement, unless US partners can step in to fill the void, which is highly unlikely but not impossible.
Conclusion:
- When discussing the most recent border conflicts with Beijing, Delhi should keep in mind that China has turned to a security above economics posture, making a Chinese concession less likely.
