China and the Geopolitical Impact of the Virus-Induced Slowdown

By

Vice Admiral (retd) Vijay Shankar

Published in the authors column “The Strategist” on the the IPCS website and available at http://ipcs.org/comm_select.php?articleNo=5745

China’s dazzling growth story over the last four decades has been rudely disrupted by the outbreak and spread of the Covid-19 pandemic and the consequent chaos it has brought down on global economic systems. Ironically, in the past, its growth trajectory was able to brush aside the fall-out of the Tiananmen Square massacre despite the apparent humanitarian repugnance it caused world-wide. Even the global financial crisis of 2008 failed to have any major impact on China due to its closed financial system, the massive economic stimulus it provided to encourage internal consumption and external investments, and its single minded approach to promote accretion of technologies, setting aside dysfunctional ideologies and international conventions.

Beijing is faced with a complex economic dilemma that will neither abate nor yield to any financial stimulus as it did in 2008 due to its very colossal size and its intricate linkages with the larger global systems. Besides, China’s lack of transparency in the origin and circumstances of the pandemic’s spread has caused a decline in global demand for Chinese exports and set into motion an antagonistic and sometimes mixed trend towards its businesses and its loan-for-lease territory grabbing strategies. However, one of the biggest long-term risks to China’s economy could come in the form of economic decoupling. Throughout the year, tensions between China and India, Japan, Australia and the United States have escalated over a number of issues, including Ladakh, Senkaku Islands, Hong Kong, Taiwan, the prolonged trade war, and increased technological rivalry. Disruption of ties between such large economies has had a downward pressure on growth; starting 2010, China’s economic growth began to decline. GDP dropped from 9.5 % in 2011 to 7.3% in 2014 and the rate continued its decline to 1.85% in 2020. It is expected to rise hereafter.

China, in the meantime, initiated military measures to persist with claims within the 9-Dash Line in the South China Sea (SCS), precipitated a territorial embroilment with India, pressed on with a grandiose global infrastructure plan called the Belt and Road Initiative (BRI), drastically reorganized and modernized the military and enforced ideological purity in schools and the media — all parts of its vision of a rejuvenated China.

In the circumstances, there are two possibilities that the future may hold:

First,Beijing has advanced the view that, their economy is emerging more resilient and competitive than any other. It aims to build a “new system of an open economy with higher standards providing more opportunities for the world to benefit from China’s high-quality development.” This is contrary to the facts on the ground; Australia is a case in point where its banning of China’s 5G network has provoked a tit-for-tat response as China systematically bans the import of Australian products in addition to embarking on a media campaign to malign Australia’s  involvement in the Afghan war. In various forums, Xi has made it abundantly clear that the world needed China more than China the world. A new found confidence of the meaning of globalization with a Chinese bent is apparent as Beijing creates an order where subjection to Chinese produce counters any maverick tendencies; as it rewrites a new set of rules for the international economic system.         

 Will the world ‘kow-tow’ to this new order?  

The Second Possibility relates to the nature of the post-pandemic world and its impact on China’s designs. Will we see more fragmented regionalism less globalisation or a global response to Xi’s disruptive nationalism? For a global response or at least a strong and meaningful push-back short term commercial interests will have to be set aside. Awkwardly, we have noted Australia despite being punished by having its exports worth $6 billion unfairly blocked by China has gone out of its way to sign up for the Regional Comprehensive Economic Partnership. Within neo-realist thought, this may well appear an appropriate response, to attempt to bring China into the status quoist group. And yet, was that not the intent for the last three decades, when the assumption of dominance of military security lost ground to greater interest in the economic and environmentalist agendas? The most uncomplicated way for a new hegemon to face-down opposition is to be up against disjointed competition.

So are we witness to not just the arrival of a new regional hegemon but also a changing order of the International System? The Indian Foreign Minister has suggested in his book The India Way “…for two decades, China has been winning without fighting, while the US was fighting without winning;” or has the pandemic put another twist to this tale?

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