The Chinese Economic Dragon is Spitting Fumes — Here’s How the U.S. Should Respond

Over the next 15 years, China will offer major challenges to U.S.-led international order. In the Pacific, China will attempt to militarize oceanic trade routes and subjugate its regional neighbors. In Africa and Europe, China will attempt to marginalize other nations by offering crony-economic investment in return for political submission (Britain, for example). In cyberspace, China will try to steal technology and secrets without remorse.

Yet China will also face a major problem: the dragon economy is sputtering fumes, not flames.

Consider China’s present economic slowdown. Having long invested in an export-dependent economy, and benefitting from abundant cheap labor and economies of scale (including a vast production capacity), China was able to use the 1990s and 2000s to become the world’s low-cost, low-value export goods powerhouse. In return, China’s economy boomed and westerners were able to purchase goods at lower prices, keeping more money in our wallets.

But that was then. Today, Chinese workers are paid more and China’s production costs have increased. That has changed the trade game by allowing nations such as the Philippines and Vietnam to degrade China’s economic advantages. Offering the same exports as China, but at lower cost, these nations are undercutting China’s export model.

And while China’s comparatively advanced infrastructure means that it has been able to insulate its economy from some of this competition, the trends are not in its favor. Over time, the socialist autocracy will lose the free-market battle in large part because China lacks the flexibility for effective economic diversification. While the government is pursuing such reforms and domestic consumption is increasing, the degree of state control, bureaucracy and corruption in China means that reform will be ramshackle rather than radical. If and when the Trans-Pacific Partnership free-trade deal becomes reality, regional capitalists will benefit from China’s structural inefficiencies.

--FILE--A Chinese worker handles production of cloth at a textile factory in Zouping county, east China's Shandong province, 28 February 2016. The Caixin General China Manufacturing Purchasing Managers' Index (PMI), an indicator of manufacturing activity, rose to 49.7 in March from 48 in February, a private survey showed Friday. The reading is higher than February's five-month low, but again below the neutral 50-point level, according to the survey conducted by financial information service provider Markit and sponsored by Caixin Media Co. Ltd. A reading above 50 indicates expansion, while a reading below 50 represents contraction.

A Chinese worker produces cloth at a textile factory. China’s manufacturing sector has sputtered due to increased competition with the Philippines and Vietnam. | Photo: AP

Yet more troubling for the dragon, its economic challenges do not exist in and of themselves. Instead, they bind with broader political difficulties and thus threaten the Chinese Communist Party’s existence. As I noted during the 2014 Hong Kong protests, the irrepressible power of digital information sharing through social media means that China’s traditional constraint on individual aspiration is now doomed to extinction. After all, since Mao’s rule, China’s autocrats have treated their people as subjects to the socialist master plan: pawns for economic centralization and subjects of political domination. But now that millions of young and middle-aged Chinese are seeking increased personal incomes and more personal freedoms, China’s leaders have a problem. The peasants want to be treated as people. In the coming years, this awakening will manifest in increasing political activism.

And the awakening will be diversified. For one, China’s vast population of rural poor — far less wealthy than their urban counterparts — will demand more services and opportunities. And their pursuit of those interests will cost the autocrats their slaves. In addition, as more urban Chinese gain wealth, they will want social mobility. In this burgeoning middle class, demands for higher-value goods and services (red wine from France and iPhones from the United States, for example) will challenge China’s leadership to allow more imports. In turn, realizing their own power, these citizens will demand greater political reform and government accountability.

Again, that’s another problem for the kleptocrats: China’s political-economic model remains firmly insular. A small number of elites has long used government patronage and cozy contracts to enrich themselves over the people. President Xi Jinping has cracked down on some corrupt officials, but his attention has been limited and pursued primarily for the sake of public relations. And that truth reflects the Chinese leadership’s inability to recognize the existential political threat they face.

As the Chinese human rights activism continues with increasing publicity in the international community, China’s leaders will find themselves increasingly delegitimized. Put another way, in today’s globalized world, it is not possible for a country of 1.4 billion people to be ruled by autocrats who make up .0001 percent of that population. Don’t believe me? Wait and watch what happens in the coming years.

In today’s globalized world, it is not possible for a country of 1.4 billion people to be ruled by autocrats who make up .0001 percent of that population

Still, China’s future is not a peripheral concern. It holds great relevance to America and highlights our need for careful contemplation about dealing with an evolving China.

I think there are three key takeaways here. First, the United States must challenge China’s desire for global domination. At a military level, we must ensure our allies are confident in our support and that we can effectively deter Chinese aggression in the Pacific. We must also respond to China’s cyber-warfare. As it struggles to reform, China’s leadership will likely become more aggressive.

Second, we must bolster the economic advantages born of American exceptionalism. We should, for example, endorse a diplomatic course that engages nations around the world under the opportunities of mutual trade and co-operation bound to law. China’s cronyism cannot compete for long.

Third, we must remind ourselves that capitalist democracy is the source of individual fulfillment. In an age of doubt, we have much to be proud of. Just ask Hanoi’s young people or ride-sharing drivers in Washington, D.C.

Tom Rogan is a Senior Contributor for Opportunity Lives and writes for National Review. He is a panelist on The McLaughlin Group and a senior fellow at the Steamboat Institute. Follow him on Twitter @TomRtweets.