China descending

What a difference a few years make: In 2005 China was a fast-rising economic superstar, the world’s  unstoppable manufacturing locomotive, pulling along many major and emergent economies toward predictable growth and impressive progress.

Like Japan in the late 1980s, China was set to surpass the US economy, and with that geopolitical benchmark, gallop quickly to become a global power second only to America.

Then, unexpectedly, China’s economic train was derailed by an event an ocean away: the Wall Street financial crisis in 2008, which triggered recessions in the United States and the European Union. The crisis struck hard export-driven economies like China, Saudi Arabia, Russia, Australia and Germany. Hardest hit was China, being already hard-pressed by rising wages and nimble (lower wage) competitors in the region. Reduced demand in the United States and the European Union, China’s biggest and most important markets, forced it to go on a credit-fueled recovery binge up to the present, which made things worse.

This piece will limit itself to China’s current fragile state and its strategic implications to the region.

The local and international media have reported on China’s faltering economy, characterized by dwindling exports, stocks and real estate bubbles, ghost towns, rising social unrest, the resurfacing of regional animosities, and a soaring debt caused by stimulus packages to perk up the economy. In the wake of persistent reports about its evidently serious socioeconomic problems, China has maintained a stiff upper lip to prevent the situation from getting out of control.

Otto von Bismarck advised never to believe anything in politics until it is officially denied. Translation: Denials are a government’s most popular instruments to send messages to target audiences. Bismarck would have been surprised to learn that China’s paramount leader, President Xi Jinping, does not subscribe to his injunction, judging by a recent (May 9) front-page commentary in the flagship party journal, the People’s Daily.

In that unprecedented and strikingly blunt analysis of China’s current economic woes, reported by China watchers like Asia Times and Geopolitical Futures, the “unnamed authoritative” source warned the public not to believe in rosy statistics in interpreting China’s current crisis.

The contributor, rumored to be close to  Xi, described China’s condition as “L-shaped,” a trajectory of sudden rise followed by a flat line of stagnation, which may continue unless

China’s problems are addressed vigorously at the  structural level instead of applying unworkable solutions like accumulating more debts through stimulus programs.

To lend credence to the commentary, the journal published a speech by Xi the next day that echoed the analysis in the lengthy commentary. The immediate effect of both publications is the cooling of foreign investor confidence, according to the Asia Times.

It is evident even from sparse news reports that Xi is repudiating the architect of the stimulus policy, Premier (and China’s economic steward) Li

Keqiang, and blaming him for the present crisis and economic ills. A power struggle between the two most powerful leaders in China appears to be in full swing, with Xi likely to emerge the winner.

But regardless of who wins, China’s leadership will maintain its aggressive and bullying policy in the South China-West Philippine Sea for these reasons:

• China is, first and foremost a coastal trading nation. This is highlighted by the fact that eight of its ports are among the world’s ten busiest.

China would be dealt a catastrophic blow if the choke points in the South China-West Philippine Sea are sealed off by a hostile power in the future (read: the United States, the only country with the military power capable of doing it).

• China needs islands (real or artificial) to protect its vital trade routes. It doesn’t have the naval might to challenge the United States which, as the undisputed global superpower, has 12 state-of-the-art aircraft carrier battle fleets scattered worldwide. China has one (Ukraine-) rebuilt aircraft carrier, but not even one battle fleet. To compensate for its much weaker military capability, China would rely on a “first island chain” sea-control capability—with the help of multipurpose missiles—from the Sea of Japan to Taiwan, the Philippines, Malaysia and the coasts of Vietnam. China’s “nine-dash line” is the southern part of that chain. The nasty problem is most of the waters, islets, atolls, and islands claimed arrogantly by China are in disputed waters or lie within the 200-mile exclusive economic zone (EEZ) of claimant countries like the Philippines.

• Even with China’s faltering economy, Xi is expected to maintain a hard line on the South China-West Philippine Sea issues. His primary concerns are China’s existential threats and his own political survival. Both concerns dictate that he use the sea issues adroitly to galvanize his people, now caught between the unifying centripetal force of national interest and the fragmenting, centrifugal tendencies being fostered by social unrest.

China is expected to defiantly and totally ignore the forthcoming ruling of the UN arbitral tribunal that is expected to favor the Philippines’ position that it alone enjoys the “sovereign right” to develop all waters, islets, atolls, and islands within its EEZ.

As China weakens, its very vulnerability may paradoxically make it more dangerous to regional peace. During testy times, it is far better to have a stable, confident China than one with frustrating domestic problems and unsteady fingers on missile buttons.

Narciso Reyes Jr. ([email protected]) is an international book author and former diplomat. He lived in Beijing in 1978-81 as bureau chief of the Philippine News Agency.