Cathay, that fabled land of Western story-telling and mythology, with its romantic-sounding Silk Road and stately pleasure domes, has assumed a disconcerting immediacy. China is suddenly present everywhere on the world stage – in geopolitics, international trade, epidemiology, security issues and global finance. After thousands of years, as technology shrinks the globe, we in the West are finally discovering what it was like, throughout twenty expansionist dynasties, to live as a neighbour of the imperial dragon.
The technology of the nineteenth century enabled the Western powers to reach China and demand trade. The Middle Kingdom replied, in short order, that it had no need or desire for commerce with foreign devils. So, we flooded the country with opium, creating a large market, and gained concession ports by force. One of the few areas where the self-flagellating leftist anti-colonialist narrative has credibility is China.
The long-term consequence of Western exploitative intervention was that China imported not just opium, but the equally poisonous drug of socialism. In the 1960s, Westerners watched with a mixture of horror and amusement the spectacle of vast crowds of youths, dressed in boiler suits and brandishing a red-covered ideological bible, humiliating and even killing their elders, while destroying their country and everything within it tainted with tradition.
Those newsreel films look grainy today; but there is contemporary high-definition footage of similar scenes on Western campuses and streets, with similarly hysterical youth brainwashed into an even more implausible ideology and equally determined to crush all dissent. China views such scenes of Western degeneracy with satisfaction and encouragement. Yet that does not mean that all is well in the People’s Republic.
After, in the classic Marxist tradition, exterminating 40 million people through purges, labour camps and artificial famine, the Chinese regime began to look outwards and those at whom it was looking convinced themselves its intentions were benign. Beijing exploited that naivety and set out to exploit the West commercially, reversing the process of a century before. China must first become a great economic power, then that wealth could be used to fund its hegemonial ambitions.
As the largest economy in the world and the paradigm of capitalism, America became the chief target. Finally, it was Donald Trump, in his blunt, homespun way, who assumed the role of the boy denouncing the Emperor’s nakedness and proclaimed that America was being taken for a ride. When Trump took office the United States’ trade deficit in goods with China amounted to $375.6bn. China’s currency manipulation and steel “dumping” had been regarded as causes for concern by previous administrations, but Trump hit back by initiating a trade war.
For this he has been much criticised by some economists, with sophisticated arguments suggesting fighting back is counter-productive. But, with Chinese intellectual property theft costing the United States $300bn a year, something had to be done. It may be true that there is no winner in a trade war, but under the previous dispensation, amounting to a policy of appeasement, America was clearly a loser.
Now, today, we have reached a point where the Chinese economy is exposing the inner tensions inseparable from state capitalism, teetering like an over-stacked pile of dominoes and threatening to provoke global recession. Chinese financial operations may have progressed beyond the simplistic stage where the signs of an emerging bear market signalled it was time to shut down the stock exchange, but there is still a significant Heath-Robinson character about the whole enterprise.
China has a massive real estate crisis engulfing its economy; the official figures are massaged to the point of irrelevance, the crisis is serious. The Home Counties-sounding Country Garden, China’s largest real estate developer, has lost up to $7.6bn in the first two quarters of this year. China Evergrande, another troubled real estate company, defaulted on $300bn of debt in 2021 and has filed for US bankruptcy as it tries to restructure its leveraging.
Standard & Poor’s reports that more than 50 real estate developers in China have failed to make payments for the past three years. House prices in prime areas in major Chinese cities have fallen by more than 15 per cent – by 20 per cent in one fashionable quarter of Shanghai. Contagion is spreading to financial trust companies, with Zhongrong International Trust, managing assets of $85bn, missing payments to investors.
Forecasts of Chinese growth are being rapidly downgraded, in some cases below the government’s target of 5 per cent. In any case, all forecasts are unreliable because of the opaque nature of economic information released by the government. But China’s economic problems are not exclusively domestic. The much-hyped BRI – Belt and Road Initiative – intended to spread China’s influence throughout the developing world, creating allies and client states, looks like ending in failure.
The problem, from the start, was that an apparently economic project thinly masked a political operation. Impoverished countries were made offers they could not refuse of major infrastructure projects. Beijing’s calculation was transparent: if the project succeeded it would bring a revenue stream of debt repayments for years, along with political influence and prestige; if it failed, China could take ownership of strategically sited ports, roads and rail links in far-flung places.
It has all gone sour. China has made loans of more than $1 trillion to 150 countries, many of which cannot pay them back. In Sri Lanka, a BRI-built port lacks shipping and the Sri Lankan government cannot pay back the loan. Pakistan has had to go to the IMF for assistance. Nor, due to lack of communication between government and Chinese contractors, have the sites proved strategically valuable. China now has its own HS2, a BRI-built railway that ends in a field in Kenya.
China bit off more than it could chew. In 2016 alone it launched 8,158 BRI projects. One of the reasons for failure was surprising: because of the scale of the enterprise and the need to reduce bureaucratic obstruction, Beijing relaxed central control over BRI projects, with the result that Chinese firms behaved like Western capitalists and took on projects that seemed like a good idea at the time.
The outcome of the Belt and Road Initiative is that China has become the biggest creditor in the world, with the worst load of bad debt. As for increasing influence, the failure of the scheme has provoked resentment and accusations of exploitation and neocolonialism from countries that were intended to become allies, or even satellite states. In tandem with domestic economic problems, BRI has become another headache for Beijing.
Expanding the acronym from BRI to BRICS, China now has its own Commonwealth, or G7, or whatever template the Beijing regime is attempting to imitate. The original, already incongruous, grouping of Brazil, Russia, India, China and South Africa, has now offered membership to Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates. That makes for an even more disparate collection of states. Its only common interest would seem to be resentment of Western and NATO power.
Even before the proposed expansion, there were incompatibilities among the existing members. China has serious issues with India, including territorial claims that flared up recently when China published the 2023 edition of its standard national map, showing parts of India – the state of Arunachal Pradesh and the entire disputed Aksai Chin plateau – as being within China’s borders. China has built elaborate military installations in Aksai Chin, which India cannot match.
New Delhi is incandescent about this attempt to assert Chinese irredentist ambitions and, presumably, by Xi Jinping’s apparent snubbing of the Indian-hosted G20 summit, making the occasion less significant. It is likely Xi was irritated by India’s recent Moon landing and wanted to cut his rival down to size.
With Iran among the new entrants to BRICS, there is potential for the otherwise incompatible alliance to become a forum for anti-Western mischief making, particularly in the field of arms sales. The other concrete asset its members command is natural resources, ranging from oil to uranium and rare earth materials. That said, even pessimistic observers see little likelihood of a combined, coherent strategy being forged by what is a talking shop designed to make its members seem important.
China, of course, is important. Militarily, it poses a massive threat. Last year, Beijing’s defence budget was $230bn, second only to the United States. But that is misleading: China is acquiring weapons at five times the rate of America. China currently possesses 410 nuclear warheads, but is likely to expand that stockpile rapidly. One purpose of nuclear weapons, as we have seen in the Ukraine war, is to hold the ring, to deter other powers from entering a conventional conflict.
That would apply to Taiwan. There is not a scintilla of doubt that China intends to take Taiwan by the only means possible: the use of force. The West has huge interests at risk there, not only the crucial supply of electronic semi-conductors, but the trade lanes between the Taiwan Strait and the South China Sea, through which more than $3.4 trillion worth of goods, representing 21 per cent of global trade, pass every year. With supply chain crises already inflicting heavy damage on the world economy, the prospect of Chinese interdiction of that route is beyond unthinkable, an undoubted casus belli between China and the West.
Beyond the irreducible reality that Beijing intends, at some point, to seize Taiwan, it is almost impossible to read the intentions of China. In the present turbulent state of geopolitics, it is more than likely Xi himself is currently undecided. It is even possible that the Ukrainian war has given Taiwan a breathing space. Russia’s invasion has aroused NATO and the West to a state of preparedness that was not evident two years ago. It is not the ideal climate in which to launch a copy-cat invasion of Taiwan.
But Russia’s Ukraine adventure may have other consequences. Beijing now regards Putin as a failure; when he didn’t make it to dinner in the presidential palace in Kyiv by March 2022, he became a loser in Xi’s eyes. The big question for Beijing is: how big a loser? Most Western predictions of Putin’s overthrow are wishful thinking; but if serious instability broke out in Russia, it would present China with a massive, historic opportunity.
China has long coveted Siberia and Mongolia. Russia and China are natural enemies, not allies. China’s long memory does not just resent the West for the Opium War, it also hates Russia for its appropriation from the weak Qing dynasty of one million square miles of Chinese territory in the one-sided treaties of Aigun and Beijing, in 1858 and 1860. The so-called Russian Far East, or Outer Manchuria, with its Russian settler cities of Khabarovsk and Vladivostok, represent foreign occupation in Chinese eyes. At the fall of the Chinese Empire in 1911, Mongolia and the Tuvan “autonomous republic” were further appropriated by Russia.
Nor is it simply a matter of national pride. The former Chinese lands now incorporated into Russia are rich in minerals on a scale that dwarfs Taiwan’s high-tech assets. If Russia fell into chaos, which the Wagner mutiny betrayed as being a realistic possibility, the massive Chinese People’s Liberation Army would be racing into Siberia like greyhounds out of the traps, to act as “peacekeepers” for the indefinite future.
So, Xi may be watching, waiting and weighing up his opportunities in other areas besides Taiwan. And it is into the eye of this gathering storm, with an eventual outcome impossible to read, that James Cleverly flew this week. He was right to do so. Critics of the trip overstated their opposition. Churchill’s dictum that jaw-jaw is preferable to war-war has never been more true than in this thermonuclear age. Beijing has trade priorities, in an attempt to shore up its precarious economy; Britain may, in a modest way and without moral compromise, be able to reach certain level-playing field agreements. We must at least try to persuade China it is in its own interests to stop policing its citizens on British soil.
States with serious economic problems often turn to war as a distraction for their angry populations: that must not be the outcome of China’s downturn, as its leaders may think they must strike before they lose the economic heft to support a strong military.
In all dealings with China, over three millennia, one paramount issue has stood out: avoiding loss of “face”. It is not appeasement always to leave an opponent from a culture where reputation is everything – even worth burning the world to preserve – room for manoeuvre. In corollary, such an opponent should never be allowed to mistake pragmatism for weakness. Cultural differences are a serious consideration in relations with China.
That is why Western leaders, including Britain, have a heavy responsibility to deliver a clear, uncoded message to China: we respect you, your history, your people and your right to a major role on the world stage; there are great opportunities for your country’s future prosperity, which we do not grudge, especially since the failure of your economy would impact ours; all we ask is that you refrain from aggression, respect human rights and settle disputes around a table. Talking softly, while carrying a big stick, is the best way to engage with China.
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