China’s uncertain future

  • Guest Feature

George Magnus, Economist and Research Associate, China Centre, University of Oxford and School of Oriental and African Studies, University of London 

In this piece George Magnus former Chief Economist at UBS and Research Associate at Oxford University’s China Centre, uses social science perspectives to critique China’s global power and the political and economic challenges it is likely to face at home and abroad in the future.

The widening focus on China in recent years has gone hand-in-hand with its rising economic heft and status in the global system. Seasoned China-watchers, however, suspected that change was afoot when Xi Jinping came to power in 2012. A decade on, economic interest in China has been drawn not to its economic achievements but to its faltering economy and real estate market, among other problems, including the consequences of the zero-Covid policy. Political interest, meanwhile, has homed in generally on China’s ambition to reshape global governance in its own interests and specifically on human rights abuses in Xinjiang Province and Hong Kong, bullying and coercive diplomacy, not least with regards to Taiwan, and Xi’s support for Putin’s Russia.

Economists and political scientists are not the only social scientists trying to understand Xi’s China, and its implications for the rest of the world. Legal scholars, typically focused on human rights and the repression of those who speak out, pay much attention nowadays to the consequences of sanctions and commercial restraints, and the blizzard of regulation that has been brought to bear on private sector technology, finance, and data platforms. Moreover, new laws are designed to strengthen the control of the Chinese Communist Party (CCP), and solidify Chinese standards, systems, and behaviour, for example in data security, privacy, and use, that are in stark contrast to those that obtain in the politically aligned ‘western world’.

Demographers have long anticipated the point at which China, the fastest ageing country on Earth, would lose its ‘most populous’ label to India, experience a declining labour force, and contend with rapid ageing as the slump in fertility fused with rising cohorts of retirees. All of these tipping points have now fallen into place and the consequences of these phenomena at home and abroad will play out glacially but with certainty in the decades ahead. At the very least, China will face additional drags on growth as a result, and relentless demands for age-related public spending. Further, a society that has typically embraced strong broad family connections will morph into one with multi-generational, ’beanpole’ shaped family structures with few children, siblings, and cousins.

Geographers and International Relations experts are having a field day as the ‘geo’ in ‘geopolitics’ has lurched centre-stage. The shift in global gravity towards China and the competition for influence in swathes of the world from Africa through the Middle East and across the Indian Ocean to the South China Sea has reminded us of the so-called’ Heartland’ and ‘Rimland’, popularised by geographers Nicholas Spykman and Halford Mackinder in the first half of the 20th century. China’s Belt and Road Initiative is indeed a perfect case study to reflect on the geography and politics offering China an opportunity to follow the Rimland design, and America and its allies, including India and Japan, the opportunity to counter it.

The attention of other social scientists, including sociologists, anthropologists and psychologists has also been drawn to the role played by social media and physical protest in Chinese society, for example in the face of the original pandemic and later zero-Covid, and recently, as the property market has buckled.  The freezing of bank deposits by a handful of small banks in Henan Province drew serious unrest, while hundreds of thousands of middle-class homeowners boycotted mortgage payments on properties which bankrupt developers cannot complete.

The fabled middle class particularly has had to contend with the government crackdown on private tutoring of children, a tipping point in property, which is the major way in which it holds wealth, inadequate employment opportunities for the annual throughput of 11 million graduate students, and youth unemployment that is now close to 20 per cent. Meanwhile recently published research has shed light on the low levels of educational attainment among large swathes of China’s labour force, with only a third having high school qualifications or better, and only a fifth with tertiary qualifications. With the right policies, these things can change in time, but as with so much in China, the blockage in framing and implementing them is often political.

Politics is indeed centre-stage in China, especially this year because in the autumn, the 20th Congress of the party – quinquennial events – is expected to rubber-stamp the nomination of a controlling and powerful Xi Jinping for an unprecedented (since Mao) third period of office. If his health and enemies allow, he could remain as head of state for another 10 or even 20 years. Given that Xi’s China has become a cradle for repression and dictatorial control, it behoves us to ask how the party manages to secure the support or compliance of most citizens, regardless of all the problems facing China.  Propaganda, and the party’s total control of the news and narratives clearly play a big part, as does the ease with which nationalism can be stoked up and exploited. There doesn’t appear to be widespread popular opposition to Xi, even if it lurks in the nooks and crannies of the party hierarchy, but this is an interesting avenue for social scientists to explore.

The most common answer to this question is that the CCP has so far managed to embed in its narratives and in the public consciousness the expectation that under the party’s rule, economic circumstances and personal well-being will continue to improve as they have for the past decades. If that is indeed the substance of the case, then we are entitled to ask now whether this time will be different?

China has never faced such an onslaught of headwinds, which, for the first time, threaten to bring little more than pedestrian economic growth of perhaps 2.5-3 per cent, rising unemployment, and frustrated expectations. The property market, estimated to have accounted for between 23-29 per cent of economic growth looks to be facing a decade or more of stagnation for the first time, and the boom in skilled manufacturing and construction jobs is being replaced by a surge in low skill, low pay, informal sector jobs.

The government could restructure the economy to give it a new lease of life, by de-emphasising investment which accounts for an exceptionally high 45 per cent of GDP, and prioritising higher consumption, expansion of social security and welfare to include the 300 million strong migrant population, the opening up of service industries, and exhorting private firms to exploit unfulfilled potential. Yet, it hardly seems plausible to imagine that, as things stand, it would embrace the liberal reforms and redistribution from the state to the private sector that such a shift would necessitate. The political and corporate governance structure has become more stifling of private firms and entrepreneurs, and the regulatory environment much more politicised.

In a nutshell, stripped of high growth tailwinds, this time China’s prospects do look quite different. And with that, its heft in the world may be tamer, and accordingly the power it projects based on that heft may be less than it would like us to believe. China’s weight in the world will remain significant though, and it will take time for the network of interdependency that has been formed over a generation to change or diminish. That process though has certainly begun.

About the author

George Magnus, formerly the Chief Economist of UBS, is an independent economist and commentator, and Research Associate at the China Centre, Oxford University, and at the School of Oriental and African Studies, London. George is an adviser to some asset management companies and is a contributor to the Financial Times, Times, Guardian, New Statesman, and other written media, and appears regularly on BBC TV and radio, Bloomberg TV and other outlets.