By Collins Chong Yew Keat

KUALA LUMPUR, Malaysia: The rise of China has changed the global axis of power for past decades, forcing readjustments. Since the economic reforms in 1978, its GDP has grown on average by percent per annum, creating social mobility in allowing 800 million Chinese citizens to escape poverty.

Now, China’s rapid rise is slowing down, with GDP growth of around 5 percent, with parallel readjustments in global power parity. 

Projections of China overtaking the United States as the largest economy have never come to fruition.

China’s workforce has already peaked, based on statistics. The labour supply in China will drop by about seven percent from 2025 to 2050.

With its economic slowdown and the shifting away from reforms, China’s economy showed signs of weakness even before the pandemic. 

Its working-age population has been down for about a decade, whereas its population as a whole has peaked, and overtaken by India. 

The masses of young workers who have once filled the world’s factories are now dwindling, and the rise of the tang-ping (lie flat) movement portrays the state of the younger demographic in facing unemployment and a stiffer supply of jobs.

In order to feed the growing elderly demographic, more resources will  need to be diverted. 

This peaking power trap can create a more dangerous scenario for the US in having to deal with a risen power fighting to avert decline, but democracies tend to excel in great power rivalries, having unique economic, diplomatic and military advantages.

Global military dominance is still a farfetched dream for Beijing.

China’s rivals, especially India, have been fast rising. Economists have warned for years that the China model has fundamental flaws and would inevitably break down. The problems have now  run so deep, and the repairs would be so costly.

Not only would China never overtake the U.S. as the dominant economy in the world as has been predicted for years, it is already falling behind. 

The main motor of the China model is investment, focusing on infrastructure and transportation, with capital pouring into factories, highways, airports, shopping malls, properties, and the likes. This fuelled rapid growth in the beginning. 

After years and decades of a public infrastructure boom, the returns are diminishing. 

With little progress to jettison from a predominantly investment and export-led progress, priorities have turned to self-sufficiency and internal security.

After four decades of extraordinary growth, China is confronted with deeper structural issues in its economy, hindering domestic consumption and investment.

Over time, China developed a more advanced economy, but the state and companies nevertheless kept on building. 

The growth rate stayed high, but now the economy was generating wasteful excess that undermined its health. 

It is estimated that China has 23 million to 26 million unsold apartments, more than enough to house the entire population of Italy and many of these apartments will never be purchased, as they are situated in towns with declining populations. 

Although boasting an extensive network of high-speed railways which is the world’s largest, the state-owned company that operates has more than $800 billion in debt and has posted substantial losses. 

As China continues to invest beyond what they can actually absorb, this unproductive investment, much of it financed by borrowing, has seen that its debt has expanded much faster than its economy. 

A decade ago, China’s total debt was about twice the size of the country’s economy; now it is triple the size. 

The debt to GDP ratio is around 300 percent, a very high figure for a developing state.

The International Monetary Fund estimates that China’s local governments have accumulated $9 trillion in debt in the name of financing infrastructure projects.

China’s leadership has long been aware that its investment strategy carried risks, and cognisant that China had to rebalance by decreasing its reliance on investment and to build new engines of growth, especially domestic consumption.

China would also need to liberalise its financial sector and lessen state control on private enterprise.

President Xi Jinping seemed to understand and accept these imperatives early in his tenure, but the reforms did not happen, or did not happen fast enough.

Implementing these reforms would carry far reaching consequences, and would have diminished the power of the state and Xi’s own power. Subsequently, there was  unwillingness to trade political control for economic growth.

Xi has relied on state industrial policy to drive innovation, while the private sector is in retreat. 

With a high saving rate and a model of the economy that relies primarily on exports and investment, domestic consumption suffers, and with it, reverberations ring across the region in terms of demands for goods from regional players. 

With similar export led models of their economies, regional players in Southeast Asia are also suffering as a result. 

With dwindling demand driving the economy, deflation ensues and discouraging investment and consumer spending which are needed to revive the economy, which further created the endless cycle of being caught in a limbo.

Caught in this bind, Beijing is looking outward, hoping to leverage on a bigger say of the economic bloc it is trying to build through economic friendshoring and anti-West models that can capitalise on the combined economic willingness of the players that are looking to have fallback options in detaching from the Western led conventional market and trade system. 

The thinking is that on a standalone scale, China’s economy might not be bigger than the U.S., but China’s bloc combined, will be bigger. 

The feeling is that if China cannot overtake the U.S. by default, it can do so in aggregate, through the coalition that it sets out to synergise, from BRICS to its own economic models of charm offensive, Belt and Road Initiative (BRI) and Regional Comprehensive Economic Partnership (RCEP). 

However, fundamental geopolitical differences remain abound, and with no core centralised economic commons binding them, the Western economic market and dominance are hard to be challenged, let alone overtaken. 

The economies of the six new BRICS members combined are only a bit bigger than the United Kingdom’s. Fundamentally, internal differences and geopolitical and security wariness from India-China to Russia-China wariness, inhibited any real challenge to the Western system. 

The determination to compete with the United States has been the key drive and been a core essence of Xi’s economic agenda. 

From doubling down on industrial policies including state financial support to special measures to propel Chinese companies ahead of U.S. rivals in critical sectors especially artificial intelligence and semiconductors, Xi has a long held vision to elevate the status of China as the primary mover of the global tech advancement and economy.

Through self sufficiency goals and the dual circulation strategy and the renewed economic friendshoring efforts, Xi has sought to reduce Chinese vulnerability to U.S. sanctions. 

However, domestic indicators are insufficient to carry these goals. Income remains relatively poor, with per capita gains of around $12,700, one-sixth that of the U.S. 

Resources are limited to support the continued expansion of its military capabilities. State banks have already significantly pared down on development lending to low-income countries.

The economic decline of China will reduce Xi's ability to challenge the existing world order through his ideological campaign. The Global South has observed and been made to observe through China's example that authoritarian rule does not prevent autocrats from achieving economic success and international prestige. 

This economic decline of China makes it more challenging to support its claims about authoritarian regimes achieving wealth and international respect and political power. 

The economic challenges facing China indicate that authoritarian governments face a dual challenge because they cannot maintain control while achieving economic growth which requires political and economic reforms to work together.

The extent of a nation's power projection depends directly on its economic capabilities, and in all indicators, it remains a challenging prospect for Beijing in years to come to match the West’s resilience. 

*Collins Chong Yew Keat is a foreign affairs and strategy analyst and author in University of Malaya.*