Contrasting Forecasts for China

At Foreign Policy, Minxin Pei argues that China’s continued rise is not a foregone conclusion, and that the U.S. should ready itself for a Chinese decline. Americans, he suggests, have long tended to overestimate the strength of rival powers.

Could the same malady have struck Americans when it comes to China? The latest news from Beijing is indicative of Chinese weakness: a persistent slowdown of economic growth, a glut of unsold goods, rising bad bank loans, a bursting real estate bubble, and a vicious power struggle at the top, coupled with unending political scandals. Many factors that have powered China’s rise, such as the demographic dividend, disregard for the environment, supercheap labor, and virtually unlimited access to external markets, are either receding or disappearing.

[…] The most consequential effect of this disconnect is the loss of an opportunity both to rethink U.S. China policy and to prepare for possible discontinuity in China’s trajectory in the coming two decades. The central pillar of Washington’s China policy is the continuation of the status quo, a world in which the Communist Party’s rule is assumed to endure for decades. Similar assumptions underpinned Washington’s policies toward the former Soviet Union, Suharto’s Indonesia, and more recently Hosni Mubarak’s Egypt and Muammar al-Qaddafi’s Libya. Discounting the probability of regime change in seemingly invulnerable autocracies has always been an ingrained habit in Washington.

The United States should reassess the basic premises of its China policy and seriously consider an alternative strategy, one based on the assumption of declining Chinese strength and rising probability of an unexpected democratic transition in the coming two decades. Should such a change come, the geopolitical landscape of Asia would transform beyond recognition. The North Korean regime would collapse almost overnight, and the Korean Peninsula would be reunified. A regional wave of democratic transitions would topple the communist regimes in Vietnam and Laos. The biggest and most important unknown, however, is about China itself: Can a weak or weakening country of 1.3 billion manage a peaceful transition to democracy?

In a speech to the Africa Down Under Conference in Perth, on the other hand, former Australian Prime Minister and Minister for Foreign Affairs Kevin Rudd suggested that China would successfully navigate the economic transition outlined by its 12th Five Year Plan:

The key question for Australia and the world is whether China’s political economy will enable this profound economic transformation to occur successfully without any significant political dislocation occurring domestically.

[…] Based on what we know so far, let me hazard some tentative conclusions of my own.

First, while recent economic indicators suggest some softening in Chinese demand, China’s actual economic growth performance in the year 2012 is still likely to come in north of eight percent (that is somewhat ahead of market expectations).

Second, China’s leadership transition will turn out to be relatively smooth later this year and the new leadership under President Xi Jinping will continue to embrace the economic transformation project outlined above.

[…] I am an optimist for the future of the Chinese economy.

See also Eric X. Li vs Minxin Pei on China and Democracy, via CDT.