China is BIG

but not as big as they expected

I recommended using priorities as a reframing mechanism for many of our annual moments for the first few days after the new year dawns (further away than that I figure we all become rather hazy about what we said or intended ten days earlier). Priorities are ranked emphases, often linked to some incentive we seek to meet, for making personal or policy choices. I wonder how often we consider that but want to focus on an effect of priorities in China today following eight decades of CCP behaviors.

As I have said repeatedly, the primary priority of the CCP is staying in power—it’s a straight forward, because staying in power prevents things like hanging from the gallows as the Romanian leaders did following their overthrow in late 1989, having to answer even mundane questions of why tanks murdered students in Tian’anmen, how so many school buildings collapsed in the May 2008 Sichuan earthquake, and why a wealth gap is increasing in a society governed by a supposedly anti-exploitation party.

The CCP leadership after Mao kicked off in 1976 has determined scientifically (these are supposedly Marxists assessing their options through a rigorous scientific study of multiple variables) its can achieve its goal through providing the people of China with a better standard of living.

It would have been hard following its return as a global interlocutor for the PRC to remain quite as poor as it was in 1975. Unrelenting Chinese upheaval between the fall of the Qing Dynasty in 1911, the war with Japan, and the CCP victory against the Kuomindang 38 years later left the country exhausted, hoping for someone to rid them of the luan plaguing societal harmony. Instead, CCP rule led to repeated bait-and-switch policy campaigns (revolutionary parties need revolutionary terminology, of course) from the 1950s (the Hundred Flowers or the Great Leap Forward with its ridiculously pretentious title to obscure the famine it generated) and 1960s (the Great Proletariat Cultural Revolution) whipsawed a population left unfulfilled with either the dinner table or a prosperous, optimistic future.

The Second Generation leadership, best known to us as Deng Xiaoping but in fact a broader collective of CCP officials, sought to prevent social unrest resulting from this perpetuation of chaos instigated by Mao’s unceasing determination to retain power. Once the Great Helmsman passed, the priority for the CCP became improving the standard of living as a tacit quid pro quo for maintaining rule despite the reality of China falling further behind its competitors around the world, rather than ameliorating people’s lives as the Party so eagerly and genuinely promised during the Civil War.

As China struggled in the 1970s with a expanding population needing more of everything (jobs, food, homes, security, and hope), opening the door to foreign investment served a dual purpose. It created factories to put employ the population while importing improved technology from the west into a rudimentary, tech-starved society still operating incredibly inefficient, woefully ancient industries. As the Chinese love to say, the opening was a “win win”.

The rest, as we know, is history. Workers moved willingly from rural China to cities for the guarantee of work, even at lower salaries than their competitors in the industrialized world. Women stopped having so many children, partially because the One China Policy mandated restraint (although it was a more nuanced mandate than so often discussed abroad) so the birth rate demonstrably fell sharply. At the same time urbanization opened new social and economic opportunities for everyone. Even Deng Xiaoping seemed to advocate getting rich with millionaires admitted to the Party. China’s standard of living increased dramatically and substantially. In short, this opening to foreign investment, to foreign companies operating factories in the PRC, and ultimately in 2002 China joining the World Trade Organization where cheaper products flooded the globe truly made China into a world class economy while enthralling the population who had hope for a much better future for those coming behind them.

The standard of living increased tremendously whether one was in Pudong, the glittering home of twenty-first century architecture nouveau across the Huanpu River from the Shanghai Bund was farmland merely thirty-five years ago. Shenzhen (a city of twenty million sprang up for those factories (and worker housing) to ship cheap goods down the Pearl River to Hong Kong and the world). Any two-bit village outside of Urumqi in Xinjiang province is almost sure to have a good road and homes with at least basic consumer goods, all illustrating the transformation of the country and the hopes of the citizens in remarkable fashion.

And therein the catch. Thriving state-run economies assume they will able to tame forces in order to perpetuate an ever-improving trajectory. I was part of a group discussion of a think tank in Jakarta in May 1995 where a western-trained economist who went on to a prominent position in government stated flately that Indonesia’s state-heavy market had “mastered” economic cycles; his country would never again face the plague of previous economic downturns. I told this fellow that economic history provided ample reason to have a much more humble assessment. He gave me a “she doesn’t understand” sneer; just over two years later an economic earthquake rocked his country. The PRC, particularly under Xi, is finding perhaps their 2008ish similar hubris was misplaced.

So, built on seemingly unlimited success, the PRC continued courting foreign investment, though subtly ratcheting up skewing towards Chinese pseudo-state owned firms and industries. Beijing was confident its market was so desirable the world would never challenge PRC government rules for fear of losing market access. If that meant authorities imposed rules lopsidedly pro-Chinese to the point of threatening long-term foreign profits or allow/force (depending one’s perspective) ventures to surrender intellectual property rights, it was all for assuring ever greater growth in China in the name of improving that standard of living. By all indications, Xi Jinping along with some swath of the CCP leadership took this as axiomatic.

China’s growth gradually triggered reactions. That growth in the PLA and its capabilities hardened opposition alliances. Growth in its role in unfair trading practices too many other governments could not help but call out. Too many instances of cyber-intrusions by a government funded through that ever-growing economy. They overplayed their hand overseas.

Additionally, they were excessive at home. China vacillated between a more overt state role and a more veiled government presence in the economy rather than embracing serious economic reform. The Party proudly and aggressively kept expanding infrastructure which makes China the envy of any American traveling there, increasing capacity. Housing unit production, the “ghost cities” one sees in countless places—mile after mile of forty or more story apartment buildings unfinished and unoccupied—as one travels by high speed train around the country, is testament to dramatic over production of housing for which there has long been a far greater occupancy shortfall than the number of projects under construction would expect. But urban areas could breed unrest so putting people to work in the building trade was great. Plus, real estate became a wonderful investment for corrupt officials unfazed by any fear transparency questions; there was no transparency, thus no questions. The overall investment in coal remains a domestic behemoth as PRC companies (and their supposed monitoring regulators) flaunt both environmental commitments to abandon carbon. Attempts invariably fail to diversify energy supplies even if they dramatically exacerbate the paucity of water in most of the country or Xi’s demands for a “green China”.

In general, China’s leaders prioritize investment for the sake of grandiose claims and job creation rather than for economic rationality, having done so for two decades. As long as an adequate supply of rural migrants created a low paid workforce to keep down costs for exports in high demand, the consequences could be ignored. Countless published volumes in China and around the globe trumpeted China’s inevitable achievement rising to the rank of the greatest economy in the world, with the assumption the sky was the limit. Local governments could invest in real estate, much as a gambler who bets on what she is “positive” is a “sure thing”, with the assumption that providing ever more jobs to raise that standard of living would pay off in the long run, analyses to the contrary be damned. Accountability and corruption were just the price of doing business for the CCP.

The problem was that so much of the prioritization relied on a population equation long known out of balance for this behavior. There ought be no surprise that China’s gross domestic product, that aggregate measure of the goods and services countries use to evaluate their growth or losses, is not rising as quickly as it was in 2008 or even as recently as at the beginning of the pandemic in 2020.

China is no longer producing as many goods as services for export because it’s not as competitive for wages, thus raising prices. Government mismanagement of the pandemic led millions to delay, if not rejection of the idea of having children, exacerbating the population decline. Ever more state-driven business environment leads increases concerns about the risks of moving into the Chinese market, especially when coupled with intellectual property infringements. CCP (read Xi Jinping) mandating Party needs always taking precedent over economic reform raises questions of what real intent of China’s growth—it is serving the people or the Party of the PRC? The reality of a “graying population” with too few earners to support a state-sponsored, if it actually develops, social safety net is a profound challenge. Widespread malaise regarding the future, a problem seemingly eliminated between roughly 1978 and 2020, is back with a vengeance so the average citizen does not feel she or he can buy into—literally or figuratively—the consumption model most economists say China most needs to return to higher growth rates. These are a few of the challenges that led to an article this morning entitled “Years of Excess Press China’s Economy”, followed on the same page by “Xi Nods to ‘External Uncertainties’ in Speech”.

To reiterate a point from a few days ago: China is not in the destitute condition it faced between 1949 and 1960, for example. Growth is still better than much of the world but psychologically the CCP model known as the “Four Modernizations” seems stalled, if not broken. Xi has at times over his decade of leadership ordered the economy to prioritize steps to make the country the world’s “green” or “tech” economy. Either of those would make the PRC’s future significantly brighter but both are genuine “reform” economic choices that too many corrupt Party cadres and their guanxi partners are not willing to support. Like so many in a society that has suffered a great deal over its history, people want their slice of the sweetness now before the cake is gone. This mentality may be prescient or it may reflect on a poor history but the fear of shortages and the choice to prioritize “getting while the getting is good” is widespread.

Priorities for any government or any leader can change; multiply that by two hundred countries in the world begins to give an explanation for why straight-lining of any country’s assured success or failure economically is a fool’s errand (my husband tells me the U.S. Navy phrase for this sort of thing is “pissing up a rope” but that might not be genteel enough for my audience).

I write of this not to give us great comfort that we are certain of China’s successes or failures because we can’t ever be. What we can do, however, is assess China’s behavior based on where they put their emphases. We must simultaneously focus on our own priorities because they meet our goals. We tend to focus on the serious efforts over the past nearly thirty years to modernize the PLA, a task they have done fairly well. But that is a single measure of power and possible threat; other indicators seem a bit more mixed. Note I say mixed as it is wrong to say China is collapsing entirely but it is also far from the juggernaut we saw so fearfully only a few years back. How about our own choices? Why and how do we make them?

Finally, it’s also important to throw a bit of culture into our thinking. China does things because it has always been BIG, culturally/physically/linguistically/economically. China IS big. China still has a BIG population. But there is a gap both between aspirations and accomplishments as well as between actual and potential power. Priorities are what a government, family, person, or cat puts its actions against in a ranked order. Nothing guarantees those priorities are or are not met except assessment later in time.

National security professionals are paid to worry about threats. It therefore becomes unsurprising that the priorities we see in another state often morph into threats, whether actual or aspirational. The problem is those tasked with protecting against those threats have no choice but to prepare for their possible success. We view China’s huge investments in so many aspects of its society as directly targeting us. It bears remembering that while the investments may affect us, countries generally do things for domestic reasons above anything else—employment, pacifying the public, historic reasons, and the like. This is why it is imperative that we continue examining the data or effects created by these policies to assure we are preparing appropriately to what is occurring. That means we have to know what our priorities, limits, and stated desired endstates are. We don’t want to shift our priorities to mirror theirs if those priorities aren’t going to benefit us.

Thank you for taking time to read Actions today or any other day. I welcome any and all comments on priorities, on China’s BIGNESS, or anything else. This column is not an answer but intended to spur discussions for all of us.

I appreciate your time on this second day of the year. I also appreciate those of you who subscribe to the column with financial support as you are prioritizing my work, a point for which I am deeply thankful. In any case, if you see this of value, please feel free to circulate it.

I got enamored with light showing on my cactus this morning. Tomorrow I might offer you snow, a rarity for the Chesapeake any time, any year.

Be well and be safe. FIN

James Areddy, “Xi Nods to ‘External Uncertainties’ in Speech”, WallStreetJournal.com, 31 December 2024, retrieved at https://www.wsj.com/world/china/chinas-xi-nods-to-external-uncertainties-in-new-years-speech-d5a801dd?mod=china_more_article_pos1

“China sees improving livelihood in 75 years”, State Council The People’s Republic of China, 7 October 2024, retrieved at https://english.www.gov.cn/news/202410/07/content_WS67039c8cc6d0868f4e8eb8c3.html

Jason Douglas and Ming Li, “Years of Excess Press China’s Economy”, WallStreetJournal.com, 1 January 2025, retrieved at https://www.wsj.com/world/china/china-economy-excess-debt-gdp-46c69585?mod=hp_trendingnow_article_pos2