China has been in the news a bit recently. Its leader, President Xi, looks like he’s intending to stay in the President’s office for life and perhaps become “dictator for life”, while the new American ambassador to Australia has again highlighted his country’s concerns about freedom of navigation in the South China Seas as China continues its military build-up on reefs and artificial islands there. These stories tend to give one the impression that the Middle Kingdom is increasing its global power – strong leadership, strong military, thumbing its nose at the USA – and is stepping into the role of global geopolitical power that many have been predicting for it.

However, is China’s power as stable and concrete as it appears? According to this article in Forbes, there are some fundamental constraints that will limit Chinese power in the medium to long term. In fact, it could be that 2018 marks China’s peak and that the foreseeable future will be one of decline. Xi’s power grab might be a sign of Chinese weakness and not strength.

How can it be that China is in danger of decline? It has the largest population in the world (until India takes that mantel away from it in a few years’ time) and it is predicted to overtake the USA as the largest economy in the world very shortly. It seems as if the USA’s turn as the undisputed global superpower is drawing to a close. At the very least, China will be able to soon strongly contest the USA for that role.

However, there are reasons to doubt that Chinese power will continue to rise inexorably. First, there is the demographic issue. India’s overtaking of China as the most populous nation is a symptom of China’s demographic decline. Already the working aged population of China is starting to drop. It will have fallen by 5% by 2030 and will likely suffer a fall of a further 20% by the middle of this century. The overall population of China will fall from it peak of 1.4 billion to perhaps be as low as 600 million by the end the century. While some of China’s competitors (Russia, Japan and the EU) are also facing adverse demographic headwinds, the USA and the broader Anglosphere are still growing in population. Furthermore, as already mentioned, India is another growing rival which not only neighbours China but also has a recent history of border disputes with it.

Demographic contraction will be a drag of China’s economy. Although it is (officially) growing at 6.7% per annum, this growth rate, even if it is correct, is fuelled by credit expansion. This debt bubble might never burst since the bad loans are debts owed by state-owned enterprises to state-owned banks. But it is unlikely that China can expand credit forever. The parts of the Chinese economy that is doing well is the high-tech, foreign-investment-driven private economy. This is due to the integration between American companies and Chinese manufacturers. As the Forbes article notes:

“Corporate America's fanciest gadgets may be made in China, but high-tech China's economic growth is overwhelmingly made in America. In the event of any real trouble between the U.S. and China, these crucial American investments would move elsewhere. Apple won't be making iPhones in a country at war with the United States.”

The final structural weakness that China faces is geography. It is a land power that is surrounded by powerful neighbours (such as India, Russia, Japan) some of which (Taiwan, South Korean, Japan) have an even more powerful ally (the USA). It has three nuclear-armed neighbours as well as unstable neighbours like Afghanistan, Tajikistan, Myanmar and North Korea. It may have the world’s largest army, but its neighbours have the world’s second, fourth, fifth, sixth, seventh and ninth largest (and the USA has the third largest). In short, China’s central geographic position brings with it a host of dangerous borders and powerful neighbours.

So, in the 2020s, will we see a confident, rising China, taking its place at the global geopolitical top table? Or will we see it shrinking in population, dependent on the US for economic growth and ringed in by wary, if not hostile, neighbours?