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Dear Jack,

China is going to become the world’s number one economic superpower, we were told. And as China takes off economically, they said, she is going to become just like the rest of us.

This is what I call the China fallacy, and neither of the assumptions that underpin it are true.

The Chinese Communist party - not as charming as they look.

China has indeed had three decades of double-digit growth. Her take off has been so spectacular, China went from being a largely agrarian economy that accounted for less than 2 percent of world output in 1980 to almost a fifth of output now.

But far from becoming more like us, China under President Xi seems to be becoming not just un-Western but actively anti-Western.

Twenty years ago, around about the time that China was admitted to the World Trade Organisation and President Clinton talked of China as a ‘strategic partner’, all the clever people said that China would move our way.

Rapid rise in output.

By letting China join the international system, the experts said, China would become part of it. Think of all those tens of millions of middle class Chinese, they assured us. Soon, like the middle classes in America and Europe, they would be demanding all the trappings of liberal democracy.

Two decades later China is busy trying to subvert the international order. Chinese foreign policy seems to be all about creating rival structures and processes. Chinese government agents engage in the kind of espionage activities you might expect from a hostile foe.

Those that perpetuated the China fallacy used to tell us that following the British handover of Hong Kong, China would grow to become more like Hong Kong. Instead, the opposite has happened. Hong Kong has been brought into line with the rest of China, and what limited freedoms her people had have been taken away.

Hong Kong beaten into submission.

Far from taking her place at the international table, China behaves as if she wants to overturn it. China amasses troops in the western Pacific, bullying Taiwan and making little secret of her plan to invade the island. This is the moral equivalent of the United States threatening to annex Vancouver Island.

Rather than becoming more Western, China’s government continually seeks new ways to restrict her citizens from accessing the internet. Digital technology has been harnessed to monitor the day to day activities of her own people. The autocrats that preside over China are so thin skinned and morally bankrupt, then actively clamp down on the Falun Gong movement. This is the moral equivalent of the US government trying to shut down yoga classes.

The assumption that China, under the communist party, is ever going to emulate the West is wrong. Wrong, too, is the other side of the China fallacy – the assumption that China is destined to be a great superpower.

For as long as I can remember, highbrow magazines have been publishing articles forecasting that China’s economy will overtake America’s. At one time, we were told this would happen in the 2020s. Then it was the 2030s. Now I read it is supposed to happen in 2050.

I predict that China’s economy will never overtake America’s.

Only last year, China ceased to be the most populous country on the planet, as India overtook her. China’s demographic future looks ominous.

Today there are 1.4 billion people in China. By the end of this century, some estimate that China’s population will have fallen about 40 percent to 800 million.

The demographic consequences of communism?

The next few years will see a significant fall in China’s economic growth, I suspect.

It is relatively easy to produce big gains in economic output when you move farm workers into factories (see Soviet Russia in the 1950s for details).

China was able to accelerate economically as a consequence of Deng Xiaoping’s reforms. Deng’s policies were not only market-friendly. Under Deng, decision-making was relatively decentralized. Maritime provinces had lots of autonomy. Beijing did not try to pre-empt every decision.

Under Xi China has abandoned the Deng reforms, and reverted to what you might call the Ming tradition of top down control. It is not an encouraging precedent.

Far from being an economic dynamo, China is on course to becoming the next Japan. Like China, Japan was once supposed to overtake America. Instead, a previously thriving, export-driven economy has been reduced to stagnation by demographics and debt.

Japan is no longer a rich country compared to the United States.

The China fallacy is based on wishful thinking. China is not going to be the world’s undisputed economic superpower. But this does not mean that China is not a threat. Quite the opposite, I would argue.

Just over a century ago, a recently industrialized power, Germany, started to challenge the international order. Economically and militarily powerful, Germany nonetheless sensed that other powers were not so far behind. Among German’s leaders there was a sense that if Germany was serious about rearranging the furniture in Europe, she had a limited window of opportunity to do so. The consequences of that mindset were catastrophic.

My fear is that China under the communist party sees herself caught in a similar window of opportunity. Her demographic calamity, coupled with slow growth, mean that her relative power will only decline.

America is right to be strengthening her fleet in the Pacific (And three cheers to Mississippi Senator, Roger Wicker, for providing such leadership on this – America will be safer for it). It is also important that America works with an alliance of countries, including Australia and Japan to ensure the security of the Pacific.

China might not be the world’s number one economic power, but I suspect she will be the world’s biggest geopolitical headache for the foreseeable future.

Have a wonderful weekend!
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Warm regards,

Douglas Carswell
President & CEO

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