As recently as 2005, the British economy was larger than the Chinese economy. Now China’s economy is seven times larger. In 2006 it overtook Germany. In 2007 it overtook Japan.

Modern History

Since 2013, China has been responsible for 40% of all global growth. The EU has been 9% of global growth, and the US is at 22%.
China represents 20% of the global economy, and has had a 10% annual growth rate over the last 30 years. In the UK, we’d be delighted with 2% growth.
China is the: (i) largest manufacturing economy in the world, (ii) largest exporter of goods, (iii) fastest growing consumer market, (iv) second largest importer of goods, (v) largest recipient of Foreign Direct Investment (FDI is when overseas firms invest in factories, shops, warehouses, land). It has a growing middle class, numbering 400m.
When Deng Xiaoping became China’s leader in 1979, it was a poor country. He opened up the Chinese economy to market forces and lifted hundreds of millions of people out of extreme poverty.
The current premier, Xi Jinping, has a new mission and vision, to connect the world through trade routes called the Belt and Road Initiative. It’s a massive infrastructure investment that covers 155 countries. Roads, railways, bridges, dams, ports. In Indonesia, a rail link that was a 3 hour journey, was cut down to 45 minutes.
The United States does not offer a competing vision.
China not only finances and builds these connection routes, but it’s also maintaining and running them. In Kenya, the train line between Mombasa and Nairobi has Chinese employees running the service.
China is well positioned for the energy transition. It dominates the production of wind turbines, solar panels and the processing of cobalt and lithium for our smartphone and electric-vehicle batteries.

Contrasting visions

The USA spent $3.7 trillion on the interventions in Iraq and Afghanistan, and achieved next to nothing. Afghanistan went from the Taliban to a US occupation and – $1.5 trillion later – back to the Taliban.
That’s the same amount of money that China has spent on the Belt and Road Initiative. The World Bank estimates that this initiative will boost trade flows in the 155 participating countries by 4%, cut the cost of trade by 2%, and grow the GDP of those countries by between 2% to 4%. We are not just talking about Africa and Asia – this includes Spain and Ireland.
Critics call this ‘debt-trap diplomacy’ and neo-colonialism. But for China, projecting growth and power, this project has been a success.

Challenges

The question is whether the participating countries can service their debt. The risk for China is not being repaid for these assets.
Much of this drive has been fuelled by a property boom, but this has slowed down after Covid. There are now $80 billion worth of unfinished apartments. One company alone, Evergrande, has built 300,000 homes in the last year, but is running into financial trouble and has 720,000 already paid-for homes still to build. This has the feel of the US sub-prime mortgage disaster that led to the 2008 financial crash.
The speed of China’s development risks making the financing and maintenance costs unaffordable.
Japan was in this position before. In the 1980s, it was leading in technology, and was poised to become a world power. Japan hit a buffer due to its debt and its demographic changes – ageing population and low birth rate. Japan was unable to close the deal on its global ambitions. China is possibly heading for this same sclerosis.

(Source: The Rest is Politics podcast, 25-10-23)

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