Security Without Growth?

Nov 3, 2022

Since the days of Deng Xiaoping, the concept of a “rising China” has been central to the nation’s identity. The 20th Party Congress marked an important inflection point in that narrative: Xi Jinping’s third term now appears to be more about national security than economic growth. What do these shifting priorities imply for future Chinese growth prospects as well as for the US-China conflict?

The subtext of this question points to the security that China has already derived as the world’s fastest growing large economy and what slower growth may mean for the future. The IMF projects Chinese GDP growth will average between 3.5% and 4% over 2022-23, less than half the 9% pace in the four decades starting in 1980. While some of this slowing is undoubtedly temporary — heavily influenced by ongoing zero-Covid lockdowns, property sector deleveraging, and the war in Ukraine — the trajectory of any subsequent rebound is likely to be muted.  That importantly reflects a slowing of China’s longer-term potential growth driven by two key developments: a declining working age population due to stiff demographic headwinds and a deteriorating outlook for Chinese productivity (that I will address in a subsequent posting).

In his seminal research on the rise and fall of great powers, Yale historian Paul Kennedy has stressed the concept of “imperial overstretch,“ when nations attempt to expand their military and geostrategic clout beyond the foundational support provided of their domestic economies. That could well be a decisive risk for China and its now sharply diminished growth potential. In fact, with China’s slowdown now occurring before it has completed its long promised structural rebalancing, the risk of premature power projection cannot be ruled out.

The recent escalation of the US-China conflict may also have an important bearing on this balancing act.  The Biden Administration’s aggressive export sanctions on Chinese purchases of advanced semiconductors takes dead aim on the wannabe techno-superpower. Without such high-end chips, the high-speed processing requirements of China’s current and prospective artificial intelligence (AI) applications will be stymied.  This would have adverse implications for domestic security — surveillance of ethnic minorities and Covid tracing — and underscore potential impediments for new weapons of Chinese military security, like hypersonic missiles, stealth aircraft, quantum computing, and space exploration.  Without AI-enabled breakthroughs, China’s all-important shift to indigenous innovation could be imperiled.

The price tag on Chinese national security is high and rising.  The hyper growth of a once rising China is now over. Security without growth is a considerable stretch for any nation.  China is hardly an exception.

You can follow me on Twitter @SRoach_econ

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