God damn Mark Steyn: he always steals the best lines. Especially about China. It was Steyn who, pointing out China’s inescapable demographic trajectory, wrote that unless it’s “planning on becoming the first gay superpower since Sparta”, what’s it going to do with all its un-paired young men? Now, Steyn’s nailed it with another zinger.
China is building an empire on debt.
Ok, it’s not quite as catchy as the “gay superpower” line, but it’s just as insightful. Xi Xinping’s signature policy to make China a global hegemon is the Belt and Road Initiative. While Beijing sells it as good-neighbour nation-building, the reality is a lot more brutal. It’s debt-trap colonialism.
Australia’s Pacific neighbour exports debt to the third world as a tool of conquest. It is colonialism with a chequebook. Battle with a bank account. Slavery for nation-states…
Murdering the locals in open war tends to make China’s ‘woke’ Western trading partners feel a little uncomfortable, so Beijing murders economies instead, taking assets hostage while handcuffing corrupt local officials to Chinese interests. The Solomon Islands is the latest in a long line of short-sighted parliaments who took the money, waved the communists in and then had to climb over all the strings attached to the bribe.
The BRI is tailored every bit as much to the domestic front, as well. Communist China’s founding myth is that the Chinese Communist Party liberated the country from a “century of humiliation”, during which foreign powers plundered the place. While “liberated” is a funny way of describing the systematic murder and torture of tens of millions of Chinese, there’s no doubt about the foreign-plunderers bit. So, the CCP sells much of its legitimacy via ‘anti-Imperialism’ and a strict commitment to ‘non-interference’ in other countries.
Short pause for the laughter to subside.
But the problem with building political stock by piling up debt, as George W Bush and Tony Blair discovered, is that sooner or later the economic chickens come home to roost. While we have been giddily sold propaganda about the so-called Chinese “miracle”, the Jenga tower is starting to look very shaky indeed.
The Chinese economy is somewhat of a closed book in a locked vault, but observers note that a significant number of local governments have incurred serious debts. Economist Lu Ting estimated this to tally 45 trillion yuan (or US$7 trillion) in 2020. This is roughly 44 per cent of China’s GDP. The debt continues to climb, suggesting something has gone wrong, especially with the ministry of finance insisting it be paid back by 2023.
An old joke tells of a Western observer visiting a Maoist dam-building project. Watching millions of peasants toiling with picks and baskets, he asks his hosts why they don’t just hire a dozen bulldozers? “Because then we wouldn’t have full employment.”
Chinese provinces ended up in this situation by engaging in ‘big spending’ infrastructure projects to disguise sickly economies. Building for the sake of it creates an artificial bulge – one built with matchsticks, thatch and a healthy dose of petrol. It is a situation worsened by the limited options citizens have to invest, leaving the housing market as the primary source of asset acquisition. A single nest full of middle-class eggs balanced on a twig.
The twigs are starting to buckle. Evergrande, China’s construction giant, is on the verge of complete collapse. For the moment, state intervention is keeping it on life support, but, as the GFC in the West showed, propping up “too big to fail” behemoths only makes the crunch that much more tectonic when it finally comes.
Evergrande is one of half-a-dozen construction empires on the edge of default. If they were to die, the communist government would have to absorb their losses and deal with a second nightmare – a housing crisis […] if the construction industry dies, it is expected to drag property owners and thousands of small contract companies (and their families) down with them. Given that construction represents a support column for the economy, there is a good chance the disaster will spiral.
China’s other great myth supporting its legitimacy is the “harmonious society”. Okay, so the Maoists used grandma for fertiliser and murdered half the people in the village, but, hey – new smartphones! But that trade-off is only legitimate so long as the beer and circuses keeps up. If the Chinese economy collapses like America’s did in the GFC, the peasants are bound to wonder whether it was all worth it. The first rumblings of discontent appeared during the tainted milk scandal in 2008. As a satirical cartoon – quickly banned by Beijing, of course –showed, little rabbits are only prepared to be good so long as the tigers aren’t brutalising them too much.
This fear of economic failure could be the primary cause behind China’s unwillingness to make good on their threats against Taiwan. If the West and its investors were to economically blockade the East over a military disagreement, it could easily tip the regime over the edge – particularly with anti-government anger brewing in Shanghai over Covid lockdowns. Xi Jinping is many things, but he is not a stupid man.
China may have a vast army, but much of it is needed to keep its own people in line. China’s ability to project power overseas is limited by this simple fact. It’s also limited by the plain truth that China does not have a great many friends in the world. It only has clients: clients who will turn resentful when they realise what they’ve sold themselves into.
China deliberately seeks out nations that cannot pay their bills in what has become known as ‘debt-trap diplomacy’. Forty-two countries owe roughly $400 billion in figures that are kept off the World Bank’s radar by the subversive way China loans to state-operated entities and individuals linked to the government […]
For example, Tajikistan is 1,158 square kilometres smaller after defaulting on a loan and ceding physical territory to China; Sri Lanka lost control of a crucial deep-water port, airport and surrounding land; Laos lost its national energy grid.
Spectator Australia
Of course, it’s not imperialism. China would never do that.
The problem for Beijing, though, is what happens when its debtor-clients arc up and both stop paying and refuse to hand over the assets? Invade? In which case, the myth of Chinese “good global citizenship” would be wrecked beyond even the ability of Beijing’s propaganda masters to fix.
Back in 2001, George W Bush’s approval ratings were at an undreamt-of 90 per cent. All up, Dubya was the most popular US president in the last 40 years. Then it all collapsed, along with the US economy.
Xi Xinping, take note.