China’s Superpower Dreams Are Running Out of Money
When the coronavirus crisis is over, China will be forced to embrace a less ambitious future.
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Seen from afar, China’s current all-fronts offensive gives the impression of a rising power on the march. China is simultaneously starting a border skirmish with India, militarizing the South China Sea, cracking down on Hong Kong, pressuring Taiwan, confronting Japan over disputed islands, and quelling internal unrest—all while fighting a resurgent coronavirus outbreak. At the same time, it is investing billions of dollars in a bid to dominate emerging technologies like artificial intelligence, quantum computing, and advanced semiconductors. And then there’s the Belt and Road Initiative (BRI), China’s $1 trillion program to build the transportation infrastructure for a China-centered world.
Running a global superpower is an expensive business. The United States famously spends more on defense than the next 10 countries combined, yet the notion persists that its military is still underfunded and underequipped for its global superpower role. And if the pundits are to be believed, the United States will lose its competitive edge without more investment in university research, advanced technologies, foreign aid, diplomacy, the United Nations, clean energy, and, of course, pandemic preparedness. That’s just to name a few of the United States’ superpower funding priorities. The full list is much longer.
But if the United States—with an economy roughly 50 percent larger than China’s and a gross domestic product (GDP) per capita more than six times as great—can’t afford to remain a global superpower, how can China possibly afford to become one? Leaving aside the facts that China’s chief diplomatic allies are North Korea, Cambodia, and Ethiopia, that it is surrounded by potentially hostile nuclear-weapon states such as Russia and India, that its state-sponsored technology companies are widely distrusted outside China, and that Beijing has been widely blamed for allowing the coronavirus pandemic to spread to the rest of the world, how is it possible that a self-described developing country like China can finance a superpower rivalry with the United States?
The simple answer is it can’t. Even before the coronavirus hit, China’s economic growth had slowed from double-digit rates in the early 2000s to 6.1 percent in 2019—if you believe the official figures, that is. This figure is highly suspect, not least because the person who sets China’s annual GDP target, National Development and Reform Commission vice chairman Ning Jizhe, is the same person who, as director of the National Bureau of Statistics, is responsible for measuring GDP. Independent modeling published by the Brookings Institution suggests that China has historically overestimated GDP growth by an average of 1.7 percent per year.
China’s officially reported tax revenues confirm this picture, growing at just 3.8 percent in 2019, compared with 6.2 percent in 2018 and 7.4 percent in 2017. Yet as China’s financial means have become more restricted, its spending has continued on its old, profligate trajectory, growing 8.1 percent in 2019. The result has been a widening gap in China’s government budgets, with the officially reported budget deficit reaching 4.9 percent of GDP in 2019. The International Monetary Fund puts the true figure of the government’s shortfall at more than 12 percent of GDP. And this was before the coronavirus, during a period of supposedly healthy economic growth.
Hard figures for China are hard to come by, but it seems that the Chinese government was scaling back spending commitments even before the coronavirus hit. You would hardly know it from the glowing project announcements, but China’s BRI funding commitments have actually been falling since 2017. And even these falling numbers are just promises—the reality of China’s BRI spending is even more meager. Chinese banks have virtually disappeared from BRI financing, leaving the cash-strapped government to shoulder the burden alone. Meanwhile, projects have been shelved, scaled back, or delayed all across Asia.
Western critics of the BRI tend to interpret these problems in terms of the fear of indebtedness that these projects spark in recipient countries. They rarely mention the indebtedness they induce in China itself. So when Western media reported in December that China was pressuring a reluctant Pakistan to resume work on the stalled China–Pakistan Economic Corridor, they failed to mention that China is unwilling to finance the construction itself. Similarly, China wants to build a new port in Myanmar, but it is reluctant to pay for it. China signed a Transit and Transport Agreement with Nepal in 2015 but has yet to build a single mile of road or railway in the landlocked Himalayan country. It’s the same story in Africa and Eastern Europe: China continues to announce grand projects but has been unwilling to offer enough money to actually get them off the ground.
China’s financing problems are nowhere more apparent—and less acknowledged—than in its military budgets. Analyses from the Center for Strategic and International Studies suggest that Chinese defense spending may actually fall in real terms in 2020. Given China’s elevated pace of military operations on several borders, spending constraints must be putting serious pressure on acquisitions budgets. It is impossible for anyone outside China’s defense establishment to know what is really going on, but circumstantial evidence suggests that many of China’s big-ticket weapons programs have been put on go-slow.
For example, China is believed to have built only 50 or so J-20 fifth-generation stealth fighters. The J-20 program now seems to be experiencing serious development problems, limiting production for the foreseeable future. This compares to America’s stock of 195 F-22 and 134 F-35 fifth-generation fighters, with continuing annual production of more than 100 F-35s, even after coronavirus delays.
Similarly, China once planned to deploy six U.S.-style aircraft carrier strike groups by 2035. Aside from the Soviet-surplus training carrier Liaoning, China currently has only one conventionally powered ski-jump carrier, with a second under construction. Plans for four nuclear-powered carriers have been delayed indefinitely due to “technical challenges and high costs.” China says it will eventually develop fifth-generation fighter planes for deployment on aircraft carriers. Meanwhile, the United States’ F-35C carrier-optimized stealth fighters are already in training for deployment this year.
Fighting India with sticks and stones on the high plateau of Ladakh comes cheap, but preparing to confront the United States in the Western Pacific is a very expensive proposition indeed. It is likely to prove a luxury that a slow-growth, post-coronavirus China will not be able to afford. Like a gangster flashing a wad of $100 bills, China makes a great show of its wealth and its willingness to spend it. In reality, Beijing’s bank balance doesn’t match its bling.
Having witnessed decades of double-digit growth in Chinese GDP and government spending, outsiders are conditioned to believe that China’s financial resources are unlimited. Having lived through China’s economic rise themselves, insiders are perhaps conditioned to believe it, too. But no budget is bottomless, and China seems to have hit the buffers just as the coronavirus struck. China’s leaders can at least save face by abandoning their GDP targets and blaming the virus for the inevitable austerity to follow. But when the crisis is over, the United States will still be a global superpower. China may be forced to embrace a less-ambitious future.