The CCP is committing self-economic suicide with its COVID policies. As an aside, I wonder if they know how dangerous future mutations could be (lab data). Anyway, the point of the article is that China may not be able to afford a confrontation over Taiwan. Or much else.
China's #1 national security issue has always been internal stability. To have stability China must have a strong economy. To have a strong economy, your economic partners have to be strong. Russia doesn't fit the bill. China may have to eat its hat and turn West.
A Confrontation China Can’t Afford
A rare event occurred in Henan, China, earlier this month when more than 1,000 depositors gathered in front of a branch of the People’s Bank of China to protest their inability to access their deposits. It was protesters’ second attempted gathering (a previous attempt in June failed), and they succeeded in getting local banks to release some of the funds, which suggests a sympathetic intervention from a higher level of the Chinese government.
The Henan incident is emblematic of other socio-economic problems that have emerged or worsened, particularly as a result of COVID-related restrictions that plagued cities nationwide in June. This includes record levels of unemployment, fears over food security, heightened consumer anxiety and an unexpected flow of emigrants. These issues threaten to exacerbate the wealth disparity between the country’s poor interior and its wealthy coast. In the past, when these differences became too pronounced, political and economic crises ensued. This time appears no different, as President Xi Jinping’s government faces the risk of national fragmentation. Keeping the nation together will require Xi to pay a high political price and take drastic measures to improve ties with the United States.
Divided Nation
China is historically a fragmented nation. Disparities between the interior and the coastal region have been an issue for centuries. Most of its trade with the world’s prosperous economies happens from a few large financial hubs and port cities on the coast, which account for more than half its gross domestic product. Meanwhile, the isolated, mostly agrarian interior provinces are the first to feel the effects of any economic or financial downturn. They’re also historically the place where unrest first emerges. The most famous example is the Long March (1934-35), a communist uprising that started in the southeast and culminated in the revolutionary troops’ trek to the northwest and Mao Zedong’s seizure of power.
China’s regional fragmentation becomes most prominent when the economy is experiencing structural issues, as is the case now. The main problems of the coast are unemployment and underemployment, while the interior wrestles with the failure of the banking system. Solutions to the different regions’ problems are sometimes contradictory. The ongoing problems, for example, can be split into two phases. Exports were the backbone of China’s most recent economic boom, but this means the country’s economic fate heavily depends on foreign countries’ consumption. The pandemic destroyed supply chains and predictable consumption patterns, severely disrupting this driver of Chinese growth. What we’re seeing now is the second phase, where structural problems ripple through the country and affect the people least able to withstand shocks – those living in the poorer, less advanced interior. The main structural issues in China are the slump in the real estate market and the banking crisis, the negative effects of which are highly likely to trickle down to the most vulnerable segments of society. For now, because of its trading ties with the exterior and concentrated wealth (65 percent of China’s wealth is located in the large coastal hubs), the coastal region is considerably less affected by the downturn.
Social dissatisfaction eventually spells unrest.
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To avoid a full-scale crisis, China needs to export, which means it needs stable relations with major outside economies. The U.S. is undoubtedly the ideal market for Chinese exports, given its size and the strength and stability of the dollar. China remains highly dependent on the dollar and on access to the U.S. financial system in terms of international trade and finance, especially given the Chinese economy’s current problems. Negotiations to improve economic and trade ties have been ongoing for months, with the most significant recent exchange occurring between Wang Yi and Antony Blinken at the G-20 foreign ministers’ meeting in Bali. Of course, Washington isn’t willing to realign ties without conditions. In terms of trade, it wants Beijing to honor the “phase one” trade deal struck back in 2020 and to follow through with a “phase two” deal. It also wants China to politically distance itself from Russia.
Meeting U.S. demands will come at a high price for Xi, but the endorsement of his opponents within the Politburo at least makes it possible. Retired government officials and well-known think tanks – among them the Chongyang Institute for Finance Studies at Renmin University, a think tank close to the government and Xi himself – have advised leaders to reduce tension with the U.S. and find opportunities for future cooperation. This could work in Xi’s favor in that moves to improve ties with the U.S. will complement coastal economic interests, which translates to less internal government opposition on this matter. The coastal region’s access to trade and steady capital inflows could benefit the entire country, providing financial means to resolve deep-rooted issues like the real estate crisis and banking system problems. Fixing the banking system, in turn, could make future wealth transfers to the interior easier and would considerably reduce the possibility of future protests like the one in Henan. However, it could take time for prosperity to reach the interior – longer than it takes a revolt to spread.
Where Xi will definitely pay a price is in China’s relations with Russia. Openly moving away from Russia or condemning its war in Ukraine would destroy the strategic partnership between the two countries and hurt their trading relations. The Chinese and Russian economies are complementary: China is a manufacturing power, while Russia has enormous energy reserves. Russia gives China cheap energy while receiving investment and technology. China has also been a major buyer of advanced Russian weaponry. Distancing his government from the Kremlin would cost Xi these benefits, creating significant issues in the Chinese economy.
Improving ties with the U.S. is not impossible but won’t be easy. However, observing the current state of China, it’s the most feasible solution to stave off the crisis that could emerge from further fragmentation between the coast and interior.
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Originally Posted by MisterVeritis
