2023年9月26日星期二

No, the World Is Not Multipolar

 

No, the World Is Not Multipolar

The idea of emerging power centers is popular but wrong—and could lead to serious policy mistakes.

By Jo Inge Bekkevold, a senior China fellow at the Norwegian Institute for Defence Studies.

 

September 22, 2023

https://foreignpolicy.com/2023/09/22/multipolar-world-bipolar-power-geopolitics-business-strategy-china-united-states-india/

One of the most persistent arguments put forward by politicians, diplomats, and observers of international politics is that the world is or soon will be multipolar. In recent months, this argument has been made by U.N. Secretary-General António Guterres, German Chancellor Olaf Scholz, German Foreign Minister Annalena Baerbock, French President Emmanuel Macron, Brazilian President Luiz Inácio Lula da Silva, and Russian President Vladimir Putin. Josep Borrell, the European Union’s high representative for foreign affairs, argues that that the world has been a system of “complex multipolarity” ever since the 2008 global financial crisis.

The idea is also being popularized in the business world: Morgan Stanley, the investment bank, recently issued a strategy paper for “navigating a multipolar world,” while INSEAD, a respected European business school, is concerned about leadership skills in such a world.

But despite what politicians, pundits, and investment bankers tell us, it is simply a myth that today’s world is anywhere close to multipolar.

The reasons are straightforward. Polarity simply refers to the number of great powers in the international system—and for the world to be multipolar, there have to be three or more such powers. Today, there are only two countries with the economic size, military might, and global leverage to constitute a pole: the United States and China. Other great powers are nowhere in sight, and they won’t be any time soon. The mere fact that there are rising middle powers and nonaligned countries with large populations and growing economies does not make the world multipolar.

The absence of other poles in the international system is evident if we look at the obvious candidates. In 2021, fast-growing India was the third-largest spender on defense, which is one indicator to measure power. But according to the latest figures from the Stockholm International Peace Research Institute, its military budget is only one-quarter of China’s. (And China’s numbers may be even higher than commonly believed.) Today, India is still largely concentrated on its own development. It has an undersized foreign service, and its navy—an important yardstick for leverage in the Indo-Pacific—is small compared to China’s, which has launched five times more naval tonnage over the past five years. India may one day be a pole in the system, but that day belongs in the distant future.

Economic wealth is another indicator for the ability to wield power. Japan has the third-largest economy in the world, but according to the latest figures from the International Monetary Fund, its GDP is less than one-quarter of China’s. Germany, India, Britain, and France—the next four largest economies in the world—are even smaller.

Nor is the European Union a third pole, even if that argument has been tirelessly advanced by Macron and many others. European states have varying national interests, and their union is prone to rifts. For all the apparent unity in the European Union’s support for Ukraine, there is simply no unified European defense, security, or foreign policy. There is a reason that Beijing, Moscow, and Washington converse with Paris and Berlin—and rarely seek out Brussels.

Russia is, of course, a potential candidate for great-power status based on its land area, massive natural resources, and huge stockpile of nuclear weapons. The country certainly has an impact beyond its borders—it is waging a major European war and drove Finland and Sweden to join NATO. Nonetheless, with an economy smaller than Italy’s and a military budget equaling only one-quarter of China’s at most, Russia does not qualify as a third pole in the international system. At most, Russia can play a supporting role for China.

A widespread argument among those who believe in multipolarity is the rise of the global south and the shrinking position of the West. However, the presence of old and new middle powers—India, Brazil, Turkey, South Africa, and Saudi Arabia are often named as additions to the roster—does not make the system multipolar, since none of these countries has the economic power, military might, and other forms of influence to be a pole of its own. In other words, these countries lack ability to vie with the United States and China.

And while it is true that the United States’ share of the global economy has been receding, it retains a dominant position, especially when considered together with China. The two great powers account for half of the world’s total defense spending, and their combined GDP roughly equals the 33 next-largest economies added together.

The expansion of the BRICS forum at its summit in Johannesburg last month (previously, the block included only Brazil, Russia, India, China, and South Africa) is interpreted as a sign that the multipolar order is here or at least being advanced. However, blocs are too heterogeneous to function as poles—and they can easily fall apart. BRICS is nowhere near a coherent bloc, and while member states may share views on the international economic order, they have widely divergent interests in other areas. In security policy—the strongest indicator of alignment—the two largest members, China and India, are at odds. Indeed, Beijing’s rise is driving New Delhi to align itself more closely with the United States.

So, if the world is not multipolar, why is the multipolarity argument so popular? In addition to the lazy way that it ignores facts and concepts about international relations, three obvious explanations stand out.

First, for many people who advance the idea of multipolarity, it is a normative concept. It is another way of saying—or hoping—that the age of Western dominance is over and that power is or should be diffuse. Guterres regards multipolarity as a way to fix multilateralism and bring equilibrium to the world system. For many European leaders, multipolarity is seen as a preferred alternative to bipolarity, because the former is believed to better enable a world governed by rules, allow for global partnerships with diverse actors, and prevent the emergence of new blocs.

Indeed, the multilateral framework is certainly not working the way it is supposed to, and many in the West view the idea of multipolarity as a fairer system, a better way to revive multilateralism, and an opportunity to repair the growing disconnect with the global south. In other words, belief in a multipolarity that does not exist is part of an entire bouquet of hopes and dreams for the global order.

A second reason that the idea of multipolarity is in vogue is that, after three decades of globalization and relative peace, there is a great deal of reluctance among policymakers, commentators, and academics to accept the realities of an intense, all-encompassing, and polarizing bipolar rivalry between the United States and China. In this regard, belief in multipolarity is a kind of intellectual avoidance—and an expression of the wish that there not be another cold war.

Third, talk about multipolarity is often part of a power play. Beijing and Moscow see multipolarity as a way of curtailing U.S. power and advancing their own position. As far back as 1997, when the United States was the dominant power by far, Russia and China signed the Joint Declaration on a Multipolar World and the Establishment of a New International Order. Even though China is a great power today, it still views the United States as its main challenge; together with Moscow, Beijing uses the idea of multipolarity as a way to flatter the global south and attract it to its cause. Multipolarity has been a central theme of China’s diplomatic charm offensive throughout 2023, while Putin declared at the Russia-Africa summit in July that the leaders in attendance had agreed to promote a multipolar world. Similarly, when leaders of rising middle powers promote the idea of multipolarity—such as Lula in Brazil—it is often an attempt to position their country as a leading nonaligned nation.

One might wonder whether polarity—and widespread misconceptions about it—even matter. The simple answer is that the number of poles in the global order matters greatly, and misconceptions obscure strategic thinking, ultimately leading to the wrong policies. Polarity matters for two very important reasons.

First, states face different degrees of constraint on their behavior in unipolar, bipolar, and multipolar systems, requiring different strategies and policies. For instance, the new German national security strategy, released in June, states that the “international and security environment is becoming more multipolar and less stable.” Multipolar systems are indeed regarded as less stable than unipolar and bipolar systems. In multipolar systems, the great powers build alliances and coalitions in order to avoid one state dominating the others, which can lead to continuous realignments and sudden shifts if a major power changes allegiance. In a bipolar system, the two superpowers mainly balance each other out, and they are never in doubt about who the main rival is. We should, therefore, hope that the German strategy paper is wrong.

Polarity matters for businesses as well. Morgan Stanley and INSEAD are preparing their clients and students for a multipolar world, but pursuing multipolar strategies in a system that remains bipolar could prove to be a costly mistake. This is because trade and investment flows can be very different depending on the number of poles. In bipolar systems, the two great powers will be very concerned about relative gains, leading to a more polarized and divided economic order. Each type of order comes with different geopolitical risks, and a mistaken strategy on where a company should build its next factory can be very costly.

Second, advocating a multipolar world when it is clearly bipolar could give the wrong signals to friends and foes alike. The international stir caused by Macron’s statements during his visit to China in April illustrates the point. In an interview on his plane during the flight back to Europe, Macron reportedly emphasized the importance for Europe to become a third superpower. Macron’s willingness to muse about multipolarity did not go down well with French allies in Washington and Europe. His Chinese hosts appeared delighted, but if they confuse Macron’s reflections about multipolarity with French and European willingness to support Beijing in the U.S.-China rivalry, they may have gotten the wrong signals.

A multipolar system may be less overtly polarized than a world with two adversarial superpowers, but it would not necessarily lead to a better world. Instead of being a quick fix for multilateralism, it could just as well lead to further regionalization. Rather than wishing for multipolarity and spending energy on a system that does not exist, a more effective strategy would search for better solutions and platforms for dialogue within the existing bipolar system.

In the long term, the world may indeed become multipolar, with India being the most obvious candidate to join the ranks of the United States and China. Nevertheless, that day is still far off. We will be living in a bipolar world for the foreseeable future—and strategy and policy should be designed accordingly.

Jo Inge Bekkevold is a senior China fellow at the Norwegian Institute for Defence Studies and a former Norwegian diplomat.

2023年9月4日星期一

Foreign State Immunity Law PRC

 

China adopts foreign national immunity law that allows foreign states to be sued domestically

 

Polina Dvornikova | Yaroslav Mudryi National Law University, UA September 2, 2023 https://www.jurist.org/news/2023/09/china-adopts-foreign-national-immunity-law-that-allows-foreign-states-to-be-sued-domestically/ 

 

The Fifth Session of the Fourteenth National People’s Congress of China concluded on Friday. This assembly serves as the highest legislative body in the state, and its final resolutions entail modifications to existing legislative acts.

During the session, 161 members of the Standing Committee were present, and the number of participants met the quorum requirement. Mr. Zhao Leji presided over the committee’s proceedings. On this occasion, legislators decided to adopt the revised Administrative Review Law, amend the Civil Procedure Law and adopt the law on foreign national immunity.

China’s Law on the Immunity of Foreign States, scheduled to become effective on January 1, 2024, regulates the system of foreign state immunity comprehensively. This legislation establishes a legal framework for the jurisdiction and adjudication of civil cases within Chinese courts involving foreign states as defendants. This new law represents a shift from the previous policy of absolute state immunity to a regime of limited state immunity. According to the provisions of this law, Chinese courts will, under specific conditions, accept foreign states as defendants.

The Law on the Immunity of Foreign States consists of 23 articles, with its core provisions covering several key aspects. Firstly, it sets out principles and exceptions related to the jurisdictional immunity of foreign states, as well as principles and exceptions regarding the release of foreign state property from enforcement measures. Furthermore, it includes the principle of reciprocity, which means that if a foreign state offers China a less favorable immunity regime than what is outlined in the law, the principle of reciprocity will be applied.

The third review project of the Administrative Review Law strengthens the protection of administrative control and duty enforcement, enhances the relevant work requirements, improves the capacity of administrative control to handle administrative disputes, increases the number of applications for administrative control and popular initiatives and refines the administrative control jurisdiction system.

The second-instance civil procedural law project enhances provisions related to geographic jurisdiction of cases involving foreigners. It aims to coordinate jurisdiction conflicts, improve relevant provisions, and establish new standards for determining the jurisdiction of foreign courts. The amendments are also intended to enhance alignment with foreign immunity law principles.

The congress decided to extend the program, allowing lawyers from special regions of the People’s Republic of China, namely Macau and Hong Kong, to practice on the mainland of China in cities within the Greater Bay Area based on special licenses.

Furthermore, an agreement on joint extradition with Ecuador was ratified during the same session. At this session, they also approved personnel appointments and necessary personnel rotations related to responsibilities under this agreement.

In his concluding remarks, the committee chair called for efforts to elevate legislative work to a high standard. He underscored the importance of legal safeguards in building a strong state and did not overlook democratic practices, emphasizing their significance within the legislative process.

Additionally, a resolution was passed during the session to establish a strategic partnership between the People’s Republic of China and the Republic of Benin. They initiated trade relations and planned to increase the import of Benin’s products to China. China pledged to encourage Chinese investors to invest more in Benin’s national companies.

President Xi Jinping signed presidential orders to promulgate the laws and implement the decisions made during the congress.

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中华人民共和国外国国家豁免法

(2023年9月1日第十四届全国人民代表大会常务委员会第五次会议通过)

来源: 中国人大网  浏览字号:   2023年09月01日 18:03:13

第一条 为了健全外国国家豁免制度,明确中华人民共和国的法院对涉及外国国家及其财产民事案件的管辖,保护当事人合法权益,维护国家主权平等,促进对外友好交往,根据宪法,制定本法。

第二条 本法所称的外国国家包括:

(一)外国主权国家;

(二)外国主权国家的国家机关或者组成部分;

(三)外国主权国家授权行使主权权力且基于该项授权从事活动的组织或者个人。

第三条 外国国家及其财产在中华人民共和国的法院享有管辖豁免,本法另有规定的除外。

第四条 外国国家通过下列方式之一明示就特定事项或者案件接受中华人民共和国的法院管辖的,对于就该事项或者案件提起的诉讼,该外国国家在中华人民共和国的法院不享有管辖豁免:

(一)国际条约;

(二)书面协议;

(三)向处理案件的中华人民共和国的法院提交书面文件;

(四)通过外交渠道等方式向中华人民共和国提交书面文件;

(五)其他明示接受中华人民共和国的法院管辖的方式。

第五条 外国国家有下列情形之一的,视为就特定事项或者案件接受中华人民共和国的法院管辖:

(一)作为原告向中华人民共和国的法院提起诉讼;

(二)作为被告参加中华人民共和国的法院受理的诉讼,并就案件实体问题答辩或者提出反诉;

(三)作为第三人参加中华人民共和国的法院受理的诉讼;

(四)在中华人民共和国的法院作为原告提起诉讼或者作为第三人提出诉讼请求时,由于与该起诉或者该诉讼请求相同的法律关系或者事实被提起反诉。

外国国家有前款第二项规定的情形,但能够证明其作出上述答辩之前不可能知道有可主张豁免的事实的,可以在知道或者应当知道该事实后的合理时间内主张管辖豁免。

第六条 外国国家有下列情形之一的,不视为接受中华人民共和国的法院管辖:

(一)仅为主张豁免而应诉答辩;

(二)外国国家的代表在中华人民共和国的法院出庭作证;

(三)同意在特定事项或者案件中适用中华人民共和国的法律。

第七条 外国国家与包括中华人民共和国在内的其他国家的组织或者个人进行的商业活动,在中华人民共和国领域内发生,或者虽然发生在中华人民共和国领域外但在中华人民共和国领域内产生直接影响的,对于该商业活动引起的诉讼,该外国国家在中华人民共和国的法院不享有管辖豁免。

本法所称商业活动是指非行使主权权力的关于货物或者服务的交易、投资、借贷以及其他商业性质的行为。中华人民共和国的法院在认定一项行为是否属于商业活动时,应当综合考虑该行为的性质和目的。

第八条 外国国家为获得个人提供的劳动或者劳务而签订的合同全部或者部分在中华人民共和国领域内履行的,对于因该合同引起的诉讼,该外国国家在中华人民共和国的法院不享有管辖豁免,但有下列情形之一的除外:

(一)获得个人提供的劳动或者劳务是为了履行该外国国家行使主权权力的特定职能;

(二)提供劳动或者劳务的个人是外交代表、领事官员、享有豁免的国际组织驻华代表机构工作人员或者其他享有相关豁免的人员;

(三)提供劳动或者劳务的个人在提起诉讼时具有该外国国家的国籍,并且在中华人民共和国领域内没有经常居所;

(四)该外国国家与中华人民共和国另有协议。

第九条 对于外国国家在中华人民共和国领域内的相关行为造成人身伤害、死亡或者造成动产、不动产损失引起的赔偿诉讼,该外国国家在中华人民共和国的法院不享有管辖豁免。

第十条 对于下列财产事项的诉讼,外国国家在中华人民共和国的法院不享有管辖豁免:

(一)该外国国家对位于中华人民共和国领域内的不动产的任何权益或者义务;

(二)该外国国家对动产、不动产的赠与、遗赠、继承或者因无人继承而产生的任何权益或者义务;

(三)在管理信托财产、破产财产或者进行法人、非法人组织清算时涉及该外国国家的权益或者义务。

第十一条 对于下列知识产权事项的诉讼,外国国家在中华人民共和国的法院不享有管辖豁免:

(一)确定该外国国家受中华人民共和国法律保护的知识产权归属及相关权益;

(二)该外国国家在中华人民共和国领域内侵害受中华人民共和国法律保护的知识产权及相关权益。

第十二条 外国国家与包括中华人民共和国在内的其他国家的组织或者个人之间的商业活动产生的争议,根据书面协议被提交仲裁的,或者外国国家通过国际投资条约等书面形式同意将其与包括中华人民共和国在内的其他国家的组织或者个人产生的投资争端提交仲裁的,对于需要法院审查的下列事项,该外国国家在中华人民共和国的法院不享有管辖豁免:

(一)仲裁协议的效力;

(二)仲裁裁决的承认和执行;

(三)仲裁裁决的撤销;

(四)法律规定的其他由中华人民共和国的法院对仲裁进行审查的事项。

第十三条 外国国家的财产在中华人民共和国的法院享有司法强制措施豁免。

外国国家接受中华人民共和国的法院管辖,不视为放弃司法强制措施豁免。

第十四条 有下列情形之一的,外国国家的财产在中华人民共和国的法院不享有司法强制措施豁免:

(一)外国国家以国际条约、书面协议或者向中华人民共和国的法院提交书面文件等方式明示放弃司法强制措施豁免;

(二)外国国家已经拨出或者专门指定财产用于司法强制措施执行;

(三)为执行中华人民共和国的法院的生效判决、裁定,对外国国家位于中华人民共和国领域内、用于商业活动且与诉讼有联系的财产采取司法强制措施。

第十五条 下列外国国家的财产不视为本法第十四条第三项规定的用于商业活动的财产:

(一)外交代表机构、领事机构、特别使团、驻国际组织代表团或者派往国际会议的代表团用于、意图用于公务的财产,包括银行账户款项;

(二)属于军事性质的财产,或者用于、意图用于军事的财产;

(三)外国和区域经济一体化组织的中央银行或者履行中央银行职能的金融管理机构的财产,包括现金、票据、银行存款、有价证券、外汇储备、黄金储备以及该中央银行或者该履行中央银行职能的金融管理机构的不动产和其他财产;

(四)构成该国文化遗产或者档案的一部分,且非供出售或者意图出售的财产;

(五)用于展览的具有科学、文化、历史价值的物品,且非供出售或者意图出售的财产;

(六)中华人民共和国的法院认为不视为用于商业活动的其他财产。

第十六条 对于外国国家及其财产民事案件的审判和执行程序,本法没有规定的,适用中华人民共和国的民事诉讼法律以及其他相关法律的规定。

第十七条 中华人民共和国的法院向外国国家送达传票或者其他诉讼文书,应当按照下列方式进行:

(一)该外国国家与中华人民共和国缔结或者共同参加的国际条约规定的方式;

(二)该外国国家接受且中华人民共和国法律不禁止的其他方式。

通过前款方式无法完成送达的,可以通过外交照会方式送交该外国国家外交部门,外交照会发出之日视为完成送达。

按照本条第一款、第二款规定的方式进行送达的诉讼文书,应当依照该外国国家与中华人民共和国缔结或者共同参加的国际条约的规定附上有关语言的译本,没有相关国际条约的,附上该外国国家官方语言的译本。

向外国国家送达起诉状副本时,应当一并通知该外国国家在收到起诉状副本后三个月内提出答辩状。

外国国家在对其提起的诉讼中就实体问题答辩后,不得再就诉讼文书的送达方式提出异议。

第十八条 经送达完成,外国国家未在中华人民共和国的法院指定期限内出庭的,法院应当主动查明该外国国家是否享有管辖豁免。对于外国国家在中华人民共和国的法院不享有管辖豁免的案件,法院可以缺席判决,但应当在诉讼文书送达之日的六个月以后。

中华人民共和国的法院对外国国家作出的缺席判决,应当按照本法第十七条的规定送达。

外国国家对中华人民共和国的法院缺席判决提起上诉的期限为六个月,从判决书送达之日起计算。

第十九条 中华人民共和国外交部就以下有关国家行为的事实问题出具的证明文件,中华人民共和国的法院应当采信:

(一)案件中的相关国家是否构成本法第二条第一项中的外国主权国家;

(二)本法第十七条规定的外交照会是否送达以及何时送达;

(三)其他有关国家行为的事实问题。

对于前款以外其他涉及外交事务等重大国家利益的问题,中华人民共和国外交部可以向中华人民共和国的法院出具意见。

第二十条 本法规定不影响外国的外交代表机构、领事机构、特别使团、驻国际组织代表团、派往国际会议的代表团及上述机构的相关人员根据中华人民共和国的法律、中华人民共和国缔结或者参加的国际条约享有的特权与豁免。

本法规定不影响外国国家元首、政府首脑、外交部长及其他具有同等身份的官员根据中华人民共和国的法律、中华人民共和国缔结或者参加的国际条约以及国际习惯享有的特权与豁免。

第二十一条 外国给予中华人民共和国国家及其财产的豁免待遇低于本法规定的,中华人民共和国实行对等原则。

第二十二条 中华人民共和国缔结或者参加的国际条约同本法有不同规定的,适用该国际条约的规定,但中华人民共和国声明保留的条款除外。

第二十三条 本法自2024年1月1日起施行。

2023年8月9日星期三

China heading off the cliff

 

China's Great Leap Backward: So much for the next dominant superpower

 

The Chinese century is over. Facing upside-down demographic and economic trends, China is heading off the cliff

 

By Joe Tauke

 

The Salon, July 30, 2023

https://www.salon.com/2023/07/30/chinas-great-leap-backward-so-much-for-the-next-dominant-superpower/

The "Chinese century" is over.

After all the prognostications, projections and proclamations of the past 20 years asserting that China would soon overtake the U.S. as the world's dominant superpower, the People's Republic is now facing twin perpetual headwinds, and has no realistic options for countering either of them.

The first could accurately be described as the strongest long-term force driving the fates of all great powers: demographics. What was, for many previous decades,China's ultimate advantage — its never-ending supply of working-age laborers — peaked at almost exactly one billion people in 2010, according to the Chinese census. The next census, in 2020, revealed that for the first time since China's economic liberalization in the 1970s, the working-age cohort had shrunk, decreasing by more than 30 million. The U.N. estimates that this group will continue to contract, dropping to 773 million by 2050. (In other words, between now and then China is likely to lose a number of workers larger than the entire population of Brazil.) The under-14 population will also fall in that same period, from just over 250 million in 2020 to a median projection of 150 million in 2050. Not only will the workers be disappearing, but nobody is expected to replace them.

https://mediaproxy.salon.com/width/600/https:/media.salon.com/2023/07/no_reuse_china_population_15-64_1950_2100_inline_no_reuse.jpg(United Nations)

Every age-related trend in China is going in the wrong direction. The nation's median age, once well below the Western world's, is now older than America's and headed further north with every passing year. Deaths outnumbered births last year for the first time since 1961. The fertility rate, which normally must be at 2.1 children per adult woman just to maintain a steady population, has slipped to below 1.1 — a figure made worse by the fact that, unlike in virtually every other country on the planet, China doesn't have a relatively even gender split in its  adult population, the long-term result of male favoritism combined with the central government's infamous one-child policy. Basic math dictates that tens of millions of these "extra" men will never start families of their own. To compound the problem even further, women in China have indicated lower interest in having children than ever before; more than two-thirds have expressed "low birth desire." According to Prof. James Liang of Peking University,  fertility rates in Beijing and Shanghai have fallen to an astonishing 0.7, "the lowest in the world."

In Japan, economic stagnation produced a period that was called the "Lost Decade." That stagnation eventually persisted so long that some began to refer to it as the "Lost Generation." In China, an even more ominous buzz-phrase has become popular online: The "Last Generation."

Much has been made of the difficulties China will face in attempting to manage a rapidly-shrinking workforce against a rapidly-growing retirement age population, which is projected to double by 2050. But that issue may actually be preferable to what is likely to happen afterward, or perhaps sooner if some of China's older population doesn't wind up living as long as expected. Here are the UN estimates for China's total population between now and 2100:

https://mediaproxy.salon.com/width/600/https:/media.salon.com/2023/07/no_reuse_china_total_population_inline_no_reuse.jpg(United Nations)

Notice the lower-end expectations at the end of the century: 600 million, 500 million, perhaps as low as 450 million. Even the median projection puts the number at around 750 million. This is not just a rogue estimate by a single U.N. agency — the Shanghai Academy of Social Sciences has issued an extremely specific prediction of 587 million. If you think China has ghost cities now, imagine that vast nation with barely one-third of the population it has today. What will happen to property values in a country where between 50 and 70 percent of its people have disappeared? What will happen to tourism? To retail? So many articles have been written about what happens when a modern society grows "too old," as has happened in Japan and Germany, among others. But how many have been written about what happens when the majority of a modern society vanishes altogether?

To make matters worse, if that seems possible, all these numbers rely on official Chinese statistics, and the government has likely been overstating them. According to an extensive examination of different sets of books by University of Wisconsin Prof. Yi Fuxian, it's possible to find the "fudging" effects by comparing local and provincial data to that published at the national level.

If you think China has ghost cities now, imagine that vast nation with barely one-third of the population it has today. What will happen to property values in a country where between 50 and 70 percent of its people have disappeared?

"For the official statisticians," Yi explains, "the primary school enrolment data should be reliable because public education covers every Chinese child. They were wrong, however, because primary school enrolment data in China is often inflated so that local authorities can claim more education subsidies from Beijing. … According to a report by CCTV on January 7, 2012, the Jieshou city in Anhui province reported 51,586 primary school students, when the actual number was only 36,234, allowing them to extract an additional 10.63 million yuan (about $1.54 million) in state funding. On June 4, 2012, China Youth Daily reported that a middle school in Yangxin county, Hubei province reported 3,000 students, while the actual number was only 700."

In a country as large as China, what do these figures look like when aggregated to a national scale?  According to Yi, government data "showed that China had 366 million new births" between 1991 and 2010, "but the group aged 0-19 in the 2010 census was only 321 million." In other words, either 45 million of those children had died between birth and the census, or they never really existed in the first place. 

That was just one cohort, in one census, but it's hardly the only example. "In 2010, the population aged 3-14 was only 169 million, according to the 2010 household registration database, and 176 million, according to the 2010 census," Yi continued. "Yet, according to the Chinese statistics bureau, there were 210 million births in the 1996-2007 period." Again, either China has secretly experienced the greatest wave of mass child deaths that the world has ever seen, or the birth-rate numbers were always grossly exaggerated.

China's demographic headwinds, therefore, may be hurricane-strength. To be fair, most major nations in the West also face declining birth rates and aging citizens. The enormous difference in projected demographics, at least in many of those cases, comes down to immigration. Even with a current fertility rate of only 1.6, the U.S. population projects to reach roughly 400 million by the end of the century, according to the U.N.'s median estimate. East Asian countries tend to have much more restrictive immigration policies, but nowhere is this as true as in the People's Republic. Since 1950, which is as far back as the data goes, China has never experienced a single year of net positive migration. Ever.

As previously mentioned, Beijing faces not one but two enormous burdens going forward. The second should not come as much of a surprise, as it was intertwined with China's population burst during all the good years: the economy.

Yes, the mighty Chinese economy, the boomiest boom that's ever boomed… is going to become a big, big problem. Much of this problem will, of course, be caused by the enormity of the demographic crunch. But there are specific details that will amplify the impact of that crunch. A whopping 70 percent of Chinese household wealth is held in real estate. Seventy. Percent. (The comparable number in the U.S. is less than half that.) The demand for investment properties has been so high that China's construction eruption simply cannot be reasonably compared to those that have occurred in any other major economy, even ones that have experienced giant housing bubbles of their own. As this graphic from the Reserve Bank of Australia shows, "residential gross fixed capital" as a proportion of GDP is close to 20% in China — the comparable proportions in Australia, Japan, South Korea and the U.S. are all around 5% or less.

Keep in mind that China's population is shrinking, and will continue to do so with increasing velocity. According to the World Bank, home price-to-income ratios in Beijing, Shanghai, and Shenzhen exceed "a multiple of 40;" the same figure is "only" 22 in London and 12 in New York, two notoriously expensive cities in the West. 

It is likely impossible to overemphasize the potential economic damage that will likely ensue when previous decades of population growth, urbanization and the frenzied real estate investment that has accompanied them run into the brick wall of new decades with consistently fewer buyers — and that doesn't mean  "fewer buyers" in the normal sense of a bubble popping, but the literal absence of hundreds of millions of buyers over time. What will happen as those aforementioned ghost cities begin to multiply? And perhaps the more important question: How can China possibly make its all-important transition to a consumer-based economy when consumers as a whole have shoved so much of their wealth into properties that will often end up being worthless? How in the world is this supposed to work? How could it work?

That consumer transition becomes more necessary every day, because China has no other realistic option for productive growth moving forward. For years, Beijing has obsessively pushed economic activity toward investment, which sounds appealing at first simply because of the connotations of the word. But the Middle Kingdom long ago started running up against the law of diminishing returns when it comes to endlessly increasing investment. As Carnegie's China scholar Michael Pettis explained earlier this year, "China has the highest investment share of GDP in the world. It also has among the fastest growing debt burdens in history. These are not unrelated. With growing amounts of investment directed into projects whose economic benefits are less than their economic costs, the surge in China's debt burden is a direct consequence of this very high investment share."

Pettis is not strictly talking about central government debt here, but rather total debt within the economy. Given the prodigious real estate boom in the People's Republic, one could be forgiven for assuming that's mainly what Pettis is describing, and such data surely factors into the next two charts. But there are many other sectors that do as well. Below is a graph of the increase in all outstanding non-financial corporate debt in four nations — the U.S., France, Thailand and Malaysia — since the global financial crisis. For simplicity's sake, the debt level in each country was set to a value of 100 in the final quarter of 2007, and the data goes through the final quarter of 2022:

https://mediaproxy.salon.com/width/600/https:/media.salon.com/2023/07/no_reuse_outstanding_total_dept_sans_china_inline_no_reuse.jpg(Federal Reserve)

That's admittedly not the easiest visual aid to digest, so here's a summary: The total amount of such debt in the U.S. increased over those 15 years to a level of 220, or slightly more than double the amount that existed in 2007. Malaysia, which has posted the fastest average growth of the four countries in that time, wound up with almost the same relative amount of internal debt growth. France and Thailand, which have both had economic struggles in the post-crisis period, took very different paths and ended up at the bottom and top of the chart, respectively.

Here's why the comparison is worth digesting. Below is the same exact chart, except with China added:

https://mediaproxy.salon.com/width/600/https:/media.salon.com/2023/07/no_reuse_outstanding_total_debt_including_china_inline_no_reuse.jpg(Federal Reserve)

The enormity of the Chinese debt load makes the differences between the other four nations practically vanish. Notice the scale on the left side of the graph. Starting at a base of 100, the Chinese measurement reached nearly 5,000 last year, or 50 times what it was in 2007.

There is likely no economist on the planet who would advocate multiplying any significant category of debt 50 times over, no matter what the reason. But this is as much the result of political pressure to hit government GDP targets as anything else. To go back to Pettis, he explains the Chinese view by saying that for Beijing, GDP is an input, whereas virtually every other country understands it as an output. In other words, most nations tabulate their economic activities and eventually spit out a number that is recorded as GDP. Many arguments are fought over exactly how to go about that calculation and what it means, but the basic premise is pretty much the same. In China, the central government determines what GDP shall be for the quarter, and then it's up to provincial and local officials to do whatever is necessary to hit their numbers, regardless of the actual necessity or utility of the projects. (Furthermore, if those officials can't even reach their goals by incessantly building  bridges to nowhere, they may simply lie and claim success anyway.)

Local governments are forbidden from directly borrowing money, so their administrators do what any local government apparatchiks worth their salt around the world do when they need money they're technically not supposed to have: They find a loophole and exploit it relentlessly. In China's case, that means forming "independent" corporations known as "Local Government Financing Vehicles," which are somewhat-inexplicably allowed to be the equivalent of Clark Kent putting on a pair of glasses to fool everyone into thinking that he's not Superman. The LGFVs can borrow money that local governments can't. So that's what they do. Especially when the alternative is to displease the Politburo.

As you might imagine, this type of policy-making does not tend to result in more money allocated to things like expanding sick leave, pension reform, parental leave, debt reduction or anything else that fails to artificially goose GDP. Instead, funds are dumped into watermelon museums that nobody needs and endless Skynet (they seriously call it that) "internal security" cameras that people need even less. 

The ironic lack of social safety nets in an ostensibly Communist country, combined with a seemingly unstoppable regime of compulsive over-investment, has for many years resulted in the exact opposite of what China needs — consumers have felt and still feel it necessary to have some of the highest savings rates in the world, which means they aren't becoming a larger part of the economy but rather a smaller part of it. Here's a graph published by Reuters, which shows that private consumption as a share of Chinese GDP has been falling for decades. A similar chart from the Reserve Bank of Australia compares household consumption in China to other major Asian economies:

https://mediaproxy.salon.com/width/600/https:/media.salon.com/2023/07/graph-0310-3-2.png(Reserve Bank of Australia)

All these factors, and likely many more, have recently produced a series of announcements that, at least to some, were not much of a surprise: "China's economy may never overtake the U.S.," declared Business Insider. "China Quietly Abandons Goal of Overtaking U.S. Economy," opined Newsweek. Nikkei chimed in that "China's GDP is unlikely to surpass U.S. in next few decades."

"The next few decades" is probably generous. The Chinese economy, if measured by anything remotely approaching the slightest degree of accuracy, won't surpass America's because it can't. The structural forces that have allowed it to grow at breakneck speed for half a century are now the same forces preventing it from continuing to do so. Chinese labor costs today are significantly higher than costs for the same amount of labor in both its Asian neighbors and Latin America, including Mexico, where manufacturing for the American market is much more convenient despite the overhanging power of the cartels. In fact, Mexico became the largest overall U.S. trading partner in the first quarter of this year, after surpassing China to become the biggest trade partner specifically for manufactured goods last year.

The Chinese economy won't surpass America's because it can't. The same structural forces that allowed it to grow at breakneck speed for half a century are now preventing it from continuing to do so.

China's "factory of the world" status is slowly evaporating because cheaper workers can now be found elsewhere, which often come without problems like blatant IP theft across countless industries or figuring out whether any given supply chain involves Uyghur forced labor camps. The Chinese population is shrinking, meaning that domestic labor costs will continue to surge upward even as overall GDP growth falls. The government in Beijing is worried about "South Park" and Winnie the Pooh. China is no longer a place where capitalist dreams go to succeed, and indeed the fact that it ever was reflects one of the biggest mistakes the Western world has made since the fall of the Iron Curtain.

President Xi Jinping probably won't be  happy with the way the rest of the "Chinese century" is likely to turn out. If it's any consolation, he should be happier right now than he will be in the years ahead.

 

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