{"id":729,"date":"2025-01-25T14:35:13","date_gmt":"2025-01-25T15:35:13","guid":{"rendered":"http:\/\/developeternal.com\/?p=729"},"modified":"2025-01-25T16:26:19","modified_gmt":"2025-01-25T16:26:19","slug":"prof-schlevogts-compass-%e2%84%96-10-chinas-silky-future-in-a-realigned-world","status":"publish","type":"post","link":"http:\/\/developeternal.com\/index.php\/2025\/01\/25\/prof-schlevogts-compass-%e2%84%96-10-chinas-silky-future-in-a-realigned-world\/","title":{"rendered":"Prof. Schlevogt\u2019s Compass \u2116 10: China\u2019s silky future in a realigned world"},"content":{"rendered":"

The country\u2019s road ahead looks increasingly bleak, but it has great countercyclical expansion potential via domestic and international rebalancing<\/strong><\/p>\n

In a daring thought experiment, imagine just for a moment that you are the powerful president of the People\u2019s Republic of China (PRC). You are sitting next to a cozy fireplace in a mountain retreat, looking out of a panoramic window and musing about the \u2018Middle Kingdom<\/em>\u2019.\u00a0<\/em>What is your sweeping vista of China\u2019s current standing and what future do you envision for this dragon beyond the distant summits in a rapidly changing world, where conventional truth is apparently being pulverized at lightning speed?<\/p>\n

1. Current situation: Domestic and international trouble<\/h2>\n

At first sight, my dear president-in-thought, I admit that you could get easily depressed. Domestically, China has not fully recovered from the dystopian Covid-19 pandemic. The government is likely to have missed its growth target in 2024, with GDP projected to have increased by only 4.8% in that year. Even though many countries can only dream of such solid economic performance, this figure pales compared to an average growth rate of over 9% since the start of the Reform and Opening policy in 1978. China also faces tremendous internal structural problems, such as sectoral challenges in real estate, high youth employment and a worsening dependency ratio due to an aging population. Moreover, foreign direct investment into China is trending downwards, having declined by 30.4% in the first three quarters of 2024 compared to the previous year. In a nutshell, the stellar ascent of the Middle Kingdom since 1978 seems to be halted, at least for the time being.<\/p>\n

To make things worse, mighty storm clouds are gathering quickly in the international arena. Increasingly, the so-called collective West is singling out China as its strategic enemy number one \u2013 a radical shift compared to the previous exuberant Sino-euphoria that culminated in a veritable China-mania, with Western bosses trying to outsmart each other when it came to giving favors to the country. Back then, one of the greatest fears of a typical CEO of a Western multinational company was not to go down in history as the company\u2019s leader who missed China.<\/p>\n

Now, apart from a military buildup in the West that is directed against China, in the economic sphere, a ferocious trade war with the United States is looming. For example, President Donald Trump promised a tariff of up to 60% on all goods imported from the Middle Kingdom. He announced that on his first day in office, he will start by singling out China, which will need to pay an extra 10% on top of all the new tariffs he is going to impose on other countries.<\/p>\n

This forebodes a significant drop in China\u2019s net exports (the difference between exports and imports), which are an important driver of demand-side GDP growth. To start with, the reason for the decrease of exports is simple: Chinese exports to the US, which account for 15% of China\u2019s total exports<\/a>, will become more expensive for American buyers, which is likely to lead to a decrease in demand for them. If China\u2019s imports do not drop as sharply as exports (possibly because many imported goods are vitally important to its economy), net exports will decrease.<\/p>\n

Moreover, right in its front yard, North Korea, an important traditional ally of China, appears to be pivoting to Russia as its next key partner. This shift forms part of the megatrend of global realignment after the start of Russia\u2019s Special Military Operation in Ukraine in 2022, with Russia looking for new allies in the face of severe sanctions imposed by the collective West.<\/p>\n

Not surprisingly, bearing in mind the manifold and grave domestic and international challenges, the future of China looks increasingly bleak to many observers, with China resembling a boxer who received several blows and is tumbling.<\/p>\n

\n Read more<\/strong><\/span><\/p>\n

\n \"President
Russia\u2019s pivot to Asia: Why 2024 has been a success<\/a><\/figcaption><\/figure>\n<\/blockquote>\n

2. The road ahead: Balance as the key guiding principle<\/h2>\n

Yet in every crisis, there is upside potential for success, to be achieved by making nuanced and decisive distinctions. After all, the Chinese character for crisis contains two parts, that is, w\u00e9i<\/em> (\u5371), which stands for danger, and j\u012b<\/em> (\u673a), which signifies opportunity. Moreover, in ancient Greek, the word kr<\/em>\u00ed<\/em>sis<\/em> (\u03ba\u03c1\u03af\u03c3\u03b9\u03c2) literally denotes an act of separating and by extension a decision.<\/p>\n

Leveraging these cross-cultural philological insights as mental and spiritual inspirations, the Chinese president can use the critical juncture to make important countercyclical distinctions and steer his ship of state into an opportunity-rich direction. The key to success is a smart and delicate balancing act at home and abroad in the service of various stakeholders in the national and global socio-economic ecosystem. In this regard, the outside challenges in particular\u00a0\u2013 rather than being harbingers of doom\u00a0\u2013 can serve as powerful catalysts to bring about the necessary transformation because they tend to imbue decisionmakers with a strong sense of urgency. As a rather ironic unintended consequence, the hostile agenda of China\u2019s powerful external enemies may thus be confounded.<\/p>\n

a. Domestic rebalancing: From investment to consumption<\/h3>\n

As an initial step, China\u2019s leader should sharpen his focus on transformative domestic policies, strengthening China internally and thus improving its ability to resiliently cope with crises induced from the outside. The main leverage point in this regard is restructuring the composition of GDP from investment-driven to consumption-driven growth.<\/p>\n

Out of the four components of GDP calculated by the expenditure method on the demand side of the economy\u00a0\u2013 that is, consumption, investment, government expenditure and net exports\u00a0\u2013 the key driver of China\u2019s economic miracle after the start of the Reform and Opening policies was investment, funded by an above-average domestic saving rate.<\/p>\n

In recent times, this particular growth engine has become problematic, though, mainly due to the following factors: First, there are declining marginal returns on every extra unit of investment. Furthermore, according to the so-called Solow growth model, depreciation increases when the capital stock rises. This can potentially lead to a point beyond the steady-state level of capital where depreciation will be higher than investment, which means that the capital stock will actually decrease<\/a>. Moreover, the Solow model shows that in the long-run equilibrium, the growth of income per worker<\/em> is not driven by capital and labor, but only by the rate of technological progress<\/a>, all of which are supply-side factors.<\/p>\n

Moreover, high investment comes at the expense of consumption inside China, which is significantly lower than in many advanced economies. In contrast, rebalancing GDP towards higher domestic consumption, ceteris paribus<\/em>, would imply that Chinese citizens would come to enjoy to a greater extent the fruits of economic growth. Important policy tools for bringing about such a shift include tax cuts and transfer payments to consumers. While China tried to promote domestic consumption at certain points in the past, more efforts need to be undertaken in this respect in the future.<\/p>\n

\n Read more<\/strong><\/span><\/p>\n

\n \"Russian
Xi pledges \u2018new level\u2019 in Russia-China relations<\/a><\/figcaption><\/figure>\n<\/blockquote>\n

As we have seen, the key to sustainable increases in living standards in the long run is rising productivity due to technological progress on the supply-side of the economy. In this regard, the Chinese president should embrace innovative private entrepreneurs, who in recent years, to some extent, have become the lightning rod and scapegoat for many of China\u2019s socio-economic problems. In particular, it should be recalled that the art of Chinese management practiced in the private sector explains much of China\u2019s economic miracle, as demonstrated by rigorous empirical research<\/a>. Among other things, the stellar performance of the Middle Kingdom resulted from the high rate of innovation achieved by private enterprises, which is an important driver of technological progress. Apart from the domestic opportunities, possibly even greater untapped countercyclical expansion potential lurks in the international arena, though.<\/p>\n

b. International rebalancing: The \u2018BMB<\/em>\u2019 axis along a multicentric silk road<\/h3>\n

The first Chinese character of the word for China is zh\u014dng<\/em>\u00a0(\u4e2d), which means center.<\/em>\u00a0This lexical artifact corroborates that the dominant logic and formative paradigm of Chinese leaders for several millennia has been to regard their empire as the core, implying that other states merely constitute the periphery. To succeed in the global area, though, China needs to fully leverage the power of transnational win-win partnerships, replacing its accustomed centripetal world view with a paradigm-breaking advanced polycentric perspective.<\/p>\n

The key catalyst for achieving this transformative purpose is to build what I call a \u201cmulticentric new silk road\u201d<\/em> in a realigning world. In this context, the current challenges are a blessing in disguise for China, since they provide the country with the stimulus to channel its main efforts to countries with great growth potential that currently are not subject to the diktat of the collective West, or at least can be wooed away from it.<\/p>\n

A Chinese proverb says that if you want to get rich, you should build a road first. China\u2019s paramount leader, Xi Jinping, seems to have heeded this advice when he spearheaded the building of a New Silk Road<\/em>\u00a0(also called the Belt and Road<\/em>\u00a0initiative) in 2013. The essence of this project was to finance huge infrastructure projects in over 150 countries around the globe to link the Middle Kingdom with a wide variety of international trading partners. In contrast to many Western countries who are keen to give moral sermons, China, to put it succinctly, gave airports, not lectures to host countries. While this geostrategic program clearly helped to improve the growth prospects of many countries that obtained funding from China, it often resulted in bad debt and the need for China to restructure loans.<\/p>\n

Moving ahead, China needs to learn how to function as a peace-inducing stabilizer, powerful integrator and inspiring orchestrator in a realigning world. This implies that its movers and shakers need to play the leading part not only in binary relations, but also in vitally important multilateral networks, including the envisaged polycentric New Silk Road<\/em>.<\/p>\n

Given China\u2019s long history of focusing on internal affairs rather than expanding internationally (apart from the earlier expansions of its empire), it has not yet fully developed the cross-cultural mindset and multilateral skills needed for achieving transnational excellency.<\/p>\n

As regards the boundary-spanning mindset, the country should move away from the \u2018Chinatown\u2019<\/em>\u00a0paradigm of isolated and self-contained ethnic communities abroad and strive for full immersion in foreign countries without giving up its identity. Moreover, a good national role model for the skills needed to serve as stabilizer, integrator and orchestrator in transnational webs is Germany, which, at least in the past, managed to play a leading political role and prosper economically at the center of the European Union (EU). In contrast to Germany, though, which has made the error of sacrificing national sovereignty and giving away huge sums of money to self-centered \u201cpartners\u201d<\/em> without commensurate returns, China should act on the basis of national autonomy in decision making and invest only in profitable projects. Importantly, it needs to continue to respect the sovereignty of its international partners instead of trying to outsmart them through multilateral brinksmanship.<\/p>\n

Applied to the New Silk Road<\/em>, the new polycentric development paradigm means, for example, that China, when financing overseas infrastructure projects, should increasingly take other lenders on board in a collegial fashion \u2013 especially actors that belong to the rapidly expanding BRICS alliance \u2013 instead of acting alone and assuming all risks. In doing so, China should strive for great transparency and authenticity with respect to its objectives and methodology, clearly separating politics from business. It should also adopt a more targeted approach with clear strategic priorities instead of a shotgun-type modus operandi<\/em>. For example, China should consider focusing more on directly investing in promising foreign countries on the basis of sound risk assessments rather than mainly relying on lending funds, which in the past tended to be channeled especially to high-risk countries.<\/p>\n

\n Read more<\/strong><\/span><\/p>\n

\n \"Cargo
Russia-China trade value hits record high \u2013 Beijing<\/a><\/figcaption><\/figure>\n<\/blockquote>\n

The cornerstone of the postmodern polycentric silk road should be a triple political, economic, military, cultural, spiritual and moral alliance inside a pan-Asian growth pyramid or pan-Asian growth triangle along a new powerful strategic axis spanning China, Russia and Germany. I call this new strategic construct the \u201cBMB axis\u201d<\/em> based on the first letters of the participating member\u2019s capital cities (Beijing, Moscow and Berlin). The BMB trinity should act as a firewall against US hegemony and serve as a seedbed for a thousand sovereign flowers to blossom. In this context, it is important for Germany to leave the EU and NATO as soon as possible. Those are parasitical organizations that undermine Germany\u2019s national sovereignty and suck its strength. Instead, Germany should pivot decisively to the East, which is experiencing a veritable renaissance in a realigning world. Unlike the EU and NATO, the key concept of the new triple alliance should be the equal rights of all partners to preserve their national sovereignty and concomitant right of self-determination without foreign interference.<\/p>\n

It is noteworthy that the current anti-China headwind is a gift in disguise for the PRC, showing that the hostile policies of the collective West can yield unintended consequences. More specifically, the Middle Kingdom should exploit the trend of Western countries trying to decouple themselves from China by focusing even more intensively on building alliances in the Global South with states that have become tired of the West\u2019s neocolonialist domination. Stressing traditional values, including a clear counter stance against neoliberal decadence (such as the LGBT movement), should be a cornerstone of China\u2019s new charm offensive, which needs to pair financial and technological means with instruments from the soft power arsenal.<\/p>\n

Apart from the Global South, China should also try harder to integrate nations that are still allied to the US into the new multicentric silk road, especially if inside these countries there are influential groups pushing for a separation from the so-called \u201cleader of the free world\u201d<\/em> as part of a sweeping political and cultural counterrevolution. Germany has already been mentioned in the context of the BMB axis as a likely candidate in this regard. In addition, several countries in Eastern Europe and even shaky fellows such as France, Italy, and the UK in the West and Japan in the East would be ideal targets for China to woo. After the comprehensive breakup of the EU that I predict to occur in the not-too-distant future, the former constrained member states, too, could become more entrenched partners of the \u201choly BMB alliance\u201d<\/em> of the good and willing. Interestingly, after the United States\u2019 trade wars against various countries, it will eventually need to rebuild ties with them, whereas China will already have strong bonds to the affected players.<\/p>\n

In addition, China at least needs to build and maintain bridgeheads in other key Western countries, which can be activated at a later stage when the climate becomes more Sino-friendly. This effort should include the fostering of strong relations with gifted elites abroad, which may not yet be in power, but have strong prospects to constitute the national leadership group in the future. As regards Taiwan, China could offer a peaceful reunification project, embracing a \u201cone country, three systems\u201d<\/em> paradigm.<\/p>\n

By adopting a less hostile stance internationally, China can reap a high peace dividend. It may be able to reduce military spending and channel the savings to its strategic development projects, helping it to accelerate the rate of technological progress, the sole driver of sustained increases in income per worker in the long-run steady state, in a situation where its labor base is shrinking and becoming more expensive and capital efficiency is declining.<\/p>\n

\n Read more<\/strong><\/span><\/p>\n

\n \"Vice
Beijing urges US firms to continue investing in China<\/a><\/figcaption><\/figure>\n<\/blockquote>\n

In general, the key to success in politics at home and abroad is foresight, prudence and openness paired with constancy of overarching purpose and strategic intent, as well as sustained flexibility with respect to the individual tactics used in changing circumstances. Therefore, China should not follow the pendulum-like shifts that are characteristic of the policy pattern seen in many countries in the collective West, but persistently focus on those fundamentals that really matter. In particular, China once again should focus more on developmental economics than on ostentatiously drawing attention to security matters (including public musings about possible schemes to retake Taiwan by force). In many cases, it should move inch-by-inch to its target in an unspectacular and therefore largely overlooked manner, achieving exponential transformative gains as a result.<\/p>\n

Put in a nutshell, the Chinese president should choose Otto von Bismarck (the former chancellor and architect of the Second German Empire), Lee Kuan Yew (the founder of modern Singapore) and Deng Xiaoping (the mastermind of China\u2019s Reform and Opening policy) as role models who pursued a far-sighted and cautious realpolitik<\/em> rather than Wilhelm II, the last German emperor, who destroyed Bismarck\u2019s smart web of alliances, took excessive risks and eventually lost his empire.<\/p>\n

To conclude, when thinking strategically about national development, you, as China\u2019s paramount leader-in-thought, need to focus on identifying and pulling key levers in a systemic, countercyclical and balanced fashion on a realigning gameboard with enabling and inhibiting forces at work. Conducive domestic policies will help China to build internal strength. At the same time, smart foreign policies will play a pivotal role for its survival and success, since the global arena constitutes the ecosystem in which China can either blossom, stall, or suffocate.<\/p>\n

If the Chinese president builds a polycentric New Silk Road<\/em> in the rapidly changing world, with the BMB trinity as the key driving force, and focuses on the virtues that led to China\u2019s spectacular rise after 1978 \u2013 most importantly, a low-key concentration on economics instead of ostentatious gunboat diplomacy (in German: Kanonenbootpolitik<\/em>) \u2013 it will be able to thrive even in the current crisis and achieve long-term, sustainable peace and prosperity thereafter.<\/p><\/p>\n","protected":false},"excerpt":{"rendered":"

The country\u2019s road ahead looks increasingly bleak, but it has great countercyclical expansion potential via domestic and international rebalancing In a daring thought experiment, imagine just for a moment that you are the powerful president of the People\u2019s Republic of China (PRC). You are sitting next to a cozy fireplace in a mountain retreat, looking…<\/p>\n","protected":false},"author":1,"featured_media":731,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[],"class_list":["post-729","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"_links":{"self":[{"href":"http:\/\/developeternal.com\/index.php\/wp-json\/wp\/v2\/posts\/729","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/developeternal.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/developeternal.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/developeternal.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/developeternal.com\/index.php\/wp-json\/wp\/v2\/comments?post=729"}],"version-history":[{"count":2,"href":"http:\/\/developeternal.com\/index.php\/wp-json\/wp\/v2\/posts\/729\/revisions"}],"predecessor-version":[{"id":737,"href":"http:\/\/developeternal.com\/index.php\/wp-json\/wp\/v2\/posts\/729\/revisions\/737"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/developeternal.com\/index.php\/wp-json\/wp\/v2\/media\/731"}],"wp:attachment":[{"href":"http:\/\/developeternal.com\/index.php\/wp-json\/wp\/v2\/media?parent=729"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/developeternal.com\/index.php\/wp-json\/wp\/v2\/categories?post=729"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/developeternal.com\/index.php\/wp-json\/wp\/v2\/tags?post=729"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}