China’s power ‘already peaked’

A new paper argues China’s slowing economy, national debt and ageing population suggest its rise as a global power may have ­already peaked.

Professor Ross Babbage, in front of a map showing terrorism trouble spots in 2002.

China’s slowing economy, massive national debt and rapidly ageing population suggest its rise as a global power may have ­already peaked, feeding strategic uncertainty in the Indo-Pacific, a new paper argues.

It warns the Chinese Communist Party’s assertion that the country is on an unstoppable march to dominate the world “is not supported by the facts”.

“The Chinese economy may be approaching the size of the US economy but it now has serious structural and operational problems and its future trajectory is very uncertain,” the paper by Australian strategist Ross Babbage says.

China’s growth rate has halved since 2007 and continues to slow, its productivity is falling and the country’s debt now ­exceeds 300 per cent of GDP.

The country’s historic one-child policy, ongoing low fertility rates and the preference for sons over daughters will feed the ­nation’s economic slump and “profoundly” affect its social fabric, the Centre for Strategic and Budgetary Estimates paper says.

“In the face of these challenges, as well as biosecurity and other pressures, Xi Jinping’s instinct is to clamp down harder on information flows, further tighten party control, increase the centralisation of power and work hard to maintain a sense of normality,” the report says.

“Important consequences of this approach are to further constrain economic dynamism and increase the unpredictability of China’s trajectory to 2035.”

Dr Babbage, in an opinion piece in The Australian, says the growing instability within China and rising international resistance to Beijing’s coercive behaviour could have unpredictable results. “China might continue its rise to global ascendancy but the facts suggest its power may have already peaked,” he writes.

“The Chinese Communist Party might muddle through, it might reform or it might fail. There is also a risk the leadership might resort to international adventures to distract the public and bolster regime security.”

Dr Babbage says the uncertain outlook will require Australia, and its allies, to adopt a more rapid strategic decision-making system than the current six-to-eight-year cycle for foreign ­affairs and defence white papers.

“The world is changing fast and we need a more alert and agile approach,” he writes.

The coronavirus pandemic has worsened what were already difficult economic trends in China. Now, the outlook is dire.

“The Reserve Bank assesses that China’s growth rate will fall to around 3 per cent by 2030. Others are predicting 1-1.5 per cent by 2040.” The nation’s worsening demographic trends mean “China’s workforce is collapsing”, Dr Babbage says.

Beijing has launched stimulus packages to prop up the economy but “much of this spending has been unproductive”.