Prof. Schlevogt’s Compass Edition 10: China’s Silky Prospects in a Reconfigured Global Landscape
China's prospects appear to be growing more challenging; however, there is significant potential for countercyclical expansion through both domestic and international rebalancing. Read Full Article at RT.com.
TroibNews 
The outlook for the country appears increasingly challenging; however, it holds significant countercyclical expansion potential through both domestic and international rebalancing.
In a bold hypothetical scenario, envision yourself as the authoritative president of the People’s Republic of China, situated next to a warm fireplace in a mountain retreat. Gazing through a panoramic window, you reflect on the ‘Middle Kingdom.’ What is your broad assessment of China's current status, and what future do you foresee for this dragon against the backdrop of a rapidly transforming world, where established truths seem to crumble at breakneck speed?
### 1. Current situation: Domestic and international trouble
Initially, my esteemed presidential self, I can understand how you might feel disheartened. Within China, the nation has yet to fully bounce back from the dystopian impacts of the Covid-19 pandemic. Projections suggest that the government will likely fall short of its 2024 growth target, with GDP anticipated to grow by only 4.8%. While many countries would envy such solid economic performance, this figure is diminutive compared to the average growth rate of over 9% enjoyed since the initiation of the Reform and Opening policies in 1978. Compounding matters, China grapples with severe internal structural challenges, including sectoral issues in real estate, high youth unemployment, and an escalating dependency ratio related to an aging populace. Additionally, foreign direct investment into China is seeing a downward trend, dropping by 30.4% in the first three quarters of 2024 compared to the previous year. In essence, the remarkable ascent of the Middle Kingdom since 1978 appears to be stymied, at least for the time being.
The situation is further aggravated by darkening international clouds. The collective West increasingly views China as its primary strategic adversary—a stark departure from the prior wave of Sino-euphoria where Western executives vied to curry favor with China. In that previous climate, the greatest fear for a Western multinational CEO was to be remembered as the one who overlooked China.
Currently, aside from a military escalation in the West explicitly directed at China, an intense trade war with the United States looms. For instance, President Donald Trump promised tariffs as high as 60% on imports from the Middle Kingdom, stating that on his first day in office, he would begin by targeting China, which would incur an additional 10% charge on the new tariffs levied on other nations.
Such developments foretell a notable decline in China’s net exports, which are critical for driving demand-side GDP growth. Notably, the increase in tariffs will render Chinese exports to the U.S., comprising 15% of its total exports, more expensive for American consumers, likely resulting in diminished demand. Should China’s imports not decrease as sharply as its exports, a decline in net exports is all but assured.
Moreover, in its immediate vicinity, North Korea—a traditional ally—seems to be pivoting towards Russia. This realignment reflects broader shifts following Russia’s military operations in Ukraine, as that nation seeks new alliances amid severe sanctions from the collective West.
Not surprisingly, in light of these numerous and grave domestic and international challenges, observers increasingly view China’s future with skepticism, likening it to a boxer reeling from several hits.
### 2. The road ahead: Balance as the key guiding principle
Nevertheless, every crisis carries the potential for success, achievable through nuanced and decisive distinctions. The Chinese character for crisis encompasses the concepts of wéi (danger) and jī (opportunity). Similarly, the ancient Greek term krísis implies a moment of separation, and by extension, a decision.
Embracing these cross-cultural linguistic insights, the Chinese president can turn this critical juncture into an opportunity by making vital countercyclical distinctions, steering the nation towards a direction rich in possibilities. Success hinges on a delicate balance, both domestically and abroad, serving a variety of stakeholders in the national and global socio-economic ecosystem. Challenges from the outside, rather than merely heralding doom, can act as catalysts for transformation, instilling a compelling sense of urgency among decision-makers. Ironically, the hostile agenda posed by external adversaries might inadvertently facilitate the necessary shifts.
#### a. Domestic rebalancing: From investment to consumption
As a primary measure, the leader of China should intensify focus on transformative domestic policies, bolstering internal resilience against external crises. A critical lever in this regard is shifting GDP composition from an investment-driven to a consumption-driven model.
Historically, investment served as the key engine for China’s economic miracle post-Reform and Opening, supported by a notably high domestic saving rate. However, recent times have rendered this growth engine problematic for several reasons: declining marginal returns on additional investment, increases in depreciation as capital stock rises according to the Solow growth model, and a long-term income per worker growth that depends solely on technological progress—an aspect inherently tied to supply-side factors.
High investment detracts from domestic consumption, which remains significantly lower than in many advanced economies. Rebalancing towards greater domestic consumption would enhance the economic benefits reaped by Chinese citizens. Key policy instruments for promoting this shift may include tax reductions and increased transfer payments to consumers. While previous efforts have aimed to bolster domestic consumption, renewed and amplified initiatives are essential.
As observed, sustained increases in living standards hinge on rising productivity through technological advancements within a supply-side framework. In this context, the Chinese president should actively support innovative private entrepreneurs, who have recently become scapegoats for various socio-economic issues. The successful management practices found in China’s private sector significantly contributed to the nation's economic success, driven largely by high innovation rates among private enterprises.
Besides domestic advancements, considerable untapped countercyclical growth potential exists in the international sphere.
#### b. International rebalancing: The ‘BMB’ axis along a multicentric silk road
The first character in the term for China, "zhōng," denotes "center." This conveys that a long-standing perception among Chinese leaders has been to view their empire as the epicenter, relegating other states to the periphery. To thrive on the global stage, China must leverage the advantages of collaborative, win-win partnerships, evolving from a centripetal worldview to an advanced polycentric perspective.
A driving force behind this transformative goal lies in the establishment of what I term a “multicentric new silk road” within a reorienting world. The current challenges can be regarded as blessings in disguise, providing stimuli for China to focus efforts on nations with significant growth potential that are either unaffected or can be swayed from the influence of the collective West.
A Chinese proverb suggests that to achieve wealth, building a road is essential. There appears to be a resonance in this advice, as Xi Jinping has championed the New Silk Road initiative since 2013, facilitating vast infrastructure projects across over 150 nations to connect the Middle Kingdom with diverse international trade partners. Unlike many Western nations that deliver moral lectures, China has provided tangible benefits, such as infrastructure development, to host countries. While this geostrategic initiative has aided many nations, it has also resulted in issues of bad debt and necessitated loan restructurings.
Moving forward, China must cultivate its role as a peace-promoting stabilizer and integral player in a shifting world. This requires engaging not only in bilateral relationships but also in vital multilateral networks, including the envisioned polycentric New Silk Road.
Representing a departure from its historical focus on internal matters and lacking experience in cross-cultural engagement and multilateral negotiation, China is poised for development in these areas.
Shifting from an insular ‘Chinatown’ mindset towards deeper immersion in foreign countries, while maintaining its identity, is crucial. A positive model for the necessary skills to become a stabilizer, integrator, and orchestrator in transnational networks may lie in Germany, which has historically thrived at the heart of the European Union. In contrast to Germany’s past, which often prioritized self-deprivation in diplomatic relations, China should embrace national autonomy—investing selectively in financially viable projects while respecting the sovereignty of its international partners.
Applying the new polycentric approach to the New Silk Road means involving other lenders, especially BRICS members, when financing infrastructure development abroad. Such a strategy can enhance transparency and authenticity regarding objectives while maintaining a firm separation between politics and business.
In terms of the greater geopolitical framework, establishing a coalition—a triple alliance—spanning China, Russia, and Germany could act as a safeguard against U.S. hegemony; I have termed this construct the "BMB axis," derived from the initial letters of the capitals of these nations. This alliance aims to promote national sovereignty and self-determination among its partners free from foreign intervention.
Amid the current adversarial sentiments toward China, an opportunity arises to leverage the anti-China climate as a catalyst for forging stronger alliances in the Global South. In promoting traditional values and countering neoliberal ideologies, China could strengthen its charm offensive, blending financial support with soft power strategies.
China's ability to engage with countries still allied with the U.S. could bolster the New Silk Road initiative, particularly countries showing a preference for detaching from U.S. influence. Germany, Eastern European nations, and even Western allies like France, Italy, and the UK present potential avenues for engagement.
Furthermore, maintaining connections in key Western nations allows for future partnerships when conditions become more favorable. Establishing ties with potential future leaders abroad and promoting a peaceful reunification project for Taiwan under the “one country, three systems” framework could further create favorable conditions for China.
By adopting a more amiable international posture, China may realize a considerable peace dividend, potentially reducing military expenditures and reallocating those savings to critical development projects. This strategic redirection would bolster technological advancement, the primary engine for sustainable income growth, particularly as labor costs rise and capital efficiency declines.
In sum, the foundation of Chinese politics—both domestically and internationally—lies in foresight, prudence, openness, sustained strategic intent, and flexibility in tactics amid altering circumstances. Rather than succumbing to the erratic policy swings observed in many Western nations, China should concentrate on substantial, enduring goals and prioritize developmental economics over security posturing. Steady incremental progress toward its objectives could yield substantial transformative benefits.
In summary, the Chinese president would do well to draw inspiration from figures like Otto von Bismarck, Lee Kuan Yew, and Deng Xiaoping, who exemplified careful realpolitik compared to Wilhelm II, who compromised Bismarck's alliance structure and ultimately faced downfall.
Thus, when contemplating strategic national development, you, as China's paramount leader-in-thought, must identify and operate on key levers in a balanced, countercyclical manner amid a changing geopolitical landscape. Effective domestic policies will enhance the country's internal capacity, while astute foreign policies will be pivotal for survival and success in a global ecosystem where China can either flourish or falter.
By constructing a polycentric New Silk Road in this dynamic world—with the BMB alliance at its core—and emphasizing economic priorities rather than aggressive diplomatic maneuvers, China can not only navigate the current turbulence but also foster long-term sustainable peace and prosperity in the future.
Aarav Patel for TROIB News
In a bold hypothetical scenario, envision yourself as the authoritative president of the People’s Republic of China, situated next to a warm fireplace in a mountain retreat. Gazing through a panoramic window, you reflect on the ‘Middle Kingdom.’ What is your broad assessment of China's current status, and what future do you foresee for this dragon against the backdrop of a rapidly transforming world, where established truths seem to crumble at breakneck speed?
### 1. Current situation: Domestic and international trouble
Initially, my esteemed presidential self, I can understand how you might feel disheartened. Within China, the nation has yet to fully bounce back from the dystopian impacts of the Covid-19 pandemic. Projections suggest that the government will likely fall short of its 2024 growth target, with GDP anticipated to grow by only 4.8%. While many countries would envy such solid economic performance, this figure is diminutive compared to the average growth rate of over 9% enjoyed since the initiation of the Reform and Opening policies in 1978. Compounding matters, China grapples with severe internal structural challenges, including sectoral issues in real estate, high youth unemployment, and an escalating dependency ratio related to an aging populace. Additionally, foreign direct investment into China is seeing a downward trend, dropping by 30.4% in the first three quarters of 2024 compared to the previous year. In essence, the remarkable ascent of the Middle Kingdom since 1978 appears to be stymied, at least for the time being.
The situation is further aggravated by darkening international clouds. The collective West increasingly views China as its primary strategic adversary—a stark departure from the prior wave of Sino-euphoria where Western executives vied to curry favor with China. In that previous climate, the greatest fear for a Western multinational CEO was to be remembered as the one who overlooked China.
Currently, aside from a military escalation in the West explicitly directed at China, an intense trade war with the United States looms. For instance, President Donald Trump promised tariffs as high as 60% on imports from the Middle Kingdom, stating that on his first day in office, he would begin by targeting China, which would incur an additional 10% charge on the new tariffs levied on other nations.
Such developments foretell a notable decline in China’s net exports, which are critical for driving demand-side GDP growth. Notably, the increase in tariffs will render Chinese exports to the U.S., comprising 15% of its total exports, more expensive for American consumers, likely resulting in diminished demand. Should China’s imports not decrease as sharply as its exports, a decline in net exports is all but assured.
Moreover, in its immediate vicinity, North Korea—a traditional ally—seems to be pivoting towards Russia. This realignment reflects broader shifts following Russia’s military operations in Ukraine, as that nation seeks new alliances amid severe sanctions from the collective West.
Not surprisingly, in light of these numerous and grave domestic and international challenges, observers increasingly view China’s future with skepticism, likening it to a boxer reeling from several hits.
### 2. The road ahead: Balance as the key guiding principle
Nevertheless, every crisis carries the potential for success, achievable through nuanced and decisive distinctions. The Chinese character for crisis encompasses the concepts of wéi (danger) and jī (opportunity). Similarly, the ancient Greek term krísis implies a moment of separation, and by extension, a decision.
Embracing these cross-cultural linguistic insights, the Chinese president can turn this critical juncture into an opportunity by making vital countercyclical distinctions, steering the nation towards a direction rich in possibilities. Success hinges on a delicate balance, both domestically and abroad, serving a variety of stakeholders in the national and global socio-economic ecosystem. Challenges from the outside, rather than merely heralding doom, can act as catalysts for transformation, instilling a compelling sense of urgency among decision-makers. Ironically, the hostile agenda posed by external adversaries might inadvertently facilitate the necessary shifts.
#### a. Domestic rebalancing: From investment to consumption
As a primary measure, the leader of China should intensify focus on transformative domestic policies, bolstering internal resilience against external crises. A critical lever in this regard is shifting GDP composition from an investment-driven to a consumption-driven model.
Historically, investment served as the key engine for China’s economic miracle post-Reform and Opening, supported by a notably high domestic saving rate. However, recent times have rendered this growth engine problematic for several reasons: declining marginal returns on additional investment, increases in depreciation as capital stock rises according to the Solow growth model, and a long-term income per worker growth that depends solely on technological progress—an aspect inherently tied to supply-side factors.
High investment detracts from domestic consumption, which remains significantly lower than in many advanced economies. Rebalancing towards greater domestic consumption would enhance the economic benefits reaped by Chinese citizens. Key policy instruments for promoting this shift may include tax reductions and increased transfer payments to consumers. While previous efforts have aimed to bolster domestic consumption, renewed and amplified initiatives are essential.
As observed, sustained increases in living standards hinge on rising productivity through technological advancements within a supply-side framework. In this context, the Chinese president should actively support innovative private entrepreneurs, who have recently become scapegoats for various socio-economic issues. The successful management practices found in China’s private sector significantly contributed to the nation's economic success, driven largely by high innovation rates among private enterprises.
Besides domestic advancements, considerable untapped countercyclical growth potential exists in the international sphere.
#### b. International rebalancing: The ‘BMB’ axis along a multicentric silk road
The first character in the term for China, "zhōng," denotes "center." This conveys that a long-standing perception among Chinese leaders has been to view their empire as the epicenter, relegating other states to the periphery. To thrive on the global stage, China must leverage the advantages of collaborative, win-win partnerships, evolving from a centripetal worldview to an advanced polycentric perspective.
A driving force behind this transformative goal lies in the establishment of what I term a “multicentric new silk road” within a reorienting world. The current challenges can be regarded as blessings in disguise, providing stimuli for China to focus efforts on nations with significant growth potential that are either unaffected or can be swayed from the influence of the collective West.
A Chinese proverb suggests that to achieve wealth, building a road is essential. There appears to be a resonance in this advice, as Xi Jinping has championed the New Silk Road initiative since 2013, facilitating vast infrastructure projects across over 150 nations to connect the Middle Kingdom with diverse international trade partners. Unlike many Western nations that deliver moral lectures, China has provided tangible benefits, such as infrastructure development, to host countries. While this geostrategic initiative has aided many nations, it has also resulted in issues of bad debt and necessitated loan restructurings.
Moving forward, China must cultivate its role as a peace-promoting stabilizer and integral player in a shifting world. This requires engaging not only in bilateral relationships but also in vital multilateral networks, including the envisioned polycentric New Silk Road.
Representing a departure from its historical focus on internal matters and lacking experience in cross-cultural engagement and multilateral negotiation, China is poised for development in these areas.
Shifting from an insular ‘Chinatown’ mindset towards deeper immersion in foreign countries, while maintaining its identity, is crucial. A positive model for the necessary skills to become a stabilizer, integrator, and orchestrator in transnational networks may lie in Germany, which has historically thrived at the heart of the European Union. In contrast to Germany’s past, which often prioritized self-deprivation in diplomatic relations, China should embrace national autonomy—investing selectively in financially viable projects while respecting the sovereignty of its international partners.
Applying the new polycentric approach to the New Silk Road means involving other lenders, especially BRICS members, when financing infrastructure development abroad. Such a strategy can enhance transparency and authenticity regarding objectives while maintaining a firm separation between politics and business.
In terms of the greater geopolitical framework, establishing a coalition—a triple alliance—spanning China, Russia, and Germany could act as a safeguard against U.S. hegemony; I have termed this construct the "BMB axis," derived from the initial letters of the capitals of these nations. This alliance aims to promote national sovereignty and self-determination among its partners free from foreign intervention.
Amid the current adversarial sentiments toward China, an opportunity arises to leverage the anti-China climate as a catalyst for forging stronger alliances in the Global South. In promoting traditional values and countering neoliberal ideologies, China could strengthen its charm offensive, blending financial support with soft power strategies.
China's ability to engage with countries still allied with the U.S. could bolster the New Silk Road initiative, particularly countries showing a preference for detaching from U.S. influence. Germany, Eastern European nations, and even Western allies like France, Italy, and the UK present potential avenues for engagement.
Furthermore, maintaining connections in key Western nations allows for future partnerships when conditions become more favorable. Establishing ties with potential future leaders abroad and promoting a peaceful reunification project for Taiwan under the “one country, three systems” framework could further create favorable conditions for China.
By adopting a more amiable international posture, China may realize a considerable peace dividend, potentially reducing military expenditures and reallocating those savings to critical development projects. This strategic redirection would bolster technological advancement, the primary engine for sustainable income growth, particularly as labor costs rise and capital efficiency declines.
In sum, the foundation of Chinese politics—both domestically and internationally—lies in foresight, prudence, openness, sustained strategic intent, and flexibility in tactics amid altering circumstances. Rather than succumbing to the erratic policy swings observed in many Western nations, China should concentrate on substantial, enduring goals and prioritize developmental economics over security posturing. Steady incremental progress toward its objectives could yield substantial transformative benefits.
In summary, the Chinese president would do well to draw inspiration from figures like Otto von Bismarck, Lee Kuan Yew, and Deng Xiaoping, who exemplified careful realpolitik compared to Wilhelm II, who compromised Bismarck's alliance structure and ultimately faced downfall.
Thus, when contemplating strategic national development, you, as China's paramount leader-in-thought, must identify and operate on key levers in a balanced, countercyclical manner amid a changing geopolitical landscape. Effective domestic policies will enhance the country's internal capacity, while astute foreign policies will be pivotal for survival and success in a global ecosystem where China can either flourish or falter.
By constructing a polycentric New Silk Road in this dynamic world—with the BMB alliance at its core—and emphasizing economic priorities rather than aggressive diplomatic maneuvers, China can not only navigate the current turbulence but also foster long-term sustainable peace and prosperity in the future.
Aarav Patel for TROIB News
