China’s problems provide opportunities for Pakistan

Pakistan is now placed firmly in China’s orbit. This has happened after Washington very deliberately turned its back towards Islamabad. After the inexplicable decision taken by the Biden administration in Washington to isolate Pakistan, it was inevitable that Islamabad would draw closer to Beijing. As discussed in an earlier article in this space, the sudden American pullout from Afghanistan in late August 2021 resulted in geopolitical developments that brought China — and to some extent also Russia — closer to Afghanistan and Central Asia. As some observers noted in the commentary that followed the American withdrawal, three countries — Russia, China and Pakistan — landed on the positive side of the changed Afghanistan situation while India, the United States and most of the countries in NATO found themselves on the negative side. Given these changes, it is important for Pakistan’s policymakers to carefully watch some of the domestic developments in China.

China has entered the year 2022 faced with a number of problems. As I will discuss in some deal later in this article, some have been caused by nature such as the extreme weather that caused floods in several cities. The return of Covid-19 pandemic can also be attributed to nature over which the country has little control. The significant demographic change the country now confronts is the result of both public policy as well as changes in human behaviour caused by economic growth and social development. In the Covid-19 pandemic environment it will pose a challenge to hold the Winter Olympics that will begin on February 4, 2022.

But as President Xi Jinping emphasised in his statement to the Davos virtual meeting, Beijing had demonstrated the ability to handle difficulties public policymakers face as they move through complex times. He was clearly drawing a distinction between the Chinese and American policymaking experience of handling state affairs. As Xi addressed the international audience, the United States was finding it difficult to implement President Biden’s ambitious economic and social agenda, unable to move on a number of fronts. The Chinese leader made the claim that his country’s political system was much better delivering for its citizens than the United States and Western systems. The difficulties Beijing now faces will prove to be a good test for this claim. In the article today, I will discuss the problem created by a sharp slowdown in economic growth in the country; the sharp decline in the rate of population growth; the way the United States is handling its relations with China; and, finally, the problem posed by the need to properly manage the large number of people who plan to attend the Winter Olympics.

China’s economy slowed significantly in the final months of 2021. Public policy choices were the main reason for the slowdown. Beijing moved in to limit speculation in real-estate, a sector in which one large company the Evergrande Group had become overleveraged. Other large real estate developers such as Kaisa Group and China Aoyuan Property Group also suffered the consequences of lockdowns and travel restrictions imposed to control the spread of coronavirus pandemic. These affected consumer demand. China’s National Bureau of Statistics (CNB) published data on January 17 according to which output in the final quarter of calendar 2021 was only 4 per cent higher than during the same period of 2020. That was a deceleration from the 4.9 per cent growth in the third quarter, July to September. The situation could have been worse but for the record setting exports of items such as a variety of consumer durables. Consumers unable to spend on restaurant meals or attend sports events and concerts spent money on consumable durables. All this added to historically low rates of economic growth. “I’m afraid that the operation and development of China’s economy in the next several years may be relatively difficult,” said Li Daokui, a prominent economist and Chinese government adviser in a speech given in late December 2021. “Looking at the five years as whole, it may be the most difficult period since our reform and opening up 40 years ago. Millions of small businesses saw a loss in demand and crumbled. This is big policy concern since private companies are the backbone of the Chinese economy, accounting for 60 per cent of the country’s total output and 80 per cent of urban employment. A major problem for small businesses is the high cost of borrowing often at double-digit interest rates.

Unanticipated demographic change is adding to the country’s economic difficulties, adding a social dimension. According to the CNB, China’s birth rate fell sharply in 2021 and was now barely higher than the death rate. China’s one-child birth policy has caught up with the demographic situation and hastened the arrival of the date when the size of the population would begin to decline. Soon, very soon, the number of deaths will be more than the number of deaths.

Beijing barred foreign spectators from watching the Winter Olympics by going to three sites — or domes — where the competition would be held. The decision came two days after the Chinese health authorities announced Beijing’s first case of the Omicron variant and ordered an immediate lockdown and mass testing in one part of the large city close to the Olympics site. The outbreak affected the extraordinary efforts that were made to isolate Beijing, including a ban on people entering the city.

These economic and social disruptions are coming as the country prepares itself for making a major political transformation. The twentieth Communist Party Conference in the fall of this year when a new generation of leaders will take over from those who were elected five years ago and have passed the age of 68, generally regarded as the age of retirement in the public as well as the private sector. The only change that will not be made is at the very top when President Xi Jinping would be given another term for five years in office. However, new members will be inducted into the State Council and the Politburo. As has become the tradition President Xi will combine the offices of the General Secretary of the Party, the head of the government and the head of the Military Commission.

As was done in mid-January 2022 in the case of developing a ‘National Strategy’, Pakistan should write a strategy paper spelling out how it will develop its relationship with China. CPEC is an infrastructure development programme of investment which is proceeding well. In addition, two other areas need to be looked at: developing Pakistan’s human resource so that it could help Beijing overcome China’s deteriorating demographic situation. China would need young people to compensate for the aging of its population. Pakistan has one of the world’s youngest populations. What China lacks, Pakistan can provide. Second, Pakistan should develop its small and medium enterprises so that they could become components of supply chains that support the vast Chinese industrial sector. The global industrial system of production has been transformed but Pakistan has not taken advantage of this development.

 

Published in The Express Tribune, January 24^th, 2022.

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