By Robbin Laird

The latest Williams Foundation Seminar was held on March 30, 2023 in Canberra.

It was entitled “Sharpening the Edge of Australia’s National Deterrence Capability” and focused on the strategic transition of Australia and the ADF in meeting the challenges of the decade ahead.

I asked one of the young officers who attended the seminar what they got out of the seminar: “We are facing a significant strategic shift and those of us just now in service need to understand what the focus of the defense of our country is and will need to be as we work to defend our country.”

Another young officer said: “The last generation fought abroad; now we are defending our country and in our region. How are we going to do so effectively?”

That rathe put it succinctly what the distinguished group of speakers was needed focused on doing.

The seminar itself was placed midway between two major government announcements about the changing approach to defense. The first was the announcement with regard to the way ahead with the generation of a new nuclear submarine capability for Australia and the second is the forthcoming release of the Defence Strategic Review, expected in late April.

For me, this session reminded me of my first engagement with the Williams Foundation in 2014 which led to my first seminar report. “On Tuesday, 11 March 2014, the Sir Richard Williams Foundation conducted its biannual seminar on ‘Air Combat Operations, 2025 and Beyond.’ The seminar explored the challenges and opportunities afforded by the introduction of fifth-generation air combat capabilities.”

Well, we have almost reached 2025, and the focus of the 2014 seminar was indeed on introducing the F-35 into the ADF and the transformation which could be created to evolve the capabilities of the ADF as an integrated force able to operate across the spectrum of warfare.

For the next decade, the seminars held by the Foundation provided detailed looks at that transformation through the presentations of senior ADF leaders and analysts about the evolving strategic environment and the evolving ADF capabilities and concepts of operations.

I have detailed that decade in my book, Joint By Design: The Evolution of Australian Defence Strategy which was published in late 2020.

As Vice Admiral (Retired) Barrett noted in his wrap up comments at the end of the seminar on March 30^th: “As the Chairman of Williams, Geoff Brown, indicated at the beginning of the day we are taking a different take with this seminar and the one to follow later in the year. The subject that we discussed over the last couple of hours has been around deterrence where previously at these conferences, we’ve been talking very specifically around fifth generation capability throughout the ADF.

“So the idea that we would gather, and we would have an array of esteemed speakers who would inform us, educate us, but also challenge us, but assist us in being able to formulate what our thinking about the way ahead made a great deal of sense.”

What Barrett said was very much in line with what the younger generation of officers wanted to discuss and learn about.

But I must add that I have been working defense issues for a long time, in Europe and in the United States as well as in the Pacific.

And for one who worked through the 1980s on the Euro-missile crisis, the Soviet confrontation with a Europe in transformation and certainly about nuclear weapons, the discussion of deterrence at the seminar took me back to work with Herman Kahn and Zbig Brzezinski which I did in the past.

What is deterrence in this period of the 21^st century?

And what can we learn from a past which has been forgotten as we fought the land wars?

The forthcoming report on the seminar will highlight the presentations at the seminar and the insights from additional interviews with senior ADF personnel and analysts.

But I can note that the seminar took a broad view of the challenge of deterrence, that deterrent effects are not simply a result of the ADF can do with its allies and partners but what the Australian polity, economy, culture and society can deliver in competing with the 21^st century authoritarian powers and cooperate with allies going through a very fluid situation in their domestic polities, societies, cultures and economies.

The concluding presentation of the seminar by the head of the RAAF, Air Marshal Chipman, provided a comprehensive look at deterrence from the standpoint of a middle power, and drew together a number of the insights of other speakers as well.

“I mentioned earlier that deterrence works on the threat of escalation.

“But we must be clear, as a Middle Power, this must stop short of actually provoking conflict.

“Deterrence fails at the point conflict begins.

“Strategic competition is dynamic and unstable: peripheral interests might become core over time.

“For a deterrence strategy to succeed through a prolonged period of strategic competition, we must also build pathways for de-escalation.

“This is as important in force design and force posture as it is to campaign design.

“The capabilities we invest in, where we stage them and how we intend to use them.

“De-escalation pathways restore the pre-crisis or pre-conflict balance of power. Seizing a diplomatic off-ramp too early may cede advantage; too late will cause unnecessary attrition.

“Our successful deterrence strategy will need to consider escalation and de-escalation in equal measure.”

Building capabilities to do so, having a society resilient enough to deal with a wide-range of threats, to have allied cohesion significant to be credible, and learn how to combine military capabilities with the art of statecraft which understands the minds of our authoritarian competitors is a work in progress.

And in future seminars we will see the learning process playing out.

The featured photo: Vice Admiral Jonathan Mead addressing the Williams seminar, March 30, 2022. VADM Mead is the Chief Nuclear Powered Submarine Task Force. At the seminar, he provided a succinct and powerful overview on the way ahead for the program. It is the analogy to the F-35 program which the 2014 seminar of Williams highlighted as an anchor program for ADF development.

The seminar program:

By Robbin Laird

Currently I am in Canberra, Australia to participate in the latest Williams Foundation Seminar for which I write the reports. While visiting, I have the opportunity to discuss strategic issues with a number of analysts and officials while here.

This year is noticeable for the coming defence review of the Labor government and the recent announcement of the new nuclear submarine program which has been announced as part of a broader initiative of cooperation with Britain and the United States which has been christened AUKUS.

What this will amount to really in the years ahead is unknowable, but will depend on how seriously Australia builds it own defense capability and how the United States and its Pacific allies reshape how they deal with the various threats in the region and beyond. The United Kingdom can only be an ancillary player, and clearly, the relationship of Australia to Japan will be much more determinate about how Australia defends itself in the years to come.

Hence, no matter what is delivered in the final public report on defense in April, the Strategic Defence Review needs to be placed in context.

And in a conversation with Professor John Blaxland, the noted Australian defense analyst, John did so.

Appropriately we had this conversation in a local Canberra pub near Blaxland Park. Blaxland started by focusing on core questions which will be raised quickly in the public debate.

“Whatever the recommendations, how will changes be resourced and implemented?”

He warned that there could be a propensity to have an ongoing bureaucratic focus on the review, more interested in process and the broader question of rethink, than upon actually improving the capability for Australian defense.

Blaxland quoted the late Jim Molan to the point that Australia needed a broad national strategic review and policy within which a defense review would occur. A defense review is simply too narrow given the nature of the challenges posed by China to Australia.

In my own work, I have emphasized the importance of dealing with the Chinese approach to globalization which has put the liberal democracies in a subordinate position as a key part of any credible rethink of Pacific defense. Blaxland agreed with this point.

Blaxland underscored that the current government has rejected language used by the Morrison government as being too militaristic and too critical of China. Having avoided the question of why you are doing a defense review and focusing on what you need to do in the changed situation makes it difficult to have the kind of public narrative Australia will need to persuade the public and Australia’s partners in the region.

So how will the delivery of the defense review be accompanied by a credible and effective public narrative?

With regard to shaping a credible and cohesive national narrative, Blaxland raised concerns with regard to the energy initiative of the government and the deal they cut with the Greens as one element of the context.

The Greens are the most anti-military and anti-AUKUS political group of influence in Australian politics. What impact does this agreement on energy and Labor’s elevating the importance of the Greens have on the broader defense debate, discussion and narrative?

AUKUS will be embedded in the broader defense review, so that criticism which has already emerged within the Labor Party about AUKUS will be carried forward into the Strategic Defence Review itself.

Blaxland underscored that there is a clear need for more effective strategic messaging in an era of unrestricted competition or what some have called the weaponization of everything.

That is sure why there is a need for a broader national strategy for Australia to compete effectively in a world of 21^st century authoritarian conflict with the liberal democracies.

Blaxland described the period we have entered as being one of three intersecting circles of a Venn diagram. One circle might be labelled great power contestation; the second circle might be labelled looming environmental catastrophe; and the third might be labelled governance challenges in the liberal democracies.

How does AUKUS and the Strategic Defence Review fit into this world?

In short, the about-to-be-released Strategic Defence Review is not the end of the discussion but simply part of the discussion of what realistically is the way ahead for Australian defense, and a good part of answering that question will not even be about the ADF.

John Blaxland is Professor of International Security and Intelligence Studies in the Strategic and Defence Studies Centre (SDSC), Coral Bell School of Asia Pacific Affairs, College of Asia and the Pacific at the Australian National University (ANU).

He is a Senior Fellow of the Higher Education Academy and a Fellow of the Royal Society of New South Wales. He has previously been a Chief Intelligence Staff Officer (J2) at HQ Joint Operations Command, defence attaché to Thailand and Myanmar, Head of SDSC and Director of the ANU Southeast Asia Institute. At ANU, he teaches “Honeypots and Overcoats: Australian Intelligence in the World” and supervises several PhD students.

He lectures regularly at the ANU National Security College (on the Geostrategic SWOT Analysis for Australia) and Australian Defence College (including the Defence and Strategic Studies Course, Command and Staff Course, Australian Defence Force Academy and Royal Military College, Duntroon).

He also addresses conferences and workshops on security in Australia (RUSI, U3A, Army Research Centre, Seapower Conference, etc) Malaysia, Korea, Thailand (Thammasat, Chulalongkorn and military academies), the Philippines, Taiwan, UK (Kings College London), the USA (Minerva, CSIS, East West Centre, etc) and Canada and offers commentary with The Australian Institute of International Affairs, The Guardian, The Age & Sydney Morning Herald, Canberra Times, The Australian, The New York Times, Bangkok Post, The Straits Times, The Jakarta Post, Asia Times, Australian Foreign Affairs, The Conversation, The Saturday Paper, Lowy Interpreter, The Mandarin, East Asia Forum, SCMP, World Politics Review, The Diplomat, Policy Forum, The RAND Blog, Voices of War, Security Challenges, The Australian Army Journal, Defence Connect and the Journal of Global Strategic Studies.

He also occasionally offers comments on television and radio including on the ABC, BBC, CNN, SkyNews, TRT World, Arirang, WION, France24 and CNA.

Featured Image: Australian Deputy Prime Minister, the Hon. Richard Marles MP speaks to the media during a visit to HMAS Stirling, Western Australia.

On 14 March 2023, the Government announced the first initiative under an enhanced trilateral security partnership with the United Kingdom and the United States (AUKUS) that will identify the optimal pathway for the acquisition of at least eight nuclear-powered submarines for the Royal Australian Navy. The Deputy Prime Minister, the Hon. Richard Marles held a press conference at HMAS Stirling on Thursday 16 March to outline the Government’s plan for the acquisition of Nuclear Submarines.

Credit: Australian Department of Defence

By Robbin Laird

Dr. Harald Malmgren has described what he and his colleague see as a strategic shift in China associated with the next phase of President Xi’s leadership.

The shift from an export-oriented growth economy which is deeply intertwined with the developments in the Western world to one more focused on domestic consolidation and a global shift to the rest of the non-Western world carries with it significant implications for the global competition with the West.

How can we characterize this shift?

What is the nature of the changed competition?

What are the implications for the West?

Although it is early days in providing answers to these questions, we can identify some possible key developments and questions going forward.

In this article, my objective is to raise such questions rather than providing answers, which will be determined interactively between China, its allies, its friends and its competitors.

But that is really the central point: the nature of the new global order will be determined by competition among key states and how they cooperate or don’t in shaping what has been called frequently a “rules-based order.”

There might be several “rules-based orders” rather than one as the outcome.

The kind of authoritarian regime being crafted by President Xi and his allies puts a priority on how to shape working relationships with other authoritarian powers.

The relationship with Russia is the most visible for China, but there is a global effort to come to terms with other authoritarian powers built around working relationship’s shaped by the enemy of my enemy is my friend dynamic.

We are simply not very good at analyzing how authoritarian leaders work with one another, how they think, how they act and how they are deterred from actions we fear or do not like. We need to recognize that this is a key field of study which has little to do with how liberal democracies compete and cooperate with one another.

This raises a key question when we address conflict and notably military conflict in the years ahead.

We have coined a series of concepts such as hybrid warfare and gray zone conflict which simply reflect that we don’t know how to deter let along compete in an area which is neither hard nor soft power nor in which force is used to gain objectives short of a general war. The American-led wars in Iraq in Afghanistan have demonstrated that the art of statecraft in dealing with this level of conflict is in short supply.

Authoritarian leaders clearly do not all think alike and have their own version of their national interest.

How do and will they work together?

How do and will they influence each other?

For example, when President Xi restored the former Chinese name to Vladivostok, what did Putin discern its meaning?

How in fact can Western states most effectively influence authoritarian behavior?

The track record with regard to Putin certainly is not a showcase for European or American statecraft.

What would have deterred him from the Ukraine invasion?

This is a subject worthy of analysis, not from the minds of Westerners but from the mind of Putin and his allies. This is hardly just historical analysis because it is tied up with how we would end such a war and deal with the evolving global order.

Another key area to explore are the changes in the global economy associated with the projected shift led by President Xi.

This can be seen on many levels but here I will focus on two.

The first is the need for foreign capital to fuel Chinese domestic development. The recent peace overture led by China with Saudi Arabia and Iran was largely interpreted as dealing with oil and the future energy needs of China. But it is much broader than that.

The American political process led by Biden attacked the legitimacy of the ruler of Saudi Arabia, and Biden turned his back on the Abraham Accords. President Xi could care less about the internal ethics of the Saudi leader but the global future of Saudi is important. They are building new technologies and new defense systems which China could support, China has personnel to replace the current heavy reliance on Pakistanis and the Saudis have capital to invest.

The second is the shift associated the West and China.

There is a clear shift towards innovation in terms of energy, of better use of resources which are loosely associated with dealing with the global climate change.

In dealing with this new phase or age of innovation, there is a shift towards critical minerals and other commodities of enhanced importance, somewhat reminiscent of the shift from coal to oil at the beginning of the 20^th century.

Countries which have these critical minerals and commodities are in a pole position for enhanced global influence and the reshaping of the “rules-based order” to their advantage.

The visit of President Lula to China can be seen in this light. Brazil is not simply part of the South or the developing world. Brazil should be described differently with the Western world increasingly preoccupied with the “climate emergency.”

But such a shift in terms of global economic focus raises the question of how Xi will balance his calculation in terms of the use of force and for what purpose with his shift away from the Western economies.

Does an invasion of Taiwan make any sense from his point of view in terms of the global fallout from his shift away from the West?

Or does it become more desirable as a show of force which can enhance his ability to demonstrate the weakness and “moral bankruptcy” of the West?

Then I would like to raise an issue very relevant to the future direction of military conflict.

Dr. Pippa Malmgren, Hal’s daughter and a noted global analyst in her own right, has raised for some time the secular change in operational capabilities for military forces associated with the growth of AI-enabled machines.

Recently, she argued that following: “The next war for China is a digital operation run by highly responsive and obedient self-replicating robotics, informed by the best data sets and AI that exists anywhere in the world today. Humans won’t even be needed for decision-making. In conjunction with super-computing, AI is replacing Generals, especially as the warzone expands beyond a battlefield and across the entire supply chain.”

If we look at the question of what one is prepared to do in terms of machine-led destruction to support your version of statecraft, how will China led by President Xi use his machines to support gray zone operations or his global reach?

I would like to close with a sobering thought.

Will the West really rebuild their ability to defend their interests?

Will we really find ways to work supply chains in common?

Will we be able to recover the art of statecraft along with military force innovations to provide deterrence of the authoritarian powers with China being a key leader?

And will the West do so while being able to find ways to cooperate with China in those areas that are critical for global survival?

Accompanying the economic shift described by Harald Malmgren might well be a broader global shift.

China would shift from being the economic export growth engine of globalization as understand by the West.

The focus would be upon managing the economic drawdown internally but working globally with key authoritarian allies and non-Western countries in the South to create an alternative to the legacy rules-based order.

China does not have to be formally allied to other authoritarian powers but just play off what the challenges these powers pose to the West.

And with the Brazil’s of the world new resource and trade relationships can be built as alternatives to the capital-intensive belt and road approach.

The growth of China’s informal empire becomes a key priority for the Chinese leadership as opposed to the export engine to the West.

As noted in an earlier article about China’s informal empire in Latin America which was built around the thoughts of Kenneth Maxwell:

“China has focused under the regime of President Xi on building out its global informal empire.

“By trade and investment, China has become a key player in Africa and Latin America. Its practices in doing so have a number of questionable dimensions, but instead of highlighting the reality of Chinese informal empire practices, Western states have largely ignored the opportunity to do so. They have focused on issues like Taiwan and the South China Sea, both very important but not part of the informal empire geopolitical strategy.

“But the reality is that China poses a global threat to the Western order underwritten by its economic, cultural, and third world narrative efforts along with an expanding fleet of both military and commercial shipping and ports as well.

The concept of informal empire was developed by John Gallagher and Ronald Robinson in a 1953 article published in The Economic History Review, as Kenneth Maxwell has underscored in his discussions about Latin America and China. Ronald Robinson was Maxwell’s tutor at St. John’s College at Cambridge University.

“It ought to be a commonplace that Great Britain during the nineteenth century expanded overseas by means of ‘informal empire’ as much as by acquiring dominion in the strict constitutional sense. For purposes of economic analysis, it would clearly be unreal to define imperial history exclusively as the history of those colonies coloured red on the map.

“Nevertheless, almost all imperial history has been written on the assumption that the empire of formal dominium is historically comprehensive in itself and can be cut out of its context in British expansion and world politics. The conventional interpretation of the nineteenth-century empire continues to rest upon the study of the formal empire alone, which is rather like judging the size and character of icebergs solely from the parts above the water-line.”

If one looks at the world from the perspective of the Southern Hemisphere, and with the notion of informal empire in mind, one gets a different understanding of how things might play out. The featured image provides such a map.

If one looks at this map and looks from China outward towards South America and Africa, one begins to see why Australia for example becomes more important in the way ahead for China as a global power and player.

As far as military issues go, China has internal problems – significant and growing.

But in terms of defense there nuclear arms buildup makes them a territory one would not wish to strike, and with the growing domination of Russia, the internal resource trade routes are secure.

This means that their outreach with regard especially to naval power becomes more significant less in terms of directly confronting the United States and the West, then building a force that can operate globally around them.

At the same time, building a global navy of course enhances their ability directly to deter or fight the West if it comes to that. The recent exercises off of South Africa with the Russians illustrate this approach.

China shifts along with the global order.

The Next Phase of the Xi Era: China’s Strategic Shift in a World in Flux

Defense XII: A World in Transition

By Robbin Laird

The recently concluded Party Congress in Communist China has both consolidated Xi’s control of the Chinese system and turned the country further from its earlier legacy of global engagement built on its powerful export engine. According to my colleague, Dr. Harald Malmgren, Chinese policy under Xi has taken a significant strategic turn in its economy and with it in terms of how he seeks to shape the China of the next decade.

This shift is significant and has significant implications for a world which is in flux in terms of the Western countries who have been the focus of exports, the authoritarian partners of China and the global system which my colleague Ken Maxwell has referred to in an essay published in 2022 as the arrival of the new world order. In this new world order relationships by multiple power centers which would not described either as Western or as great power authoritarians have emerged and are shaping new global linkages. And China under Xi is focused on enhancing these relationships at the expense of its recent decades of reliance for high growth on its export relationships with the West.

Dr. Malmgren and his colleague Nicholas Glinsman have highlighted and summarized the Chinese shift in their seminal paper written earlier this year entitled, “China and its Lost Decades Ahead.”  In this paper, the authors assess that China is moving on from its neo-mercantilist economic model which relied heavily on exports for growth. At the Party Congress, the importance of global exports was replaced by placing highest national priority on domestic consumption within China itself.  The dramatic shift in priority from its external relations in economic growth and the drawdown of their ability to rely on foreign capital to domestic growth drivers poses huge challenges for China in shaping a new way ahead.

Malmgren has also noted in a recent discussion I had with him that up to now President Xi had kept reporting of his military exclusively to himself. All other matters, including state security,  were under the direction of the Chinese Communist Party.  In March, Xi declared that state security was removed from CCP jurisdiction and would henceforth report exclusively to Xi personally.  All matters that he deemed to be essential in managing internal security would be subject to his personal decisions. Thus, from now on the entire CCP was subordinated to the supreme leader, and the Party would function under decisions made by state security and the Central Military Commission, which Xi chairs.

To better control the domestic economy, Xi has decided to intensify centralized direction of all segments of the economy.  Since Deng, state owned enterprises had been subject to Party direction, but large segments of the economy functioned with considerable autonomy. Xi made it clear that he wanted greater public and private coordination, and that Party political officials would be placed into the management of all private businesses.

Moreover, the Party would assign its officials to participate in all scientific research projects and the development of technological innovations. This would, of course, complicate relations between Chinese scientific innovators who were participating with American scientists and investors, calling into question whether either the Party or the U.S. Government would permit continuation of such ongoing businesses and R&D projects.  Innovations which had been spurred by foreign investments and engagements of various foreign academics and scientists would likely be re-crafted to become more Soviet like with commissars within the key companies and domestic economic sectors.

The Covid Pandemic lockdowns paralyzed the Chinese economy during the period from the start of 2020 to the very end of 2022. Throughout the world markets, there has been an expectation that 2023 pandemic end would result in a strong Chinese economy rebound, bringing back to life the powerful Chinese engine of growth that had long provided momentum to the rest of the world. As it turned out, 2023 showed little sign of a Chinese rebound. New orders for exports did not appear. Demand for ocean going cargo carriers remained depressed.

What the world had forgotten was that world trade in manufactures had already slowed down in the years since the Great Financial Crisis of 2008-09.  During 2019, just before the pandemic struck, the IMF warned that a synchronized industrial downturn was evident throughout the world. The pandemic then took over, slowing and even halting all economic activity virtually everywhere. Now, in post-pandemic 2023 much of the world is back where the economy of 2019 left off, in an economic downturn.

None of the world’s great trading nations, Japan, China, South Korea, Germany or the U.S. showed any signs of increased demand for manufactures, whether automobiles or consumer appliances. Worldwide inflation was being attacked by central banks everywhere, raising interest rates to subdue spending and rising wage demands.

In February, 2023, the Government Investment Corporations of Singapore, one of the world’s biggest Sovereign Wealth Funds, announced it was pulling back from exposure to investments in China. This agency is known throughout the world as the most knowledgeable entity able to make objective assessments of the inner workings of the Chinese economy.

The U.S. Government was also showing concern about U.S. private investment into China that might be supporting technologies of national security concern. This was casting a negative blanket over previous years of optimism among high tech American and European technology investors.

Malmgren noted that China has reached an economic plateau similar to that reached by Japan in the late 1980s, where Japan shifted its economic growth to direct engagement in the United States and other Western states. China will not be able to do that because of the Western concern with regard to how China has distorted “globalization” to its advantage.

According to Malmgren, with the United States cutting the umbilical cord to its technology and technological investment’s, there is growing Chinese recognition that their own pace of innovation could slow significantly.

With the economic slowdown by China, the role which China played in the 2008 global economic crisis will not be repeated. The authors concluded in their paper that “China will not come to the world’s rescue, as it did in 2008-09 under Hu Jintao.”

Malmgren also underscored that the focus on enhanced domestic consumption will prove difficult as well with the economic drawdown and internal protests. Most of the major protests have been highly disciplined in forms that the government felt unable to contain.

These protests have taken two forms: the so-called white paper protest whereby significant numbers of Chinese have simply hoisted blank paper in protest without actually indicating what they are protesting.

The second is Chinese parents of child bearing age are refusing to have children and, wives asserting their rights to continue active professional lives and simply avoiding raising any children. The birth rate per thousand Chinese continues to fall dramatically, alongside a growing number of the elderly. The total number of Chinese counted in 2022 showed year on year decline, and world population experts are now forecasting steep decline in Chinese population over the next 50 or 100 years.

I will include here the first part of their paper, a paper which brings together a wide range of data supporting their arguments in the paper.

“In late October, when Xi Jinping consolidated his hold on China’s communist party at its five-yearly congress, the world cringed. Xi seemed determined to push China back to the age of Mao Zedong, his role model. Hardline ideology would tighten its grip on the world’s second-largest economy, with dire implications for the rest.

“The last thing anyone expected from a strongman president entering his 11th year in power was a sudden about face. Yet within weeks, Xi’s government reversed its efforts to control Covid-19, Big Tech companies, the Chinese property market and more. It has shown signs of reduced support for Russia’s war in Ukraine while trying to ease diplomatic tensions with the US and in its territorial disputes regarding the South China Sea. This softening seemed so uncharacteristic of Xi that rumors began circulating that his political power was weakening, as other high officials were intervening to alter policy/.

“That’s unlikely, given that at the congress, Xi had purged enemies and installed allies throughout the party. Yet the 180-degree turn on multiple policy fronts was unmistakable and raises doubts about everything the world thought it knew about Xi, the unbending hardliner. Was he now bending to pressure from worried officials, the public, the deteriorating economy?

“The answer may be all of the above. Xi’s Covid policy, the tech crackdown and the property bust had brought the economy to a standstill in 2022. The economy contracted in the fourth quarter, which is likely to bring growth for the year down to 3 per cent. That is according to official Chinese data; the reality was probably worse, as the reliability of such has declined under Xi. Nevertheless, and back on point, China has not grown this slowly since the late 1970s and is growing no faster than the rest of the world, also a first since the 1970s.

“A performance that weak was a serious threat to an authoritarian state that rests its legitimacy on promises to restore China’s prosperity and its global stature. As the slowdown fuelled street rallies against the pursuit of “zero-Covid lockdowns”, some protesters dared to call for Xi to step down. Officials in his own government were reportedly urging him to act to save the economy. Still, few if any China watchers thought the paramount leader would change course.

“Aiming to revive the economy after the congress, Xi’s government started sounding less Maoist. It has dropped the “three red lines” on borrowing by developers, and announced that the “rectification” campaign against fintech firms is nearly complete. After tightening state control for years, it is sending out messages of support to the private sector, even offering details of its new global data market that suggest respect for private data ownership.

“The irony: Xi may be trying impractically hard to revive growth. His plans to build “a modern socialist economy” imply an annual gross domestic product growth target of 5 per cent, which is no longer possible. China’s population growth has slowed sharply, as has productivity growth. With fewer workers and slumping output per worker, the country’s potential growth rate is 2.5 per cent. Beyond this year, when spending by Chinese consumers released from lockdown may temporarily boost growth, 5 per cent is an unrealistic target. And more debt-financed spending will only increase China’s already massive debt load.

“Global investors, who often blow hot and cold on China, have again flipped, this time to embrace the new Xi. Before November, the country’s stock market was tanking with the economy. Foreign fund managers were launching emerging market mandates excluding China. Now, they are bullish on hopes of a post-pandemic “reopening” bounce and have been pouring money into Chinese stocks. The benchmark MSCI China index is up a staggering 50 per cent since the late October lows.

“Yet questions about China’s policy direction remain. Xi’s pivot is a pragmatic course correction, but it raises doubts about his steadiness. His impulse to control may reassert itself when the economy starts to recover.

“However, we just do not see it lasting, and hence there will be no repeat of the Chinese reaction to the Great Financial Crisis of 2008/09, wherein the enormous stimulus introduced by the Hu Jintao administration was accredited with helping the world economy avoid a broad and deep global recession.

“Back to the present and despite the dangers, there are nevertheless signs that the economy is stirring. Subway ridership in major cities is rapidly returning to normal. Consumers who accumulated savings while shut in their homes for much of the past year have money to spend. And the government is rolling out policies to support a rebound, or more accurately, reversing policies that had previously constrained growth. China’s ability to recover from nearly three years of self-imposed isolation “is very likely the single most important factor for global growth in 2023,” according to Kristalina Georgieva, the managing director of the IMF.

“Indeed, the global economy’s other main engines are far from firing on all cylinders. The US economy, despite a strong end to 2022, will struggle this year as higher interest rates bite, according to the World Bank’s latest forecast. Europe is in recession, and Japan is projected to eke out just a 1 percent growth rate.

“As for China, the World Bank forecasts growth of 4.4 percent this year, and of course, some private estimates are even higher. Goldman predicts a 5.2 percent gain. “Evidence of a rapid China reopening is accumulating,” the investment bank said in a note to clients last week.

“Still, it will take time for the Chinese to re-establish their pre-pandemic routines, including links to the outside world that the government severed in hopes of keeping the virus at bay. The next few months may bring a stop-and-go recovery before a more widespread resumption of activity in the spring.

“Even with a smooth Chinese reopening, the global economy faces a year of anaemic growth, according to World Bank and IMF projections. As mentioned above, China could theoretically provide a big world economic impetus, but we do not expect China to have growth surge and ride to the rest of the world’s rescue.

“One area that commentators are expecting a growth impetus is Chinese exports, but we would argue against that too…”

In other words, we are seeing a sharp break from the economic orientation of China and from how China has engaged with the West economically. How then does this affect the Chinese place in the world, and affect the evolution of the evolving global situation and order?

I will address those questions in the next article.

Credit Featured Photo: President Xi has his eyes set o expanding China’s diplomatic role as part of a broader global shift.

Defense XII: A World in Transition