At first glance, it may not seem that China is really engaged in an arms race with the US. After all, China’s official defense budget for this year – at roughly $175 billion – amounts to just one-quarter of the $700 billion budget approved by the US Congress. But China’s actual military spending is estimated to be much higher than the official budget: according to the Stockholm International Peace Research Institute, China spent some $228 billion on its military last year, roughly 150% of the official figure of $151 billion.
In any case, the issue is not the amount of money China spends on guns per se, but rather the consistent rise in military expenditure, which implies that the country is prepared to engage in a long-term war of attrition with the US. Yet China’s economy is not equipped to generate sufficient resources to support the level of spending that victory on this front would require.
If China had a sustainable growth model underpinning a highly efficient economy, it might be able to afford a moderate arms race with the US. But it has neither.
On the macro level, China’s growth is likely to continue to decelerate, owing to
- rapid population aging,
- high debt levels,
- maturity mismatches, and the
- escalating trade war
that the US has initiated. All of this will drain the CPC’s limited resources. For example, as the old-age dependency ratio rises, so will health-care and pension costs.
Moreover, while the Chinese economy may be far more efficient than the Soviet economy was, it is nowhere near as efficient as that of the US. The main reason for this is the enduring clout of China’s state-owned enterprises (SOEs), which consume half of the country’s total bank credit, but contribute only 20% of value-added and employment.1
.. The problem for the CPC is that SOEs play a vital role in sustaining one-party rule, as they are used both to reward loyalists and to facilitate government intervention on behalf of official macroeconomic targets.
Dismantling these bloated and inefficient firms would thus amount to political suicide. Yet protecting them may merely delay the inevitable, because the longer they are allowed to suck scarce resources out of the economy, the more unaffordable an arms race with the US will become – and the greater the challenge to the CPC’s authority will become.
The second lesson that China’s leaders have failed to appreciate adequately is the need to avoid imperial overreach. About a decade ago, with massive trade surpluses bringing in a surfeit of hard currency, the Chinese government began to take on costly overseas commitments and subsidize deadbeat “allies.”
Exhibit A is the much-touted Belt and Road Initiative (BRI), a $1 trillion program focused on the debt-financed construction of infrastructure in developing countries. Despite early signs of trouble – which, together with the Soviet Union’s experience, should give the CPC pause – China seems to be determined to push ahead with the BRI, which the country’s leaders have established as a pillar of their new “grand strategy.”
An even more egregious example of imperial overreach is China’s generous aid to countries – from Cambodia to Venezuela to Russia – that offer little in return. According to AidData at the College of William and Mary, from 2000 to 2014, Cambodia, Cameroon, Côte d’Ivoire, Cuba, Ethiopia, and Zimbabwe together received $24.4 billion in Chinese grants or heavily subsidized loans. Over the same period, Angola, Laos, Pakistan, Russia, Turkmenistan, and Venezuela received $98.2 billion.1
Now, China has pledged to provide $62 billion in loans for the “China-Pakistan Economic Corridor.” That program will help Pakistan confront its looming balance-of-payments crisis; but it will also drain the Chinese government’s coffers at a time when trade protectionism threatens their replenishment.
Like the Soviet Union, China is paying through the nose for a few friends, gaining only limited benefits while becoming increasingly entrenched in an unsustainable arms race. The Sino-American Cold War has barely started, yet China is already on track to lose.
On the occasion of Karl Marx’s 200th birthday, the co-founder of communism has received more than a few positive reappraisals, even from Western leaders. But those arguing that Marx cannot be blamed for the atrocities that his ideas inspired should reexamine his ideas... For much of the twentieth century, 40% of humanity suffered famines, gulags, censorship, and other forms of repression at the hands of self-proclaimed Marxists... Marx regarded private property as the source of all evil in the emerging capitalist societies of his day. Accordingly, he believed that only by abolishing it could society’s class divisions be healed, and a harmonious future ensured... Under communism, his collaborator Friedrich Engels later claimed, the state itself would become unnecessary and “wither away.” These assertions were not made as speculation, but rather as scientific claims about what the future held in store... it was all rubbish, and Marx’s theory of history – dialectical materialism – has since been proved wrong and dangerous in practically every respect. The great twentieth-century philosopher Karl Popper, one of Marx’s strongest critics, rightly called him a “false prophet.” And, if more evidence were needed, the countries that embraced capitalism in the twentieth century went on to become democratic, open, and prosperous societies.By contrast, every regime that has rejected capitalism in the name of Marxism has failed – and not by coincidence or as a result of some unfortunate doctrinal misunderstanding on the part of Marx’s followers. By abolishing private ownership and establishing state control of the economy, one not only deprives society of the entrepreneurship needed to propel it forward; one also abolishes freedom itself... Because Marxism treats all contradictions in society as the products of a class struggle that will disappear when private property does, dissent after the establishment of communism is impossible.By definition, any challenge to the new order must be an illegitimate remnant of the oppressive order that came before... Marx showed almost no interest in people as they actually exist. “Marxism takes little or no account of the fact that people are born and die, that they are men and women, young or old, healthy or sick,” he writes. As such, “Evil and suffering, in his eyes, had no meaning except as instruments of liberation; they were purely social facts, not an essential part of the human condition.”.. Xi views China’s economic development over the past few decades as “cast iron proof” of Marxism’s continued validity.But, if anything, it is exactly the other way around.it was the China of pure communism that produced the famine and terror of the “Great Leap Forward” and the “Cultural Revolution.” Mao’s decision to deprive farmers of their land and entrepreneurs of their firms had predictably disastrous results, and the Communist Party of China has since abandoned that doctrinaire approach.Under Mao’s successor, Deng Xiaoping, the CPC launched China’s great economic “opening-up.” After 1978, it began to restore private ownership and permit entrepreneurship, and the results have been nothing short of spectacular... If China’s development is being held back by anything today, it is the remnants of Marxism that are still visible in inefficient state-owned enterprises and the repression of dissent.
Angela Merkel warned against growing government intervention in international trade: “If we are of the opinion that things are simply not fair, then we have to seek multilateral answers and not pursue a unilateral protectionist course where we isolate ourselves.” She was largely defending the Washington Consensus , a catchall term that suggests politics and economics ought to inhabit separate spheres. This is the orthodoxy upon which the current international order is based.
But that consensus is coming apart because, more than ever, state-led capitalism works — and it is here to stay. China’s consolidation of its state-owned enterprises (SOEs), Russia’s oligarch-led economy, the proliferation of sovereign wealth funds (SWFs) and growing government intervention in the West are clear indicators of state-led capitalism’s success.
.. Moscow is able to use these corporations for political ends: threatening gas supplies to keep European governments compliant, for instance, or directing energy revenue to finance military development.
.. The Sovereign Wealth Fund Institute reports that there are dozens of SWFs, including 24 created in the past decade, which collectively control more than $7 trillion in assets.
.. SWFs are an important feature of today’s global economic landscape; governments also use them as agents of statecraft. SWFs in the Persian Gulf region, for instance, are investing in Russia because of concerns about America’s regional staying power, and they are deepening ties with Muslim countries in Southeast Asia to ensure export markets and potentially to facilitate counter-radicalization initiatives... And in the United States, President Trump has bragged that he personally influences firms’ decisions about where to place their factories... This is a dramatic reversal of the trend from two decades ago.
.. But a number of factors led to skepticism about free markets. One was the underwhelming developmental effect of SAPs and liberalization.A further blow to the neoliberal model was a series of financial disasters caused by unrestricted flows of capital, notably the 1997 Asian financial crisis and the 2008 global financial crisis.Perhaps the factor that has most undermined neoliberalism’s attractiveness, though, is the persistent power of countries with state-led economies, such as China and Russia... We are not seeing a “universalization of Western liberal democracy” and free-market capitalism, as Francis Fukuyama predicted