The CCP will also have to reallocate capital from infrastructure investment to social welfare programs, however, this would result in sharp contraction in the construction sector entailing industries like steel, cement and construction equipment, which will cause significant number of job losses.
Similarly, Beijing will have to shut down overcapacity in industries like steel, coal, and manufacturing, which will again result in job losses as well as production decline.
So, overall, there is no easy way out of this deflation spiral that the CCP has got China and itself into. Reforms will slow the economic growth further and accelerate protests due to lay offs and pay cuts or wage arrears, thereby adding to the CCP’s problems of declining political legitimacy as well as threaten its incumbent General Secretary, Xi Jinping, who is presiding over this slump in economic growth.
This is because, consumption growth will not happen as fast as the capital reallocation or the investment in social welfare programs. Even if household incomes increase via higher wages or/and improved welfare, it will take some time for spending habits to change, as some of the population will first pay down debt or pay for newly accessible public services like healthcare.
This will create a transitional gap that manifests as an economic slowdown, and such an economy will also take a lot of time to create new jobs in sufficient quantity as are needed to absorb those employees who are displaced due to shutting down of manufacturing enterprises.
Moreover, if Xi decides to undertake any reforms in the SOE sector, either through sale of SOE – controlled assets or restructuring of SOEs – which will also lead to job losses if it involves the closure or liquidation of non-viable, persistently unprofitable SOEs – then this could result in internal political friction, and further motivate his political rivals within the CCP to take advantage of the already deteriorating socio-economic situation to force him into stepping down from his position.
The CCP will also have to contend with the demographic constraints over China’s household consumption growth which is the making of its own one-child policy that has culminated in a rapidly ageing populace, with the median age now over 40.
It also does not help that China happens to be the second most expensive place in the world to raise a child, which makes the Chinese people very unwilling to have children, according to a study by the China-based YuWa Population Research Institute in February 2024. This study found that the cost of raising a child up to 18 years of age in China is 6.3 times higher than the country’s GDP per capita, compared to just 2.08 times in Australia, 2.24 times in France, 4.11 times in the United States, and 4.26 times in Japan.
Additionally, motherhood in China is said to negatively impact the career of women by subjecting them to unfair treatments like transfers to other teams, wage cuts, or loss of promotion opportunities, further disincentivizing them to have children. Also, women have traditionally been responsible for the care of the elderly, which adds to their challenges in considering marriage and childbearing.
“Due to reasons such as the high cost of childbearing and the difficulty for women to balance family and work, the Chinese people’s willingness to have children is almost the lowest in the world,” the YuWa report said. “It is no exaggeration to describe the current population situation as a collapse in the birth population.”
Basically, the workforce is contracting and the old-age dependency ratio is rising, which means that with time, tax revenues will decline while the health and pensions needs will grow.6
Therefore, given the systemic challenges tied to China’s consumption-driven growth and the substantial political inertia that has hindered the Party’s ability to implement the necessary changes despite its commitments over the last decade, it is advisable to moderate any expectations of witnessing any substantial change in China’s economic conditions by 2026.
Taiwan: An Important Component Of ‘National Rejuvenation’
So, the CCP is currently in a fix. It has to correct the various structural imbalances in China’s growth model in order to stop the ongoing decay of Chinese economy which is causing protests across China, however, doing that will result in further slowing of the economic growth until the country adopts to the new growth model, which will only exacerbate the problem of civil unrest that the Party is currently facing.
Also, the declining demographic curve puts the CCP on a clock, meaning it can no longer afford to delay the structural reforms that are already long overdue.
Therefore, the question is whether the CCP will be able to maintain the exquisite balance needed to impose the necessary economic discipline over China’s polity and the society while also keeping its social fabric from tearing apart due to extreme pain that will come as this discipline is imposed.
The Author is not an economist, so he cannot exactly envision what form such an ‘exquisite balance’ could take in the case of China. For now, all that can be said is, that the CCP will most likely opt to enact reforms slowly, so as to not disrupt the current export-led growth model that keeps the cash coming in, thereby mitigating the risk of civil unrest as much as possible.
Overall, though, it can be reliably said that the economic conditions fueling protests in China are unlikely to improve significantly for at least the next two-three years, meaning the sense of dissatisfaction among the workers and families in the country is poised to grow and cause further escalation in the frequency and possibly even the scale of protests.
So, the CCP is staring down the barrel of significant unemployment increases stemming from several structural economic challenges, which if mismanaged, can potentially plunge the CCP in a crisis situation entailing nationwide protests.
The Party Secretary General, Xi Jinping himself, acknowledged this through his speech at a seminar for CCP cadres in February 2023, in which he remarked:
“Currently, various risks and hidden dangers are highly interconnected, and rapidly transmitted. A slight misstep can trigger a “butterfly effect,” where small risks can escalate into large ones, local risks into systemic ones, and economic and social risks into political ones….Once a risk emerges, we must act quickly and decisively, taking the lead in command, making swift and decisive decisions, and preventing small problems from escalating into large ones or large problems from exploding.”
Now, the timing of Xi’s aforesaid remarks is also noteworthy, as they were made roughly at the outset of 2023-24 period that saw the number of documented labour-related protests in China rise to 3,297, a peak not seen since the 2015-16 Chinese stock market and real estate crashes, during which CLB noted 5,446 protests over two years.
In fact, as someone who has voluntarily taken the responsibility of ensuring continued rule of the CCP over China on his shoulders by consolidating power within the Party and the government, Xi could be seeing this ongoing surge in protests due to economic grievances as nothing short of an existential crisis for himself.
So, Xi in this situation must be seen as a cornered rat prepared to take any measures necessary to avoid being compelled to resign from his role as the Party Secretary General by his competitors within the CCP. This will likely involve fostering nationalism among the Chinese population by orchestrating an external confrontation.
And, this is what brings us to the discussion of ‘Taiwan Contingency’, a shorthand used by the governments of the US, Japan and Taiwan, which does not just refer to the prospect of ‘a full-scale invasion’ of Taiwan by China, but collectively refers to a host of possible scenarios including 1) Quarantine or a Blockade of Taiwan, which China appears to have been practicing by conducting frequent large-scale military exercises in waters around Taiwan since 2022, 2) A limited kinetic action such as occupying one or more of Taiwan’s outlying islands, which the Author thinks is most likely, 3) A ‘Full-Scale Invasion of Taiwan’.7
Now, in any discussion of the potential timeline for the CCP to take action on Taiwan, it is important to consider how much confidence the Party has in China’s comprehensive national power, which in large part, is a function of its investment-led growth model that made China the factory of the world and enabled it to dominate the global supply chains.
Today, China’s production exceeds that of the nine next largest manufacturers combined, making it the world’s sole manufacturing superpower, which also affords it a significant defense manufacturing capacity as well as the funds needed for military research & development (R&D).
However, shifting to a consumer-led growth model or even the slowly declining economic growth stands to undo this massive production capacity that China has built up over the years. Also, China’s demographic decline will create manpower crunch not only for its industries but also for its military, and the declining tax revenues due to shrinking working-age cohort will also constrain China’s expenditure on military modernization.
Also, any Chinese action to forcefully re-unify Taiwan could be met with a strong response from the West, either in the form of economic sanctions imposed on China, or perhaps the United States could even opt to implement its own blockade of the Strait of Malacca, which China relies on for lot of its energy imports that fuel its manufacturing powerhouse.
Therefore, Deng Yuwen, an ex-CCP insider and now a dissident Chinese scholar based in the US, suggests that for the CCP or Xi, the suitable time on Taiwan is around 2030, given the Communist Party’s timeline to realize ‘National Rejuvenation’ by 2049 – the centenary year of the CCP’s founding.
This is because if Taiwan’s re-unification does not happen peacefully, then the CCP leadership must also take into consideration the costs of a conflict for China’s economy.
So, Deng’s proposed timeline is based on the current economic difficulties facing China which he thinks can be overcome by 2030, after which, he believes that Xi can move to re-unify Taiwan with the Chinese mainland, and if the re-unification is completed before 2030-35 period, then the Party gets around 15-20 years to preside over the economic recovery needed to successfully declare the completion of ‘National Rejuvenation’ which also includes prosperity and strength of the Chinese nation among goals in addition to the reunification of Taiwan.
Deng, formerly the Deputy Editor of Study Times (Xuexi Shibao) – the premier journal of the Central Party School—an institution dedicated to the education of senior CCP officials – lost his position in 2013 and had to leave China in 2018 due to his tendency to voice critical opinions in the media about government policies, a practice that is uncommon among scholars with governmental affiliations.
His background in the CCP together with the fact that he is no longer bound by the Party’s censorship because of his current residentship in the US, makes him a valuable source of insight into the CCP’s internal logic.
Deng has also shed some light about Xi’s personal ambitions relating to Taiwan, as well as the importance of Taiwan for him due to the politically precarious situation that he finds himself in currently because of the efforts he has undertaken over the years to consolidate power within China’s Party-State apparatus.
“Xi wants to establish a “great achievement” in Chinese history, surpassing Mao and even other accomplished emperors, solidifying his historical status. Whether in terms of public praise or inclusion in history textbooks, no single, concrete event holds the same immense allure for him as unifying Taiwan. Furthermore, considering the many enemies he has made over the years, although he currently holds power and people can’t do anything to him, he faces the challenge of ensuring his and his family’s political safety after stepping down. Reunifying Taiwan, earning the title of “Father of China’s Unification,” would deter others from harming him and his family after he leaves power. Therefore, Xi will not relinquish the unparalleled achievement of unifying Taiwan to his successor,” wrote Deng in an article for Voice of America (VOA) in November 2023.
Now, together with Deng’s description of the threat to Xi’s safety from his enemies after he steps down from his position of power, the Author would again like to emphasize the importance of considering the growing dissatisfaction among the Chinese populace and its potential to force Xi’s earlier departure from authority.
So, the increasing discontent among the Chinese population in recent years necessitates that the tentative timeline of 2030-35 suggested by Deng, be adjusted to an earlier timeframe of 2025-2030 in any future risk assessments for the South China Sea region.
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