Evergrande: Harbinger Of China’s Decline? – OpEd


By Robert Veldhuizen

When the CIA created a new China mission center earlier this month, the intelligence agency’s director William Burns underscored the need to counter “the most important geopolitical threat we face in the 21st century.” Recent high-profile policy decisions—the AUKUS pact, for example, which risked isolating ally France in favor of bolstering capabilities in the Indo-Pacific—only confirm Burns’ assessment that the West considers China today’s paramount threat. Indeed, much of Western foreign policy and commentary is predicated on the idea that China’s economic, political and diplomatic heft will inevitably continue to increase.

An Evergrande-shaped hole, however, could puncture this conventional wisdom. In fact, the impending default of Evergrande, one of China’s largest property development firms, not only threatens to send shockwaves through the entire Chinese economy. Evergrande’s plight, the result of years of binging on debt and building without considering financial viability, also sheds light on an alternative story of China’s meteoric rise: one built upon an innately broken system, whose problems can no longer be suppressed by a mixture of statist engineering at home and easy money from abroad.

Evergrande represents one of many brewing crises of China’s own making, as the country circles closer towards a middle-income trap and further away from a market economy. At home, food and energy prices are rising, squeezing China’s middle class. The looming emergency sparked by the rapid decline of China’s working-age population, thanks to decades of short-sighted policies, can no longer be papered over. The pandemic—and its economic fallout—has amplified these disruptions and laid bare China’s dependency on a globalized system of trade that bodes poorly for its foreign aspirations.

Perhaps most seriously, China’s heavy-handed foreign policy and opaque lending practices have undermined its own flagship Belt and Road Initiative (BRI), raising questions whether the worldwide network of infrastructure investment will ever match Beijing’s grandiose ambitions.

The splintering of the New Silk Road

The sprawling BRI, which has already seen Beijing seize control of ports and other strategic infrastructure around the world, is at the heart of China’s efforts to gain commercial, military and diplomatic influence. Emerging markets, however, have grown increasingly skittish over the hidden financial and reputational costs of BRI projects.

Djibouti is one of many countries experiencing “buyer’s remorse.” Nestled in the strategic chokepoint between the Red Sea and Gulf of Aden, the tiny country has received little-to-no benefit from the projects which have left it with debts to Beijing equaling some 70% of its GDP.

To make matters worse, Djibouti’s favoritism towards China led to an ill-advised decision to abruptly expropriate one of the crown jewels of its infrastructure, the Doraleh Container Terminal, from longtime foreign operator DP World and hand it over to Chinese state-owned firm China Merchants Group.

The result for Djibouti: a run of courtroom losses in international tribunals, massive fines which Djibouti has so far refused to pay, a damaged reputation among foreign investors and the depressing reality that the port is now managed by a Chinese-only workforce, leaving Djibouti’s chronically-unemployed population out of luck.

Zambia has also seen its fortunes turn after growing close to Beijing. The country, whose debt to China is believed to be double official estimates, defaulted on its international obligations last November. The lack of transparency regarding its Chinese loans have made it difficult for other creditors to agree on reservicing terms, and Zambia has had to fight persistent rumors that China is preparing to seize core assets.

It’s no surprise that amidst the uncertainty and bad press, countries are growing wary of Chinese-led projects, and many are reconsidering projects recently initiated or still in the planning phases. Malaysia, for example, axed a staggering $11.58 billion in BRI projects between 2013 and 2021.

No changes on the cards

China is not merely suffering the economic blow of cancelled contracts—its missteps with BRI countries have caused international backlash against China to grow.

Beijing knows its goodwill is close to spent. Last May, an internal Chinese report alerted that anti-China sentiment was its greatest since the 1989 Tiananmen Square crackdown. Deng Pufang, the son of Deng Xiaoping, cautioned in 2018 that China ought to “know its place” with respect to its foreign policy. Earlier this year, even Xi tacitly acknowledged this problem, warning in a Politburo meeting that China needed to present a more “lovable” image to the world.

Despite this awareness, remarkably, China has continued to throw its weight around and stoke confrontation. The BRI has suffered as a result, with Australia one of the latest countries to cancel projects due to Beijing’s behavior.

This shows a larger problem at the heart of China’s foreign policy: a perplexing inability to recalibrate. This is partly due to China’s do-or-die approach, which is rooted in an all-in commitment to growth. For China’s Communist Party, attaining high growth is not merely evidence of proficiency, but a mandate to rule. As Peking University professor Michael Pettis put it, “Anything that undermines its [China’s] economic heft … is of huge consequence.”

Beijing its own worst enemy?

Ironically, it’s China’s own policies which are currently undermining its economic heft and sparking an inflection point. As one analyst warned, the Evergrande crisis “is the beginning of the end of China’s growth model as we know it.”

On the outside, China is looking to transform its economy to a global consumer market that rivals the EU and US. The reality, however, may be as hollow as one of Evergrande’s half-finished apartment complexes.

China is rapidly losing the advantages that propelled its growth. Meanwhile, at home, Xi further consolidates his Mao-like grip, undermining constructive pathways that might solve the country’s ails. Abroad, the debt traps and ill-advised partnerships which Beijing has dragged BRI partners into have sapped enthusiasm for the flagship initiative. The West has prepared for an ascendant China, but it may instead need to confront a China which doubles down on aggressive and reckless behavior to mask its own decline.

The views expressed in this article are those of the authors alone and do not necessarily reflect those of Geopoliticalmonitor.com

Geopolitical Monitor

Geopoliticalmonitor.com is an open-source intelligence collection and forecasting service, providing research, analysis and up to date coverage on situations and events that have a substantive impact on political, military and economic affairs.

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