China's Japan moment?

It seems that the Chinese economy is coming to a screeching halt! If the latest growth figures indicate a trend, it seems that all that public debt/investment-fuelled growth on steroids that China enjoyed for over three decades is now due for a payback time, and there is little to show for it.

Now, one has to pronounce judgements on this with caution. The collapse of China has been predicted and proved decisively wrong, before. China is not a fragile twentieth-century variety of a nation, as some in Eastern Europe were, but millennia-old civilization with a distinctive culture and polity: It is unlikely to wither away for the lack of growth.

Besides, it is fair to assume that the Chinese leadership were long preparing for such a possibility. China had, over the last two decades at least, a curse of the surplus - it was hoarding up US Dollars as it did not know what to do with the huge trade imbalance in its favour - and it has been steadily exporting that surplus in the form of debt to Africa, and of late through OBOR to a host of South and Central Asian countries. And, indeed, its willingness to buy from the United States billions of dollars worth of goods to correct the trade imbalance is not just a victory of Trumpeconomics, but a necessity of Chinese leadership to correct economic imbalances.

It is important to remember such correction in China is not just a piece of bad news for China. In fact, it may be very bad news for Americans and Europeans. The low-interest rates that the European and American central banks currently bestow on the consumers, which help keep their economies on life-support, are largely dependent on Chinese savings flowing into these banks in search of a viable return. If the Chinese stop saving, the manufacturers may rejoice, but the days of cheap money would be over.

In short, if China sneezes, we may all catch a cold. But what are the consequences of this Chinese flu for China itself? One possibility is that the economic reversals could presage military muscle-flexing. Have we seen some of that in South China sea lately? Unlikely, as, in more than one way, China, throughout history, has been a defensive rather than an offensive power, and wider military engagements cannot be beneficial to any Chinese leader. If Military expansionism is the preferred route for the Chinese leadership, a spread of influence through hard and soft power in the South and Central Asian region would perhaps serve the domestic agenda better. The current Chinese leadership accords as much ambition to Eurasia as to the Pacific coast. Therefore, one could expect more assertive Chinese intervention in these regions, even attempts to reconfigure nations, Putin-style, rather than a direct face-off in the Pacific. It is possible to see the new-found Xi-Putin friendship as a marker of that realignment, and Donald Trump's North Korean honeymoon, with Xi's blessing no doubt, as markers of a grand strategy. However, another future is possible - and my vote will be for that one.

As I mentioned, I don't see China as a European, Fiscal-Military nation-state. China may indeed be set for a long recession but this doesn't automatically equate with military adventure, not with China's history. Rather, this may actually be China's Japan moment - the point of entry to a low-growth, stable, frugal future. It is true that China is not Japan and there are still a lot of poor people out there, but that could be an opportunity rather than a problem. The western economic mantra, that high growth is needed to float everyone's boat, isn't necessarily true for China. With its culture, history and form of government, redistribution of wealth and recalibration of society are both easier for China than in the West. In fact, China's breakneck rise not only created its own economic imbalance, but also an imbalance in Asia: A sobered up China may help in building a different Asian politics of cooperation and exchange. The Want-not-waste-not grandmother may indeed be coming for China, and that's not a bad thing.