Good riddance to Chinese triumphalism as economic disaster looms

Nothing speaks more loudly to the absurdity of the newly expanded Brics group of developing economies than the sight of India making common cause with China, and more ridiculously still, Saudi Arabia with Iran. In both cases, the two countries are virtually at war.

Even as a bulwark against supposed G7 domination of the world economy, the Brics grouping makes little sense. Why has Egypt been asked to join, but seemingly not Nigeria and Indonesia, both of which are far more important economies?

If merely a Trojan horse for Chinese leadership in the developing world, you’d want as a participating member to be very suspicious of it indeed, the more so as its very existence seems to lend a degree of respectability to Vladimir Putin’s illegal invasion of Ukraine. Nations that sign up to it are saying that they don’t care, or even positively approve.

Yet it is the prospect of Chinese capture that other jurisdictions need to be most worried about. China’s economic progress in the 45 years that have elapsed since it first started opening up to the rest of the world has admittedly been hugely impressive. There is much to admire and emulate.

Any benefit to the already rich economies has, however, been far less obvious. For the West at least, China has been a wolf in sheep’s clothing. And even for much of the developing world, any engagement with China has hardly been a bed of roses.

We need to be a little bit careful here, because in most respects, and in line with the Ricardian principle of comparative advantage, free trade between nations is a positive boon, allowing them to specialise in what they do best while buying in from others what they are not so good at.

But free trade also needs to be fair trade. As Western nations have belatedly begun to realise, security considerations will quickly become a major concern when largely dependent on potentially alien players for key economic inputs.

China has cleverly managed to gain just such a stranglehold over key areas of production and resource, and grandly aspires to a great deal more.

Just how exposed this has left the West became abundantly clear during the supply chain disruptions of the pandemic, when it quickly became apparent that we no longer make many of the things we need to function effectively as a modern economy.

Don’t get me wrong. No economy can be entirely self-sufficient. Any such strategy makes no sense at all in the modern world, and if widely pursued to its logical conclusion, would merely lead to multiple duplications, inefficiencies, tit-for-tat protectionism and growing international conflict.

Nor should we begrudge China its economic progress. To the contrary, it should be celebrated as a wonder of the modern age, having lifted hundreds of millions out of poverty.

Yet it is not just growing superpower rivalry, or China’s malign influence on Western jobs and capabilities, we need to be concerned about. It is also Chinese triumphalism.

That sense of Chinese superiority can be dated to the financial crisis 15 years ago, when Wang Qishan, then China’s finance minister, remarked to his opposite number in the US, Hank Paulson: “You were my teacher. But now I am in my teacher’s domain, and look at your system, Hank. We aren’t sure we should be learning from you any more.”

Mr Wang’s wonderfully understated observation soon transmogrified under President Xi Jinping into – and here I’m offering a caricature – “definitely not learning from you any more, because our system of governance and economic management is self-evidently far superior to yours”.

The seeming sure-footedness and order of the Chinese economic progress would from then on be routinely contrasted with the apparent chaos and decline of the West.

During the early days of the pandemic, this became an almost unchallenged narrative, with China setting the template for how governments should respond in the face of a potentially deadly contagion. We all followed China’s lead, with the positions of teacher and pupil unambiguously reversed.

China became the gold standard in how to deal with a pandemic; a combination of extreme lockdown – tailor-made for autocratic government, but anathema to freedom-loving democracy – and mass testing proved highly effective in containing the disease, and was soon being trumpeted by President Xi as more evidence of Chinese pre-eminence.

Here in Britain we seem to have had the worst of all possible worlds; at vast economic and social cost, we were eventually persuaded to follow China into government imposed lockdown, but to arguably little effect.

As it turned out, the nation was hopelessly unprepared for a threat of this magnitude; the medical establishment was all over the place on decisively gripping the situation.

Much the same was true of the rest of the democratised world. Other than South Korea and Taiwan, more or less everyone seems to have got it badly wrong.

Yet in terms of the monetary cost, Britain seemed to come out of it worst of all. If Xi had concocted a dastardly plan to bring down the West, he could scarcely have dreamt up anything quite as effective. Lockdown was pure poison for our largely service based advanced economies.

Yet the tables soon turned, and in the event, closing down the economy to fight Covid has proved just as economically disastrous for China as it was to America and Europe, and the way things look right now, possibly more so.

While the West did what it does best, and rapidly came up with vaccines and medicines to fight the disease, China remained stuck in a timewarp behind the high walls of Xi’s zero-Covid policies, prevented by pride and innate sense of Chinese exceptionalism from recognising the damage they were doing.

As in the West, the induced sleep of lockdown has acted as a petri-dish for all the economy’s underlying weaknesses.

When finally forced by growing popular unrest to abandon the zero-Covid policy, China failed to come bouncing back as expected, and is now threatened with a tsunami of bankruptcies, deflation, and as demand plummets, oversupply in everything from housing to car production.

There was never anything particularly unique about the Chinese development story, besides its sheer size, speed and the admirably hard-working qualities of the Chinese people.

But like all such growth spurts, it was built on a Ponzi-style inverted pyramid of rising indebtedness. Now that the credit bubble is bursting, you wonder for how much longer the charade can be kept going by merely applying more of the same.

Some may say good; China is finally getting its comeuppance.

This may be to misread the dangers. An economically unstable China might prove even more of a threat to Western wellbeing than a resurgent one.

But if I were India, Brazil, or any of the Johnny-come-lately additions to the Brics conflab, I know where I would be placing my chips.

Despite years of shameful Western neglect, it would not be China.