China: The Paper Dragon’s Dance

Coronavirus pandemic has turned China into an inflated 'Paper Dragon'
Coronavirus pandemic has turned China into an inflated 'Paper Dragon'

An old Chinese story titled “The Wolf of Zhongshan,” talks about a wolf which had been shot by a hunter. As it was running away injured, it met a kind-hearted person who saved the wolf from the hunter. After the hunter left, the wolf said to the kind-hearted person, “You have saved me. Now I am hungry. Since you have come this far helping me, let me eat you.”

Why has China, the second largest economy of the world, has suddenly started to flex its muscles? Why are they opening so many flanks with so many countries simultaneously? There is an economic, political or territorial issue that has been raised with several countries, almost simultaneously. What does China hope to accomplish when its own economy has been ravaged by the Wuhan Virus?

From times immemorial, world leaders, under pressure because of a weak economy or a weak political position, have waved the flag of ‘National Security’ and indulged in sabre rattling to divert attention from their internal challenges. Are we seeing the same in China today?

Let us look at the challenges China is facing:

  • Credibility Challenge: China has a serious credibility issue with the rest of the world, reeling under the impact of Coronavirus pandemic. Political leaders around the world have started blaming China for not being transparent about the origin of this virus. What should worry China is that the average individual in each country is angry with China and the first reaction will come against “Made in China” goods. This is an emotional and a sentimental reaction and once deep-rooted, will be difficult to change in a short time. Calls to stop buying Chinese products and even to uninstall Chinese apps should be a cause for serious concern in China.
  • Diplomatic Challenge: When there is pressure diplomacy normally comes to the rescue.
    1. Chinese officials have been reacting with threats as can be seen in their stopping imports from Australia.
    2. They have been threatening Taiwan and there is cause for worry in Taiwan in case China decides to unilaterally take military action.
    3. The recent amendment of the National Security law to govern Hong Kong is another case in point.
    4. Racist comments against African people in parts of China has resulted in a reaction from Africa.
    5. Finally, the Chinese government officials are aware that US elections are round the corner and therefore understandably rhetoric will be high and loud. This is the time when they need to keep quiet and wait for the elections to be over. Instead Chinese officials are issuing threats of retaliation to America when they comment or support Hong Kong or Taiwan.
  • Geographical and Territorial Challenge: China has always wanted to expand its boundaries by attempting to take over lands of other countries that it claims.
    1. Gathering a number of military personnel on the border of India and raising territorial and boundary issues at this point of time is one more flank that China could have avoided opening. After encroaching into Indian territory, the Chinese found that unlike in the past, Indian political resolve was strong, and the Indian Army pushed back. This resulted in some fisticuffs though no damage was done other than to the Chinese ego. Soon thereafter, the Chinese leadership started to wave the peace flag.
    2. The Spratly Islands is a contentious issue in the South China Sea.
    3. The China-Pakistan Economic Corridor (CPEC) that goes through Indian territory will be the first casualty.
    4. The One Belt One Road (OBOR) project has also become a question mark in most countries. Citizens of these countries were expecting large investments into their country, but they can see that they will get nothing. China is sending its own equipment, its own people and its own material for these roads. Even the food their workers’ eat comes from China!
  • Economic Challenge: China has powered its way into every nation given its financial might and during this pandemic its companies, supported by state institutions, are looking for cheap acquisition of lucrative companies around the world. This has been picked up by most countries and restrictions are being imposed to ensure that good companies are not sold because of the pandemic.
    1. The financial cost of the Coronavirus to the world economy varies between US$ 5 trillion to US$ 9 trillion. Some countries are threatening to recover this from China. While it is unlikely that any compensation will ever be paid, the sentiment behind these claims is more important.
    2. Most international companies in China are starting to evaluate how they will re-engineer their supply chains so that they are less dependent on manufacture of their products within China. This will have serious impact on China which relies on mass production.
    3. China has launched a trial of digital yuan in Shenzhen, Suzhou and Chengdu, and the Xiong’an New Area. It will be interesting to see the reaction of the US government as it will see this move as a threat to the US Dollar, the only global currency. The only other person who had challenged the US Dollar when he started trading oil in Euros was Saddam Hussain.

No one likes a bully, and no one likes to be threatened. Trade and commerce are always a two-way street. There could be trade imbalances between countries and these can be corrected. No country can stop buying from another and assume that there will not be a reaction from the other country.

China is powerful because the world started to buy its products putting money in the hands of the Chinese citizens thus powering their own economy. If the factory of the world stops selling its goods, the impact on the country will be clear and obvious.

President Xi Jinping has asked his country “to make mental and material preparations for changes in the external environment that will last a relatively long period of time.” This could mean that China will be more aggressive and confront its challenges with retaliation rather than conciliation and cooperation.

Has China got caught up with its own hype of having a large economy (which is slowing down), of having a large well-fed and satisfied army (which could be reluctant to get into a fight) and an invincible leader (who could be facing serious challenges from within)?

Only time will tell.

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