For Xi Jinping, economics and unification don’t mix

Jul 10, 2023
United States and China flags combined fist together. Taiwan flag in tug of war.

While unification with Taiwan and building a strong economy are the twin pillars of the rejuvenation of the Chinese nation, it’s dangerous to assume, as Washington does, that a faltering economy makes Beijing more aggressive towards the island.

This is the final in a two-column series.

It’s hardly worth mentioning that China and the United States don’t see eye to eye on most things these days. But there is a specific conflicting perspective over Taiwan that I find particularly intriguing. This is worth examining since there are probably no two more pressing issues than Taiwan and the mainland economy within the increasingly hostile US-Chinese relations.

So far as Beijing is concerned, I think it’s fair to assume that unification with the island is an absolute end in itself, quite divorced from the state of the economy.

There is, however, an emerging consensus within the US foreign policy establishment that the worse the mainland economy fares, the likelier it will use military force against the island.

It strikes me that this American view is not only wrong-headed, but highly dangerous. It will launch a power dynamic that compels the US into an armed conflict over Taiwan, in a prophecy of its own making.

If this view really takes hold in Washington, then China’s economic slowdown, which is a foregone conclusion compared with the double-digit growth of the past two decades, will be read as a signal of Beijing’s aggressive intention.

Beijing’s policy goals: Taiwan and the economy

What do Chinese leaders really think? Since people are always speculating about President Xi Jinping’s intentions, I have started reading Xi Jinping Thought. After all, if the Chinese have gone through the trouble of spelling it out for us, the least we can do is have a look before speculating wildly about what Xi wants.

I am happy to report that Xi Jinping Thought is really not as tedious as people assume. Some parts tying environmentalism and green economics with Engels’ dialectical philosophy of nature and Chinese philosophy of harmony between man and nature are quite interesting.

And, for all that intellectual pretension, Xi’s environmentalism is perfectly valid, as opposed to the highly destructive environmental consequences of the Jiang Zemin period. Importantly, it is directly related to what Xi calls quality economic growth, rather than Jiang’s growth at any cost.

As Xi (or his ghost writer) writes, “In working to expand domestic demand and boost the domestic market, some people have begun blindly handing out loans for investment and overstimulating consumption, or even reverting back to energy-intensive, high-emissions projects … All of these understandings are incomplete or even erroneous; we must guard against them and rectify them should they arise.

“It is about establishing an effective system to boost domestic demand based on China’s actual economic development, moving to tap the potential of demand, working faster to build a complete demand system, strengthening demand-side management, and expanding consumer spending while also upgrading the level of consumption, so that the development of our vast domestic market becomes a sustainable process.”

This has one immediate consequence. Whether by choice or necessity, China must accept slower growth. This is not controversial. Most mainstream economists, whether Chinese or foreign, recognise it, as well as key Chinese policymakers, though they may offer different explanations and theories. Their consensus is that since the 1990s, the Chinese economy has worked by forcing households to use their high savings to subsidise exports, state-owned enterprises and public infrastructure. Such investment-driven growth, based on financial repression, can no longer deliver, or at most deliver diminishing returns. The subsidies now need to go into reverse – big businesses and local governments should help subsidise consumption. This, of course, works directly against the vested interests of local governments and SOEs, and why success has been elusive even after more than a decade.

In 2021, household consumption accounted for only 38 per cent of Chinese gross domestic product, compared with about 70 per cent of the US GDP. On the one hand, Xi strives for a higher consumption-driven economy such as the US. On the other hand, he has ruled out a debt-driven consumer culture, hence his recent crackdown on shadow banking and its lending. It’s not clear how he could square this circle while delivering “quality growth”.

Where does Taiwan fit in all this? Nowhere. It’s clear unification with Taiwan and building a strong and sustainable economy are the twin pillars of what Xi calls the rejuvenation of the Chinese nation.

As Xi told his US counterpart Joe Biden in their last meeting, he would not be the last Chinese leader to lose Taiwan. The message seems clear: if the island moves towards independence, the mainland will intervene. This is regardless of the state of the Chinese economy. To put it in another way, the economy is not a predictive indicator of mainland behaviour towards the island.

US foreign policy: linking Taiwan and the Chinese economy

The Council on Foreign Relations is generally considered to be the premier foreign policy think tank in the US. Its members and associates represent the US foreign policy establishment and take up top posts in the US government, usually in the defence and state departments, regardless of whether the administration is Republican or Democrat.

This is why its latest report, titled “US-Taiwan relations in a new era – Responding to a more assertive China”, is truly terrifying – because it probably represents the establishment consensus.

It states many key positions and recommendations. But I will single out three for our purpose here:

  1. Taiwan is key to the US strategic interest in the Indo-Pacific;
  2. the US military industrial base should be put “on a wartime footing”, why? That’s because of

3: “To rally support for the CCP [Chinese Communist Party] and his personal rule” in the event of a slowing economy, Xi’s position towards Taiwan will become increasingly aggressive, including starting a full-on invasion.

As we have discussed, a slowing economy is now a foregone conclusion. If (3) is to guide US foreign policy over Taiwan, then combined with (1) and (2), the only logical conclusion is that the US must prepare for war over Taiwan.

I think those presuppositions and their (il-)logic don’t hold any water. But it won’t be the first time that the US has started a war based on paranoia and false assumptions. Iraq, anyone?


First published in the South China Morning Post July 4, 2023

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