Source: SCMP    Published: 2024-03-05

When Chinese leaders bring up the drive for “national rejuvenation” or, more recently, the “great rejuvenation of the Chinese nation” in speeches and official documents, it carries several implications worthy of a closer look.

Most obviously, it articulates a need for China to be restored to its perceived historic state of prominence, but also alludes to room for improvement despite the country’s 2010 ascent to its present status as the world’s second-largest economy. That leaves only one obstacle to be surmounted – the United States, for decades the world’s top dog in terms of gross domestic product (GDP).

Modern China under the Communist Party has long held that such an upheaval was inescapable, though leaders at that time spoke about the capitalist world at large. In 1957, Mao Zedong asserted – echoing a passage from Dream of the Red Chamber – that the “East wind” had already prevailed over the “West wind”. But in terms of economic size, that ambition would only come within reach more than a half-century later.

By 2021 – the year of the party’s centennial – circumstances had changed enough that President Xi Jinping felt confident enough to proclaim “the East rising and the West falling” as a general trend.

Such a tilt in world power would indicate major historical changes in China’s and the party’s favour, but it is far from a settled matter.

As the first major economy to see a much-desired “V-shaped” recovery following the sharp drop precipitated by the coronavirus pandemic, China had begun that year by pushing its economic strength relative to the US to a new high of 76 per cent, beating the apogees reached by the Soviet Union in the 1970s and Japan in the 1980s.

But subsequent prophecies of an inevitable overtaking – in vogue at the time – now seem premature. Strict Covid lockdowns in 2022 and a bumpier than expected recovery last year have raised questions at home and abroad over whether Beijing still has a chance to challenge Washington’s global leadership, at least in GDP terms.

Building on academic discussions over “peak China”, a phrase coined by Tufts University professor Michael Beckley to suggest the country had reached its expansionary limit, US officials have begun to make their own predictions of their rival’s decline. National security adviser Jake Sullivan said at a Council on Foreign Relations event in late January the moment for a dethroning “may never come”.

In an interview aired last week by CBS News’ 60 Minutes , US ambassador to China Nicholas Burns said many economists believed that the Chinese economy would probably only scrape by with “2 to 3 to 4 per cent growth” annually in the next decade, citing problems unseen in the past 40 years.

The US economy rose by 6.3 per cent in nominal terms to US$27.36 trillion last year, outstripping China’s 4.6 per cent gain by a comfortable margin and plunging the latter’s relative strength to about 65 per cent.

Beijing has many explanations for the widening gap – exchange rates, inflation and relative purchasing power, to name a few – but analysts said above all it is fighting a war of narratives.

And this battle, they argued, is one Chinese leaders cannot afford to lose.

Chen Wenling, chief economist with the Beijing-based China Centre for International Economic Exchanges, said the bearish takes on the Chinese economy which started last summer – and the consequent capital flight – could be a calculated strategy.

“The badmouthing and short-seller attacks unfolded in tandem,” she said in an interview last week with Guancha, an online news platform. “It’s a narrative war, and by and large a financial war.”

China has taken on greater prominence in the global economy over the past four decades, regularly posting double-digit GDP growth figures and contributing a sizeable portion to the world’s cumulative expansion.

This became even more pronounced after China’s accession to the World Trade Organization in 2001, when its door opened wider to international markets.

Its rapid rise – overtaking Germany as top exporter in 2009 and surpassing Japan the next year to become the world’s second-largest economy – buttressed the legitimacy of the Communist Party while quieting theories of imminent collapse that had bubbled up in the wake of the Soviet Union’s dissolution.

Before China’s recent troubles, several overseas institutions estimated it would be top of the podium by the middle of the century, or within 10 years in the most optimistic assessments.

Most notably, the research unit of investment bank Goldman Sachs caused a stir in 2003 by setting 2041 as the year in which China and the US would switch places at the economic table.

“Promoting one’s GDP has become a game of wits designed to impress the rest of the world – if anyone is listening. It’s less about true economics and more about promoting one’s way of life and political system,” said James Zimmerman, a partner at international law firm Perkins Coie and former chairman of the American Chamber of Commerce in China.

“Washington is indeed using China’s current economic woes to emphasise American superiority.”

The world’s second-largest economy has put up its defences in recent months by playing up China’s economic prospects via state-run media organisations.