The Avoidable War: The Dangers of a Catastrophic Conflict between the US and Xi Jinping's China

by Kevin Rudd

The party is also increasing its efforts to harness indigenous Chinese religion, philosophy, historiography, and culture to reinforce the party’s ideological claim to continuing political legitimacy.

To the extent that reunification under the model of “one country, two systems” ever attracted political support in Taiwan itself, that support died with the Hong Kong crisis.

This is the unspoken social contract between party and people: that the public will continue to tolerate an authoritarian political system under the party so long as the people’s material livelihood continues to improve.

the Chinese financial crisis of 2015. The event marked the beginning of the second transition in political and economic policy during the Xi Jinping period. That summer, Chinese authorities struggled to manage a stock market bubble driven by excessive liquidity and financially illiterate investors. The proliferation of margin-lending practices by individuals and corporations borrowing heavily from financial institutions to make investments in dubious asset classes (in what was assumed to be a permanently booming economy) soon turned into a disaster on Chinese equities markets.

the government, as part of what became known as a national team, to invest heavily in equities to try to steady the market. This failed comprehensively, investors interpreting this radical intervention as a sign that it was time to jump ship, resulting in even more spectacular losses. The Shanghai Composite Index (China’s equivalent of the Dow Jones Industrial Average) collapsed 32 percent in less than three weeks in July 2015. At its 2015 high, its market capitalization was $10 trillion; by September 2018, it was at $5.7 trillion. Markets were finally stabilized at much lower prices by early 2016, but the damage had been done; they would take until 2020 to eventually recover.

By extending these selected policy liberalizations across the board to all China’s economic partners, it made them appear less as political concessions to Washington and more about China’s ongoing financial reforms. Finally, never wanting to take unnecessary political risks with the country’s overall economic growth rate, Xi also authorized stimulus measures to prop up growth, reinforced by repeated public assurances from China’s Central Bank governor that Beijing still had significant headroom in its fiscal- and monetary-policy settings to sustain economic growth in the vicinity of the politically sensitive 6 percent threshold. This figure reflected the party’s internal calculus of what was necessary to sustain employment for the growing supply of new graduates each year, improve living standards, and maintain overall social stability.

In 2020, Xi’s new economic approach consolidated into what he calls the New Development Concept (NDC). In essence, the NDC is intended to serve as the economic strategy with which he will guide China through an increasingly dangerous world, including what he describes as “changes unseen in a century.” Ultimately, as Xi told a meeting of China’s top policy makers in July 2021, the NDC is meant “to ensure our survival” through both “foreseeable and unforeseeable storms.”

With nominally communist China having one of the most unequal income distributions in the world, in which the top fifth of households have a disposable income more than ten times as high as those in the bottom fifth and the top 1 percent own approximately 30 percent of the wealth (compared with around 35 percent in America), Xi said, “We must not allow the gap between rich and poor to get wider.”

“We should guide companies to obey the party leadership and serve the big picture of social and economic development.”

Frustrated Chinese young people say the costs of having even one child are already outrageous. According to one study, the average Chinese

family spends around $115,000 per child from birth to seventeen, before college costs. One survey found that 90 percent of respondents said they simply “would not consider” having three children. Hence, expensive private tutoring services (which grew at an average annual pace of 30 percent between 2017 and 2019) were among Xi’s first targets in a blunt-edged effort to address this problem.

He has harnessed a form of Chinese economic populism with a view to grafting it on to socialism with Chinese characteristics for his “new era.”

Artificial intelligence lies at the epicenter of this struggle for technological supremacy. AI has many definitions, but fundamentally it describes systems that interpret large quantities of digital information, make algorithmic decisions based on that information, and adapt and learn from the outcome of previous decisions.

China’s significant indigenous AI state research and development effort has focused on high-powered specialist chips, where the gap with the US and the rest is narrower than for generalized chips.

China’s first round of commitments under the 2015 Paris Agreement were to have its carbon emissions peak around 2030, to have 20 percent renewable energy by that date, to reduce its carbon

intensity as a portion of GDP by 60–65 percent compared to 2005 levels, and to increase its forest stock volume.

Achieving China’s new carbon-neutrality pledge will not be easy or cheap. Independent analyses have placed the total amount of investment necessary at between $5 and $15 trillion over the next three decades.

That is a tall order, given China consumed more coal in 2019 than the rest of the world combined. Some 20 percent of the entire world’s carbon emissions stemmed from Chinese coal-fired power stations alone. Indeed, electricity generated from coal still accounts for more than half of China’s total energy consumption (albeit down from 62 percent in 2016 to 57.7 percent in 2019). By contrast, around a quarter comes from renewables (mostly hydropower, but also wind and solar) and only around 5 percent from nuclear.

The result is that there are more coal-fired plants under construction in China today than the entire installed capacity in the United States.

The Chinese government’s fondness for coal power is not just a problem in China. It has become an international problem, given large Chinese investments in coal-fired capacity in countries across the developing world as part of the Belt and Road Initiative. Of all coal plants under construction outside of China, roughly one-quarter—or over one hundred gigawatts of generating capacity—have either secured funding from Chinese financial institutions and firms or benefitted from the use of Chinese equipment or labor. This is effectively double Germany’s total installed coal-fired power capacity.

Finally, Washington should be aware that the Chinese state’s capacity to marshal the full resources of the Chinese economy in any given conflict is greater than the United States’, given the radically different nature of the two countries’ political and economic systems.

It contributes further to Xi’s existing reputation within the Chinese political system of being the “chairman of everything.” There is a danger this adds to any political “antibodies” already accumulating within the party.

Kim was much more of a strategic problem for Xi than a valuable ally.

No matter Xi’s personal difficulties with Kim, he does not want to see the North Korean regime collapse. He would then have to

deal with the wave of refugees that would flow into China from the North.

Indonesia is Southeast Asia’s largest emerging market and is destined to be a key battleground for global economic competition between Chinese and Western firms.

That is why China has a long-standing strategic objective of fracturing US alliances if at all possible. China’s strategic logic is clear: America, without its alliances, would be considerably weakened, if not pushed

out all together from the Indo-Pacific. Whereas China currently lacks strategic reach into the Pacific, America’s allies afford the United States an extraordinary advantage. This is a state of affairs that Xi Jinping wants to reverse.

Even before the revival of the Quad, the relationship was deteriorating rapidly following the introduction by the Turnbull government in 2017 of new foreign interference transparency laws to reduce foreign (universally understood as Chinese) influence in Australian politics—and within the Chinese-Australian diaspora. This triggered a series of other measures taken by Australia to tighten controls over Chinese engagement with Australian state and other subnational governments and public entities, as well as Chinese foreign investment activity, with almost immediate consequences for inbound investment flows.

China’s economic pressure has been applied much more acutely to the fourteen Pacific island nations, many of which are microstates. Between them, they have a combined population of only ten million people and a collective GDP of only $35 billion but an overall exclusive economic zone of some twenty-seven million square kilometers of water—equivalent to three times the total land area of China.

BeiDou satellite navigation system.

but the rise of the Quad has crystallized geopolitical resistance to the sustained weight of China’s economic and foreign policy assertiveness into a focused institutional response. If the Quad—or a Quad-Plus—was in the future to attract both Korea and (a more remote prospect) Indonesia, this would add considerably to the grouping’s overall strategic heft and present a serious challenge to China’s ambitions.

The BRI aims to accomplish a number of goals at once. These include enhancing economic exchange with Europe and the Middle East, securing a more benign strategic environment for China itself, and stabilizing Islamic central and South Asia—and all this across a vast continental landmass less susceptible to American strategic influence than maritime East Asia. China also hopes to build up new markets to help mitigate the consequences of being excluded from future economic opportunities in the United States and its closest allies.

The BRI, by contrast, had by 2021 funded some 2,600 projects across one hundred countries at a cost of $3.7 trillion.

It is also true that the governments of many developing countries

have tended to lean toward Chinese finance in the past precisely because it comes with limited compliance standards—an attitude that may challenge the democracies from funding such projects.

both inside China and on the international stage. China therefore sees the economic development of the wider region as the most effective long-term antidote

against religious extremism, terrorism, and cross-national, pan-Muslim solidarity.

was in Nur-Sultan (then Astana), the capital of Kazakhstan, that Xi first launched the BRI in 2013. Since then, the Kazak government has described their country as the “buckle on the belt” of what Xi describes as the “project of the century.” Central Asia is a significant source of energy and raw materials for China—hence the decision to fund and construct a twenty-five-hundred-kilometer oil pipeline from the Kazak oilfields on the Caspian Sea to Xinjiang. As with many other parts of the BRI, Ch...

there is still one vital interest that continues to bind Russia and China together in central Asia: preventing the long-term Islamization of the wider region, which both countries see as a major threat to their national security.

China’s all-weather ally, Pakistan, is pivotal to the overall strategic architecture of the BRI. China’s interests in this neighboring country of 222 million people are grounded in the need to prevent the country—one of its only long-term allies—from becoming a failed state in the face of systemic economic decline and political instability. China is deeply concerned about the long-term Islamization of Pakistani politics and the security consequences of the rise of radical Islamist terror groups within the country, including their ability to threaten China’s many major BRI investments there.

The geographical end point of the CPEC is the port of Gwadar on Pakistan’s southwest coast, close to the Iran-Pakistan border. In 2017, China took over a forty-year lease for the construction of a deepwater port, a three-hundred-megawatt coal-fired power plant, and an associated special economic zone. The Gwadar port—together with Pakistan’s existing ports of Karachi and Bin Qasim—are all likely to become dual use, serving both the Chinese navy and commercial purposes. Other port developments that are underway as part of the Maritime Silk Road—extending from the South China Sea across the Indian Ocean to the Gulf, the Red Sea, and Suez—could similarly become dual use in the future.

Despite playing a negligible security role in the country to date, China has become Afghanistan’s single largest foreign investor, focusing on the country’s estimated $1 trillion in untapped mineral reserves. China also envisioned playing a wider strategic role in Afghanistan, partly aligned with Pakistan’s interests and against those of India and the United States.

the fact that 80 percent of total global sea trade crosses the Indian Ocean—explains China’s deep interest in developing its military capacity to protect its sea line of communication linking the Gulf to China’s eastern seaboard through the Indian Ocean.

China’s central strategic mission for the period ahead remains in East Asia and the west Pacific, but in systematically advancing its economic interests in the Middle East, it is accumulating political capital that might be useful in the future.

Ultimately, when it comes to staying on everyone’s good side, Chinese money speaks loudly.

For all these reasons, for the better part of the last decade, Xi has successfully outflanked the United States at virtually every turn in its wider diplomacy across the Middle East. The stakes may not have been as high for Beijing as for Washington, but China has moved to rapidly fill a number of political, economic, and security vacuums left by distracted American administrations wherever these gaps emerged.

As China emerges as a global great power during the coming decade, it will be forced to take an increasing number of explicit policy positions on the binary political dilemmas that continue to divide the region. So far, China has generally managed to avoid such decisions, always preferring to be the friend of all and the enemy of none—a strategically adept, albeit ethically neutral, position. However, geopolitical reality will not allow such strategic ambiguity for much longer.

However, broad-based retrenchment on the BRI is simply not a political option. It began as a personal project of Xi Jinping, and in the Chinese political system, the current leader can never be wrong.

China pursues a multiplicity of economic projects and diplomatic and military initiatives on a bilateral and regional basis beyond the formal BRI framework. That will continue as China continues its efforts to turn Eurasia into a robust market, reliable investment destination, and benign strategic environment to enhance China’s security and economic interests and strengthen its emerging great power status.