Danger Zone: The Coming Conflict with China

by Hal Brands

Chinese statecraft gradually became less subtle over time. America’s post-9/11 wars in the Middle East created what Chinese leaders called a “period of strategic opportunity” by embroiling Washington in draining conflicts far from the Pacific. The global financial crisis of 2008–2009 then persuaded many Chinese analysts—as one American official noted—“that the United States was in decline or distracted or both.”

“The East is rising and the West is declining,” Xi announced in January: The era of American hegemony was ending, and the age of Chinese power had arrived.

Whatever its propagandists may say, this China will struggle mightily to surpass America over the long term. For that very reason, it may actually be more dangerous in the near future.

In 2018, Chinese judges granted divorces in just 38 percent of cases brought before the courts, the lowest percentage on record. During the COVID-19 pandemic, Chinese officials openly hoped that prolonged lockdowns would lead to vigorous patriotic baby-making and proposed special taxes on childless couples. The CCP has even cracked down on vasectomies. Beijing explains these measures as efforts to promote family values. But what’s really at issue is an acute fear of demographic decline. For decades, China’s birthrate has been far below the level required to maintain current population size. A shrinking, aging population cannot deliver robust economic growth. Without robust economic growth, the Chinese dream is an illusion. Which means that divorces, childless women, and sterilized men are, from the CCP’s perspective, a threat to the country’s geopolitical future.

After the Financial Times reported in April 2021 that China was on the verge of registering its first population decline since the 1960s—when Mao’s Great Leap Forward was killing more than 30 million people—Beijing’s National Bureau of Statistics hastily issued a one-sentence statement insisting that the country’s population “continued to grow.”

Thanks to decades of rapid growth, China has the economic and military muscle to fundamentally challenge America and the international order. But the country isn’t doing as well as it might seem. For years, China has been experiencing, and concealing, a sharp economic slowdown. It confronts growing political pathologies, worsening resource shortfalls, and an epic demographic catastrophe. Not least, the CCP is losing access to the open, welcoming world that assisted its ascent. China rose so high and so fast from the 1970s onward because it enjoyed blessings unprecedented in the country’s modern history. But now those blessings are vanishing, and China is looking at a hard future of stagnation and repression. Welcome to the age of “peak China.” Beijing is rapidly becoming that most menacing type of revisionist power—one whose window of opportunity has begun to open but won’t stay open for long.

More than half of the world’s people alive today were born after 1980 and have only known a China that was growing relentlessly. But there is nothing foreordained about China’s rise, and CCP officials know it. Beginning in the 1970s, China benefited from a serendipitous combination of five factors: an unusually welcoming geopolitical environment; a leadership committed to economic reform; institutional changes that diluted one-man rule and empowered a professional bureaucracy; the greatest demographic dividend in history; and an abundance of natural resources. Understanding what enabled China’s rise will help us see why its future will be so rocky.

The Soviet Union, China’s nominal ally, was menacing Beijing as a rancorous split between the Communist powers led to border clashes and the specter of nuclear war. “The Soviet revisionists,” the marshals concluded, had become more hostile than “the U.S. imperialists.”2 Over the next three years, Mao quietly explored a marriage of convenience with Washington to contain the common Soviet foe. When Richard Nixon made his dramatic visit to China in 1972, he declared, “This was the week that changed the world.”

China has historically lived in a rough neighborhood.4 It occupies a uniquely vulnerable chunk of territory at the nexus of Eurasia and the Pacific that enmeshes it in five complex subregions: Northeast Asia, Southeast Asia, South Asia, Central Asia, and Oceania. The upside of this central location is influence; China is, almost by default, a major player in world politics. The downside is omnidirectional exposure to foreign instability and pressure.

See “Prisoners of Geography”

To make matters worse, China’s territory does not naturally hold together. The political core and most of the country’s farmland are concentrated on the North China Plain, a flood- and drought-prone area that suffered several millennia of brutal warfare among dozens, and sometimes hundreds, of warlords. Most of China’s freshwater and harbors are located in the south, where they are separated from the rest of the country by thick jungles and rolling highlands. Many major southern coastal cities have had extended periods where they did more business with foreign merchants than with their ostensible compatriots in the north. Finally, the bulk of China’s minerals and the headlands of its major rivers are located in the west, an area that comprises 75 percent of China’s landmass and consists mostly of desert, tundra, or the tallest mountains on earth. In the past, these regions were vectors for invasion and upheaval. To this day, they are full of minorities that do not consider themselves Chinese and resist Beijing’s rule.

For much of modern history, China’s punishing environment condemned it to conflict and hardship. From the first Opium War in 1839 until the end of the Chinese Civil War in 1949, the country was torn apart by foreign powers, wracked by internal rebellion, and plagued by poverty and famine. China was forced to fight more than a dozen wars on its home soil during this “Century of Humiliation,” resulting in devastation and territorial dismemberment. China also suffered two of the deadliest civil...

During crises in the Taiwan Strait in the 1950s, the United States threatened nuclear strikes against the PRC. Matters worsened when the Sino-Soviet alliance fell apart over ideological disputes and the inevitable frictions between giant authoritarian neighbors. By the late 1960s, the Sino-Soviet border was the most militarized boundary on the planet, and China was surrounded by hostile forces on all sides.

Yet Soviet hostility proved to be a valuable asset for China, because it made possible Mao’s opening to America. That strategic masterstroke did three things that enabled the rise of the China we know today. First, it turned the United States from a mortal enemy into a quasi-ally. The United States began withdrawing its forces from Vietnam and Taiwan; it started backing China as a Cold War counterweight to the Soviet Union. Henry Kissinger shared sensitive intelligence on Soviet troop movements and warned Moscow that an attack on China would be an attack on America’s vital interests.6 When China invaded Soviet ally Vietnam in 1979, the United States again warned Moscow not to interfere.7 Thanks to the quirks of Cold War geopolitics, Beijing now had a superpower on its side. Second, the opening to America fast-tracked China’s integration with the wider world. The United Nations made Beijing, not Taipei, the holder of China’s seats in the General Assembly and Security Council. The PRC began its entry into institutions such as the World Bank and International Monetary Fund (IMF). Country after country switched diplomatic recognition from Taipei to Beijing; Japan, China’s historical enemy, became its largest aid donor. With these new diplomatic connections, China was able to counter-encircle the Soviet Union, forging partnerships with Soviet neighbors stretching from Japan through Iran to West Germany. Third, rapprochement allowed a breakout from economic purgatory. For the fi...

Even after the rapprochement with America, Mao remained an immovable obstacle to China’s development. The author of the Great Leap Forward, a man-made economic disaster of the highest order, Mao refused to allow any criticism of his policies. He encouraged a group of CCP radicals (the “Gang of Four”) led by his fourth wife to obstruct any economic or political reforms. The deadlock broke only when Mao died in 1976 and, two years later, Deng Xiaoping became paramount leader. Deng and a few key advisers understood that the Maoist model of economic autarky and self-induced political chaos was taking China backward. They grasped that saving Chinese “socialism” required embracing capitalism.8 The CCP allowed rural communities to run localized experiments by creating loosely regulated village enterprises. Foreign businesses were allowed to operate freely in Special Economic Zones (SEZs) because they would bring money and technology to China.

“In 1976, Mao single-handedly and dramatically changed the direction of global poverty with one simple act: he died.” —Stephen Radelet, “The Great Surge”

China’s trade grew 30-fold between 1984 and 2005. Trade as a share of GDP reached 65 percent, an astoundingly high ratio for a large economy.11 The influx of foreign technology, capital, and know-how turned China into the workshop of the world and lifted hundreds of millions of Chinese citizens out of abject poverty. What sustained this reformist moment, in turn, was the CCP’s willingness to embrace a slightly milder form of tyranny.

Mao’s tenure represented the apotheosis of one-man rule, complete with the obscene personality cult and wild policy gyrations that accompany an extreme centralization of power. Mao’s successors understood that his model was incompatible with the stability, growth, and innovation the country needed to become a first-tier power. For roughly thirty-five years after Mao’s death, China evolved—haltingly and partially—toward a smarter form of autocracy.

In the 1950s and 1960s, the CCP encouraged Chinese women to bear many children as a way of boosting the working-age population, which had been decimated by years of warfare and famine. Chinese families dutifully obliged, and the population exploded 80 percent in thirty years.15 In the late 1970s, the Chinese government, now worried about runaway population growth, instituted its policy limiting each family to one child. As a result, by the 1990s, China had a huge baby-boom generation entering the prime of their working lives with relatively few elderly parents or young children to care for. No population has ever been more primed for productivity. Demographers think this imbalance alone explains a quarter of China’s rapid growth during the 1990s and 2000s.

For much of the past forty years, China was lucky: It was nearly self-sufficient in food, water, and most raw materials. Cheap access to these inputs, plus low labor costs and lax environmental standards, helped make China an industrial powerhouse. Its firms could outcompete foreign manufacturers and dominate industries such as cement and steel.

China had it all—just the mix of endowments and environment, people and policies to take off as a great power. But once-in-an-epoch windfalls don’t last forever. During the past decade, the conditions that enabled China’s ascent have deteriorated. Many of the assets that once lifted the country up are fast becoming liabilities weighing it down.

China is running out of people—especially the healthy, working-age people that fuel economic growth. Having just recently benefited from an unprecedented demographic dividend, China is now about to suffer one of history’s worst peacetime demographic crises. Blame the One-Child policy. When China first implemented that policy, it provided powerful economic stimulus by creating a generation of upwardly mobile, relatively unencumbered parents. But the bill is coming due because now there are no children to take the places of those parents. By 2050, the country will only have two workers available to support every retiree (compared to ten workers for every retiree in the early 2000s), and nearly one-third of the country will be over the age of sixty.20 China’s population will be just half its current size by the end of the century and perhaps as soon as the 2060s.21 The economic consequences will be dire.

(By 2025, according to some projections, sales of adult diapers may outpace sales of baby diapers in China.

One reason for this slump is an acute shortage of women of childbearing age. The One-Child policy incentivized parents to abort daughters in hopes of having sons.27 Now China is paying the price: China’s population of women in their twenties dropped by 35 million from 2010 to 2021.28 There are roughly 40 million more bachelors than single women of similar age.

Internal violence may surge—a common outcome in societies where there are too many men competing for too few women. The Chinese government might even become more willing to start wars, if for no other reason than to throw surplus men into a meatgrinder.

look at China’s capital-output ratio, which measures the amount of spending required to produce every dollar of output. Countries where raw materials are cheap tend to have low ratios; countries where inputs are pricey have higher ones. China’s capital-output ratio has tripled since 2007, meaning that it now takes three times as much economic investment to generate the same amount of economic output.

Half of China’s river water and nearly 90 percent of its groundwater is unfit to drink.34 A quarter of China’s river water and 60 percent of its groundwater is so contaminated that the government has declared it “unfit for human contact” and unusable even for agriculture or industry.

Beijing has roughly the same amount of water per person as Saudi Arabia.

Dealing with water scarcity costs China at least $140 billion per year in government expenditures and reduced productivity, a price that will rise with time.

China’s food security is also deteriorating, the consequence of increasing consumption (a good thing) and the resulting devastation of arable land (a bad thing).38 In 2008, China became a net importer of grain, breaking its traditional policy of self-sufficiency.39 In 2011, China became the world’s largest importer of agricultural products. The government is trying to regain self-sufficiency by heavily subsidizing farmers, but doing so is simply accelerating the depletion of agricultural land.

An additional 1 million square miles of farmland have become desert, forcing the resettlement of 24,000 villages and pushing the edge of the Gobi Desert to within fifty miles of Beijing.

Finally, breakneck development has made China the world’s largest net energy importer. Just a decade ago, Americans fretted about their own dependence on foreign oil. Today, Beijing imports nearly 75 percent of its oil and 45 percent of its natural gas, while the United States—thanks to the fracking revolution—has become a net energy exporter.44 China’s energy imports cost the country half a trillion dollars each year.45 They are also forcing China to take expensive energy security measures such as building overland pipelines through Central Asia and an ocean-going navy that can patrol the Indian Ocean and Persian Gulf. Any interruption in Persian Gulf oil flows would plunge China into an energy crisis far worse than what hit the United States in the late 1970s.

China clearly has become more patrimonial and repressive during the past decade. Since taking power in 2012, Xi has appointed himself “chairman of everything,” helming all important committees and doing away with any semblance of collective rule. At the 2017 Party Congress, Xi Jinping Thought—a conscious echo of Mao Zedong Thought—was made part of the country’s guiding ideology. Indoctrination has become more pervasive at all levels of education and in nearly all facets of everyday life; individuals—even business titans and movie stars—who get crosswise with the great leader are simply disappeared from public view. Taking no chances, Xi has packed the highest levels of government with lackeys and has abolished presidential term limits.48 In effect, he has systematically stripped away the post-Mao safeguards against one-man rule. Now China is a rigid oligarchy ruled by a dictator for life.

innovation by local governments spearheaded China’s economic development.50 But Xi, in what one insider-turned-dissident calls a “great leap backward,” has accelerated a return to Maoist centralization.

Meanwhile, censorship has silenced independent economists and journalists, making sensible reform and adjustment almost impossible. And Xi’s political work campaign has stifled entrepreneurship. Every company with more than fifty employees is required to have a Communist Party political commissar on staff.

This is a formula for tight political control—and economic stagnation.

This gloomy economic picture put China’s Communist Party in a bind. The party could not allow a sustained downturn without risking political upheaval. Yet it could not implement Western-style economic reforms without disrupting the crony capitalist networks that sustained the party’s grip on power.

The countries making up the Group of 20—the world’s largest economies—hit Chinese companies with more than 2,000 trade restrictions between 2008 and 2019.58 Overall, China faced nearly 11,000 new trade barriers from foreign countries between 2008 and 2021.59 By late 2020, nearly a dozen countries had dropped out of BRI and another sixteen—mostly Western economic powerhouses—were walling off their telecommunications networks from Chinese influence. The United States and many of its allies imposed severe technology bans on major Chinese companies, denying them critical inputs (for example, semiconductors) and threatening their long-term survival. Today, many countries are actively looking to cut China out of their supply chains. Some, such as Japan, are paying their companies to exit China.

China is losing the easy access it used to enjoy to foreign markets, technology, and capital. The era of hyperglobalization that facilitated China’s rise is coming to an end. And it couldn’t be happening at a worse time.

The economic formula that allows a country with low wages and vast labor resources to become an industrial superstar is not the same formula that will allow it to make the transition to a mature information-age economy.

Because of its accumulating problems, the Chinese economy has entered the most sustained slowdown of the post-Mao era—with no end in sight.

Consider one telling statistic: China’s official gross domestic product (GDP) growth rate dropped from 15 percent in 2007 to 6 percent in 2019. That was already the slowest rate in thirty years, and then the COVID-19 pandemic pushed China’s economy into the red. A growth rate of 6 percent would still be spectacular, but only if it were true. Rigorous studies based on objectively observable data—such as electricity use, construction, tax revenues, and railway freight—show that China’s true growth rate is roughly half the official figure and China’s economy is 20 percent smaller than reported.60 Senior officials, including the former head of the National Bureau of Statistics of China and the current Chinese premier, have confirmed that the government cooks its economic books.

To make matters worse, practically all of China’s GDP growth since 2008 has resulted from the government pumping capital through the economy. Take away government stimulus spending, some economists argue, and China’s economy may not have grown at all.61 Total factor productivity, the vital ingredient for wealth creation, declined 1.3 percent every year on...

China’s government estimates that it blew at least $6 trillion on “ineffective investment” between 2009 and 2014 alone.

The unsurprising result of this inefficient system is massive debt. China’s total debt jumped eightfold between 2008 and 2019 and exceeded 335 percent of GDP on the eve of the COVID-19 pandemic.69 No country has racked up so much debt so fast in the past 100 years outside of wartime or the mega-shock of the pandemic.70 The problem has become so bad that roughly a quarter of China’s thousand biggest firms owe more money in interest than they earn in gross profits. Half of all new loans in China are being used to pay interest on old loans, a phenomenon known as “Ponzi finance.”71 Many bankers—93 percent, according to one survey—believe that China’s debt is even worse than the above data indicate, because many Chinese companies take loans from shadow banks, whose transactions are not included in official statistics.

From 2010 to 2012, Chinese shadow lenders doubled their outstanding loans to $5.8 trillion—a sum equivalent to 69 percent of China’s GDP. From 2012 to 2016, Chinese shadow loans increased by an additional 30 percent each year. China may be sitting on an impressive $3 trillion in foreign exchange reserves, but this amounts to less than one-tenth of Beijing’s total debt.

We know how this story ends: with investment-led bubbles that collapse into prolonged economic slumps. As every country that has followed a similar growth-over-productivity model has discovered, throwing more money into an inefficient system yields diminishing returns.

This gathering economic storm poses an existential threat to the CCP, which is one reason why the party finds it so hard to kick its potentially fatal addiction to debt. Since the 1970s, the party’s primary source of legitimacy has been the delivery of rising wages and improving living standards. Stellar economic performance has allowed the CCP to present Chinese citizens with a simple and strict social contract: The party retains absolute power while the people receive more wealth—and that’s it. No elections. No independent media. No unsanctioned protests and absolutely no organized political opposition. This basic bargain has made China’s political system strong but extremely brittle, because it only works if the country’s economic engine keeps humming.

Without economic performance, the CCP will have to fall back on its pre-1970 sources of legitimacy: militant nationalism and the regular delivery of beatdowns, imprisonment, and even execution. That system condemned China to chronic poverty, strife, and conflict,

China’s top-down R&D system, though excellent at mobilizing resources, stifles the open flows of information and willingness to challenge conventional wisdom necessary for sustained cutting-edge innovation.

China’s leaders see the writing on the wall. They know their investment-driven growth model is running out of steam, their people are about to age and die off in huge numbers, their country is becoming a barren wasteland, and their efforts to engineer innovation from the top down may not pan out. They also recognize that a prolonged economic slump spells the end of their country’s rise and, perhaps, of the CCP. Without sustained economic growth, the gravy train of subsidies and bribes that China’s leaders use to keep powerful interests (state-owned enterprise bosses, local governments, and, above all, the military and security services) in line will grind to a halt. The same goes for China’s ability to buy loyalty abroad. What would remain of Chinese soft power without piles of cash to dole out to foreign partners? Slowing growth also will force the CCP to make excruciating choices between buying guns for the military or social services for an aging population. If China’s leaders prioritize the military over the people, they risk revolt. But if they slash defense spending to make way for social security, they can kiss their dreams of reconquering lost territory goodbye.

party members hold executive positions in 95 percent of China’s largest private companies.80 A slowing economy threatens not only the CCP’s domestic legitimacy and international clout but also the livelihoods of its 80 million members.