Beware of a Declining China

When great powers fall, they rarely take it quietly.
Published by
Central Office
on August 16, 2022
on August 16, 2022
Image Source:
The Japan Times
Image Description:
Chinese President Xi Jinping during the opening session of the National People’s Congress.




Imagine a heavyweight boxing match between a championship contender and the undisputed leader. The challenger has been trying for years to get the ultimate title, he trains hard, sometimes behind the curtain to bring a moment of surprise. The champion is confident, sometimes arrogant about his impending dethronement. The match begins and the contender, optimistic in his preparation and sensing some vulnerability of the opponent, strikes regularly and decisively in a triumphalist spirit. The title defender becomes anxious seeing his competitor much stronger than expected, strikes timidly, and is blinded by an existential despair. Now imagine this match as the one between the world's top two economies, the United States of America, and the People's Republic of China. For years, China has hidden its skills and trained away from the eyes of the world to prepare for the seat of world leadership, believing that the United States is too blinded by self-power to notice. Even as China's rise has been observed, Beijing has pushed for a confident discourse about its progress by assuring the global political scene that China's peaceful uplift should be viewed with enthusiasm. The United States, blinded by the power given by the new post-Cold War unipolar order, ventured further and deeper into many corners of the world than it had the military, institutional and resource capacity to do. Now China is hitting hard on the political and economic scene, while the United States feels destined to defend itself from a possible successor. China conquers new markets, becomes an important investor through the Belt and Road Initiative (BRI), and gets involved in the new Asian economic architecture by joining the RCEP (Regional Comprehensive Economic Partnership) and the interest shown towards the Comprehensive and Progressive Agreement for Trans-Pacific (CPTPP), while the US is retreating from various regional economic frameworks such as the CPTPP`s predecessor, the Trans-Pacific Partnership, and reluctant to establish new trade agreements against the backdrop of a sense of protectionism back home. Politically, China announces its presence in many corners of the world where the US was once omnipresent, mainly in the Middle East, and establishes partnerships by placing all bets on a single political clique in each country with which it is engaged, most of the time, an authoritarian regime unquestionably in power. The US on the other hand is decreasing its political clout from many regions: it reduced its military contingent from Iraq, withdrew from Afghanistan, it became silent on the human rights violations in Myanmar and Cambodia and is even speechless when traditional US allies such as Saudi Arabia and the United Arab Emirates have been attacked with ballistic missiles by Iran-backed Yemeni Houthis. This would seem to be the image that the current geopolitical story presents us, the rise of China is undisputed while the decline of the US is inevitable. But this perspective, no matter how clear it seems to be on the surface, misses to see the true picture, and by doing this, misleading the terms of the so-called great-power competition. Put it in a different way. With all its preparation, China still feels mistrustful. Far from that triumphalism that many talk about in China's actions, Beijing strikes blindly in a frenzy of desperation while the US keeps defending itself, waiting for China to tire before Washington will strike back, decisively. Truthfully, China's majestic actions globally show more anxiety about its capabilities rather than hegemonic ambitions. It hits as hard as it can out of the fear that now is the only moment when it can really have a chance. Afraid of what will follow this battle, China puts all its weight into one strike. If it succeeds now, the glory will be on its side, if it misses, it will never have the opportunity it has now. Looking at the political and economic vectors of the current Sino-American confrontation, we can easily see a fear in China's actions. And this fear of the competitor, no matter how well expected it might be in Washington, certainly should not be entirely welcomed. The more China is afraid of missing, the better its ruthless actions will become, both internally and externally.


The Wrong Trap

The story that China's rise and the US decline will inevitably lead to a future clash between the great powers is a description of what has been called the 'Thucydides Trap'. The 'Thucydides Trap', or the 'power transition trap' underlines that a great power competition between a rising challenger and a declining hegemon is all but sure. Following this lead the more the hegemon declines and the challenger rises, the better will be the chances for a great clash as a power equilibrium between the rise of number 2 and the decline of number 1 will bring a perfect balance of power. For the time being, there will be a short period when the contest will truly be intense between two perfectly equal competitors. This is why the great power competition between the US and China is expected to be more intense and long-running compared to the traditional Cold War between the US and the Soviet Union. The Soviet Union was indeed rising, but in small steps compared to the US, which was not in decline at the time.

But China's current actions strongly hide a different approach. The great power competition between the US and China is indeed locked in a trap but is not the 'power transition trap' that the two are involved in, but rather what can be called as the 'peaking power trap'. Rather than a great power competition because China is rising while expecting for the US to make space to Beijing in the current global governance, while the US is declining and unwilling to give up its uncontested and individualistic leadership, a clash might occur because China (not the US) is actually declining, and this fall naturally brings anxiety about an uncertain future. Once ascendant, the Chinese economy has reached its peak and its economic decline brings unrest to Beijing. This uneasiness is exactly the quintessence of the new Cold War with Washington.


The Unease of an Economic Decline

The spectacular economic growth of China in the first decades after the ending of Maoism was the product of the economic opening initiated by Deng Xiaoping, the paramount leader of the People's Republic of China from 1978 to 1992, immediately after the death of the supreme leader Mao Zedong in 1976. For Deng Xiaoping, the reform represented a second revolution in China and the economic deficiencies faced by Maoist China in the past led Deng to approach domestic affairs differently in Beijing. Known as the founder of modern China, Deng Xiaoping was a pragmatic. He knew that any simultaneous political and economic opening was difficult to achieve in China after decades of tight central planning under Mao. Therefore, the leader from Beijing launched an economic liberalization agenda with market opening on the fringes of a lessened planned economy. A political liberalization would remain expected after this political-economic experiment would change China for decades to come. ''Dengism'', as Deng's theory would be known, uprooted the actions of the Chinese state in influencing economic parameters such as inflation, unemployment rate, setting prices, and capital flows. Under Deng, China began in the early 1980s to gradually open its most sacred industries to foreign investments in order to benefit the economy and increase the level of innovation. He threw away the pencil with which the government set prices on the domestic market in favour of their establishment by market forces and easily took his hand from state-owned enterprises, letting many of them dissolve with many workers laid off. It created space for foreign companies to flourish in the Chinese market even in competition with Chinese companies. This new market reform flourished under Deng Xiaoping and brought unprecedented economic growth in China, the People's Republic promoting from GDP growth of 5-6% (typical for a low-income economy) to 10-14%, bringing China a new name: ''The Awakened Dragon of Asia''. Externally, China's emergence was viewed favourably. In the 1990s and early 2000s, the People's Republic enjoyed access to international and capital markets, as well as sensitive technology. This external opening culminated with China's accession to the World Trade Organization in 2001, supported even by the United States. It was almost self-sufficient in energy, food and water and the transition into the new millennium found China taking advantage of the largest demographic dividend in history with 10 workers for one retiree. Geopolitically, the US under the George W. Bush administration saw China as an important partner in the fight against terrorism following the 9/11 terrorist attacks, and India under the premiership of Manmohan Singh wanted a cooperative dialogue with its giant neighbour. But like any success story, it had to have an ending, and that chapter came not because of a changed external framework, but because of a China that was far too optimistic that the future would be on its side. China's economic path has imprinted the particularity of a structural exceptionalism. Beijing believed for decades under Deng Xiaoping and his predecessors, Jiang Zemin, and Hu Jintao, and brought to extreme limits by Xi Jinping, that a hybrid political-economic system with economic but not political liberalization can succeed in bringing unimaginable levels of wealth. The spectacular GDP growth rates from the 1980s until the mid-2000s seemed to prove the leaders in Beijing were right by empowering their sense of Chinese exceptionalism. But this was of course not the case. Following the 2008 financial crisis, the wildness of the Chinese dragon would be tamed. Since then, China began a long road of economic deceleration in which GDP growth rates dropped from 14-15%, the peak of Chinese economic growth to 6-7% before the Covid-19 pandemic crisis began in 2020, making the prophecy of the Chinese Prime Minister, Wen Jiabao in 2007, concerning an ''unsustainable and unbalanced'' economic growth in China to quickly come true.

The Chinese model of economic growth proved to be all this time healthy on the outside but sick on the inside. The roots of this model were established by an economic growth overstimulated by the ability of the Chinese government to overinvest internally. When the government in Beijing flooded the market with financial stimulus by building new cities, new factories, modern infrastructure, underpasses, bridges, and ports, it was expected that public investment would bring an increase in GDP. But elementary macroeconomics lessons show us that in the GDP formula, public expenditures are not the only contributory element. If the public stimulus boomed in China over the years, productivity remained modest and even stagnant. Between nominal GDP and productivity, it is actually the latter that determines the level of well-being and wealth of a nation. And this is because if public investments do not bring an enhancement through an economic spillover that increases internal productivity and instead are focused solely on mathematically improving a GDP formula through the modernization of non-productive or oversaturated national assets, the economy might look as being artificially stimulated with steroids but naturally unhealthy. The effects and consequences of such an approach have already begun to be seen. China overinvested in the construction of new ghost towns that remained sparsely populated, an over industrial capacity in factories that did not bring any benefit to the productivity level, and an oversaturated infrastructure that made the construction of a single extra mile worthless to the economy. Worse, the government-induced stimulus has been for years backed by an over increasing debt. If in the 1990s China borrowed 6 yuan to generate 1 yuan of economic growth, nowadays it borrowed 10. By the time President Xi Jinping took power in late 2012, the national debt was threatening enough to destabilize the entire economy, and public investments no longer brought positive returns. The Chinese debt is reported to have hit 335 per cent of gross domestic product (GDP) in 2020, something unheard of in any other nation during peacetime.

This situation in which the Chinese economy is found today was facilitated by a high level of corruption that was unintentionally initiated by Deng Xiaoping and unwillingly consolidated by Jiang Zemin. Deng's pragmatism to grant more autonomy to local governments, facilitated market reforms on the fringes of a planned economy and his approach to partially liberalize the Chinese economy as opposed to fully embracing capitalism -and without political liberalization- created a corrupt bureaucratic class inside the state political system. Instead of creating more room for manoeuvre at the political level in making economic decisions, the effects of Deng's openness led to the enrichment of some political cliques who could benefit from a crony capitalism as far as they proved to be devoted to the Communist Party. Ever since the 1980s, the political class at the local level tried to take advantage of a hybrid economic system and a diminished control from the centre over local activities as long as they generated economic growth (the Chinese obsession) and continued to provide public services, in order to introduce additional taxes and fines to local companies, many of them in an abusive way, or to privilege some businesses at the expense of others in exchange for some rewards. When Deng Xiaoping's successor, Jiang Zemin undertook to empower Deng's thought and liberalized the Chinese economy further on, the high levels of corruption were expected to diminish over time. But these grew strongly at the local level thanks to a bold move from Beijing. Under Jiang Zemin, the Chinese decision-making centralized tax revenues in Beijing, leaving local governments dry of a very important source of income to feed their local crony capitalism. But in a short time, they found a new source to generate cash by leasing the local land to real estate developers who were willing to reward the local bureaucrats as long as they facilitated the obtaining of land at advantageous prices bypassing the traditional auction process. Besides this, local governments created new entities through which they could play with local finances in such a way as to benefit the politicians. In China, local governments were prohibited from running budget deficits, but through these entities, local governments managed to borrow considerable amounts that facilitated their arrangements with local businessmen. These practices have not only led to an informal institutionalization of local corruption, but also to the accumulation of colossal debts by local governments that today look like a time bomb for the entire Chinese economy.

Over the years, public overinvestment, low productivity, and high level of debt not only remained unaddressed, but worsened, putting a strong pressure on China's finances. Moreover, the way the government in Beijing responded to the pandemic crisis of Covid-19 worsened China's already fragile economic position. In the absence of a domestically developed vaccine dose and China's insistence not to benefit from foreign ones, it made the lockdowns continue almost uninterrupted. This decision affected the already deficient industrial output and increased the unemployment rate, while the outflow of capital from the territory of China led to the decrease of the national currency relative to the US dollar.


Xi's Deng Xiaoping Moment

When he took office at the end of 2012, President Xi Jinping tried to save the ship by launching market reforms aimed at continuing Deng's era of ''reform and opening'' also supported by Jiang Zemin and Hu Jintao. During his first mandate 2012-2017, Xi Jinping baptized economic actions such as the regulation of the Chinese financial system based on risky liabilities (2013), the stimulation of Chinese companies towards outward foreign investments (2014), the initiation of central control over local budgets at the provincial level and the appraisal of a property tax (2014), the liberalization of the interest rates on deposits and loans (2015), the promotion of the national currency 'yuan' as a basket currency for the International Monetary Fund in order to stimulate other central banks to take over financial assets denominated in yuan and thus attract foreign investments in China (2013-2015). But all these reforms launched as if under the signature of Deng Xiaoping were followed almost immediately by a crisis that overthrew them altogether. The reform of the financial system in China by increasing the interest rate of the People's Bank of China (the Chinese Central Bank) on short-term loans accessed by commercial banks has increased the interest rate for loans from 2-3% to 20-30%. This caused an economic slowdown between 2016-2018 as many of those who borrowed were involved in public projects such as infrastructure and real estate development. Consequently, the Chinese Communist Party abandoned the decision and let the credit flow. The regulations aimed to boost the outward foreign investment transformed Chinese companies from manufacturers for export to regional and even global giants through Chinese joint-ventures and foreign acquisitions. But although the image of China as a global actor grew as a result of the globalization of its companies, the Chinese foreign exchange reserves began to drain as a result of Chinese investors opting for dollars on the foreign exchange markets to invest abroad. As a result, Beijing was forced to abandon the incentive for foreign investment by imposing capital controls in 2016, which have remained in place ever since. The control over the loans and expenses of local governments initiated in 2014 was never carried out to the end and consequently their debt ballooned to 1 trillion dollars at least. The liberalization of the interest rate on deposits and loans was never intended to fully accomplish that. On the one hand, Chinese officials wanted the liberalization of the interest rate to allow the banks to freely compete with each other for deposits and borrowers. On the other hand, the same Chinese officials were worried that too much competition between banks would lead to their destabilization and the induction of a large-scale banking crisis. Therefore, they allowed the liberalization of the interest rates for deposits within a 50% benchmark above the 10% ceiling established by the Central Bank. The banks could now compete only within that benchmark. Just like Deng five decades ago, Xi opted for partial economic liberalization. The promotion of the yuan as an international currency within the IMF currency basket increased once Beijing accepted the evolution of Hong Kong into a financial gateway to China through the formation of a liquid offshore yuan market in the Special Administrative Region where its value would be freely determined by market forces, a mandatory characteristic for the admission of the yuan in the IMF basket currency and the worldwide acceptance of the Chinese currency as international reserves and its frequency in large international transactions. But China pushed back on the ''financial emancipation'' of Hong Kong once the depreciation of the yuan in 2015 meant to balance prices in Hong Kong and the mainland led to a capital outflow from the latter to the former. Beijing has reintroduced capital controls and weakened Hong Kong's offshore yuan market. Although the IMF accepted to introduce the yuan in its currency basket, today the Chinese currency is still far from becoming a dominant currency reserve and being present in many international transactions as an exchange currency.

This toxic macroeconomic cycle in which the opening to market-based reforms was immediately followed by a crisis that in turn attracted even more political control over the economy does not sit well with investors, businesses, and foreign governments. China wants to hide this productivity bias it has by keeping investors and Western governments engaged with Beijing on economic matters. Despite not publicly acknowledging this, Xi's famous Chinese `exceptionalism` depends a lot on the West not turning their back on China. With a low level of productivity, huge (especially local) debts, an increase in interest on debt, a shrink in the working force as a result of the aging population (by 2033 it is expected that approximately one third of China's population will be over 65 years old), and an increase in wages that would change the supply chains away from China and towards the more low-wage labour force in Southeast Asia, Beijing will remain dependent on access to foreign capital markets (especially Western ones), on commodities markets for the Chinese export sector, and the preservation of the current supply chains that have turned China into the ''factory of the world''. Xi believes it can buy time by relying on debt loading and further loans but a sudden stop in investments to China by removing it from the capital markets will become fatal for Beijing in the absence of the imposition of a more aggressive economic liberalization agenda and the easing of political control on the economy. Without that, the asset prices for properties, corporate and governmental bonds will decline, and political unrest will follow the departure of wealth from China. In these circumstances, the great Chinese challenger might fall in front of America before the sixth round pushing forward the question ''what if the great-power competition was over even before it started?''. But if Xi remains reluctant to reform and further liberalize the Chinese economy in order to remain engaged with the outside world, he might opt ​​for another strategy to revitalize the national economy while clinging to Chinese exceptionalism: an aggressive push for engagement.


`Decayed Power` Syndrome

The Thucydides Trap or the 'power transition trap' estimates that a confrontation between the great powers is even more susceptible and inevitable when the interests of a rising challenger intersect with those of a declining hegemon. Following this lead, a great power competition between China and the United States might occur sooner than expected as Beijing is urging Washington to make space for Chinese presence within the global governance. There is some truth in such an approach. A rising power with increased capabilities will seek more influence at the international level and a stronger voice within the governing institutions, mostly the United Nations. The newly tensions between the US and China, skyrocketing since 2017 under the Trump administration, would never have happened if China had remained poor and weak. Its economic and technological developments, as well as the increasing political and diplomatic clout over the world created anxiety in Washington and pride and a feeling of triumphalism in Beijing. For the first time, China is fully confident that the West, which followed American leadership, is in decline, and the East, under a new multilateral geopolitical system that China can shape at will, is rising. China looks on with superiority as the United States is plunged by socioeconomic inequality, racial and ethnic divisions, police violence and massive shootings, scenes unseen in an orderly Chinese society. The storming of the Capitol on January 6, 2021, by Donald Trump's supporters who wanted to overturn Joe Biden's democratic victory in the presidential elections shows a dangerously polarized society in contrast to the hierarchical respect of the Chinese political environment. Moreover, the Brexit referendum that removed the United Kingdom from the European Union followed by the election of Donald Trump to the White House confirms to China that Western society is changing and not for the better. Even the death toll of the Covid-19 pandemic crisis has turned into a comparative indicator of China's success and US deficiency. Beijing points to 6,000 deaths as the toll presented by the Chinese authorities (which could be credible or not) of the pandemic in China, as opposed to the 600,000 official number presented in the US. This asymmetrical belief of superiority in Beijing and inferiority in Washington began after the financial crisis of 2008, which China saw as the beginning of the American bleeding in the management of world economic and political affairs and the dead point of the post-Cold War US-led unilateral order in favour of a new multilateral Asia-oriented global political and economic system. The US operations in Iraq and Afghanistan that failed to politically emancipate and economically transform those societies not only gave America a bad image, but it confirmed to Beijing that US strength has become disproportionate to its interests. The best example of such a mood in Beijing was the attitude of a senior Chinese diplomat, Yang Jiechi, in March during a high-level Sino-American meeting in Alaska. Outraged by the American attitude and superior tone, the official from the Chinese delegation promptly replied that ''the United States does not have the qualification to speak to China from a position of strength''. Given that China sees itself as a rising power while America is seen in China as a global actor in decline, a Thucydides Trap might soon lock both players in a great power competition, a contest that both sides fear might end up in an open armed conflict. But considering China's economic position and the macroeconomic deficiencies it faces, is it the People's Republic that challenger many (including in Beijing) believe it is? Is the great power competition between the US and China a prime example of the Thucydides Trap in which a rising China intersected with a declining US, none of them willing to make space for the other? The answer is, from a subjective point of view, that no. It is true that the US and China are indeed locked in a great power competition, but it is not the power transition theory that explains this. Take the bilateral contest in another way. Chinese long prepared 12 rounds contest with the United States enters the sixth round. The Chinese side tried in the last 5 rounds to buy time and hide its macroeconomic dysfunctionality and the worst productivity levels in decades under the rug. The sixth round begins with big expectations and a high belief in Chinese exceptionalism especially after the US showed a poor performance during the previous rounds. But precisely the round in which China expects to turn the fate of the decisive match in its favour, the resilience of the American opponent combined with the Chinese ''economic fatigue'' of the last rounds, turns out bad for the Asian contender to global heavyweight championship.

China can no longer hide its declining economy from 15% before the 2008 financial crisis to 6% before the pandemic crisis kicked in. Beijing stands on the feet of a shadow cast by the glorious years in which its economic growth made waves on the international economic scene, propelling China as a champion of hyperglobalization. It is true that the United States is in a state of decline due to years of geopolitical mismanagement in the Middle East (particularly in Iraq and Afghanistan), disinterest in the epicentre of tomorrow's economy: Asia, and even negligence in its own Latin American neighbourhood. Under the administration of Donald Trump, Washington entered a conflicting stance with its traditional allies (the European Union, Canada, Japan, and South Korea) and induced a state of unrest among its partners in the Middle East (Saudi Arabia, the United Arab Emirates and Qatar) regarding the continuity of the US security commitment to regional security especially by offering a defence shield against Iran. Internally, the US is squeezed by domestic unrest due to ethnic, racial conflicts, massive shootings, and street violence. But somehow the US proved to be resilient, or at least more enduring in overcoming its external and internal flaws than China succeeded in hiding its true potential to win. Moreover, under the new Joe Biden administration, the US reengineered its traditional alliances with Europe, Japan, and South Korea, while the official presidential visit to Saudi Arabia several months after Biden called the Saudi kingdom a ''pariah'', proved President Biden as remaining committed to the Middle East security, at least for now. All in all, the current contest between Washington and Beijing cannot be represented by the story of a rising challenger against a declining champion (a prime example of the Thucydides Trap), as both players are positioned on a declining -albeit different- path. Rather the current animosity and tensions arose as a result of Chinese incapacity and frustration regarding the American dethronement which proved more enduring than expected. This 'peaking power trap', rather than 'power transition' better explains why a long Sino-American clash is far from over. The reason is that Beijing has already put all its eggs in one basket, and it invested and sacrificed way too much to back down, even if it sees itself unable to dominate its opponent. It knows that the economic situation it finds itself in, as well as the exposure of its abilities, can make it an easy prey. Internally, decades of spectacular economic growth have created high expectations among the Chinese population. A sudden drop in wealth could bring unrest and make the people question the capacity of the Communist Party to provide better. Externally, the Chinese decades-long rise caused unrest among regional rivals. Moreover, Deng Xiaoping's famous quote ''hide your capabilities, bide your time'', made other players quite unaware of the true strength of an unknown China. Now that Xi Jinping exposed China to the outside world in an open contest with the United States, a vulnerable stance might push China's bloodthirsty rivals to act decisively. China cannot look weak, no matter what. Willingly or not, it is forced to fight back, and it must do this now while it still can. The more time it passes, the less insecure and weak Beijing gets. For President Xi Jinping and the Chinese Communist Party, this round is now or never. But it cannot be said that this does not come with consequences. The danger of the 'peaking power trap' is what might be called the ''fear and frustration factor''. Out of fear, China might be willing to sacrifice everything in this fight in order to survive. Out of frustration, China will strike blindly and irrational. Taking both into account, one conclusion is obvious. A declining China will become more repressive at home and more assertive abroad. This would be bad news for the United States. Even if in the long-term Washington will be at an advantage, in the short-term it will have to deal with an increasingly aggressive Beijing, one that can even get out of control.


World Economy, Please Be Gentle with China!

A change in China's attitude and behaviour can be seen in Beijing's contemporary practices on the global stage and President Xi's actions in domestic matters. But before that, it is important to highlight the external political and economic environment in which such an evolution can take place. Can the outside world stimulate or prevent such behaviour? The answer mostly depends on the nature of the global economy, precisely how open are the markets (capital and commodities), how secure trade routes are not only for exports (a safe line for the Chinese economy), but also crucial imports (food and fuel), and last but not least, how enduring are the supply chains, an important factor in the economic development of China today. The nature of the global economy matters in polishing the behaviour of a declining great power. If the economy is open to such a political actor, then it might heal its economic dysfunctionality in a peaceful way: the markets are open for exports which in turn will improve the foreign exchange reserves, which will ensure the stability of the national currency. Access to the capital markets will be able to give it a breath of fresh air in moments of financial constraint. Safe trade routes will ensure guaranteed access to imports crucial to economic development such as food, energy, and other industrial and technological inputs. The preservation of the advantage of being a supply chains hub will in turn bring foreign investment and keep the unemployment rate (especially for low-skilled workers) under control. All in all, a declining power can get back on its feet quickly if the structure of the global economy works in its favour. After all, China's economic boom was largely due to hyper-globalization and open access to it all. It started in the 1980s under Deng Xiaoping, it skyrocketed in the 1990s and the beginning of the 2000s under Jiang Zemin and Hu Jintao. It might be tamed now under Xi Jinping. This is what the US and the outside world should wish and allow China. This is what a declining Japan, after the post-war boom ended in the 1970s, committed itself to. What the West and its Asian allies should fear, is the exact reverse of such a scenario. It was a closed world economy and an autarkic new feeling in not yet powerful but ambitious Japan that made the Imperial court in the 1930s to aggressively push for more and become more repressive in foreign affairs (especially regional). Putting this analogy into practice, we can pray for the fact that today's economy is incomparable with the economic protectionism of the 1930s and much more open than that of the 1970s. But China is still a special case. For the first time since the American opening to China in the 1970s with the visit of President Richard Nixon to Beijing in 1972, the West is no more confident and supporting with the Chinese integration to the world economy. In the 1990s and early 2000s, there was a frenzy in Western capitals regarding the win-win outcome of a rising and integrated China. This somehow started to change in 2015 and reached a hot point in 2017 with the launch of the so-called trade war with China by the Trump administration. However, the attitude of the West did not change overnight. It was the outcome and confirmation of a gradual shift in Chinese practices and decision-making under President Xi Jinping. For decades, China operated based on Deng Xiaoping's famous slogan: ''hide your capabilities, bide your time''. Translating this into practice, Beijing managed to keep itself engaged with the outside world in order to grow and develop without doing anything that might disrupt this process. And by ''anything'' it means keep its revengeful attitude and historical pride aside. Under President Xi, this has been changed to ''expose your capabilities, this is your time'', and re-translated as ''Chinese economic development and transformation finally allows it to be revanchist and proud again''. And it was this pride and revengeful attitude that changed the Western perceptions on China. A once hyperglobalized economy that China benefited the most from, is slowly starting to close its doors to the now declining Beijing. And it is this closure that causes China to leave the engagement aside and to aggressively push for what it considers to be its due.


The Chinese 'Fear and Frustration' Factor

The 'Peaking Power' Trap exposes the dangers of a declining power. Following this lead, a power that reaches its economic peak followed by a period of difficulty in maintaining the upward course, becomes fearful and acts irascibly. It is capable of anything to guarantee its leadership position and is often blindly in decision-making. It believes it must act today while it still has the necessary capacities to avoid a collapse. Tomorrow will be even harder. This somehow resembles the 'Middle Income' Trap; once a state leaves poverty and exceeds the status of a low-income country, it becomes more and more difficult to maintain its economic growth. These traps combined with a world economic structure that works against you creates frustration. From frustration comes hatred, stupid pride, envy, and sometimes even violence. All these peculiarities that derive from the fear of imminent collapse instead of coronation, and the frustration of being alone against everyone on the international economic scene, push China to act decisively. This means, more political control at home and more expanding and assertive action outside. Under President Xi Jinping, both became the legacies of the most impatient Chinese leader since Mao Zedong.

First, domestically. When Xi Jinping came to leadership in 2012, many believed he would act in a manner of calm and patience similar to that of his predecessor Hu Jintao, but with an agenda oriented towards economic reform. Xi refuted the expectations of such a lead. He came to power not only to revitalize China's struggling economy, but also to save the Chinese Communist Party from the self-destruction of its own corruption. Traditionally, the Chinese Communist Party has always found solutions to overcome internal political storms, but the rampant corruption that started in the 1980s with the partial liberalization of the economy without political liberalization (market-based reforms on the fringes of a planned economy), has reached a dangerous peak in the 2010s. It not only threatened the social and political order that the party guarantees, but the social contract itself with a population increasingly dissatisfied with the extravagances of many high officials. Xi came to address these deficiencies under an agenda of more equality in which every citizen had access to a piece of China's wealth. He sidelined his enemies in the internal fight against corruption, imposed a property tax in order to break the power and fortunes of local political and economic tycoons and to discourage the real estate bubble that might turn the Chinese financial sector into a 2007-2008 US crush, and provided strict guidelines to the increase of party membership by increasing the strictness of the entry requirements. Xi feared that the bigger the Communist Party becomes, the more difficult it will be to keep total control over the bureaucratic class especially as more members might disapprove Xi's political, social, and economic vision for China. Xi learned something from the collapse of the Soviet Union when the Soviet Communist Party had a much larger membership than that of its Chinese counterpart given a much larger Chinese population, but it mattered far too little in preventing the disappearance of the USSR. For Xi, it mattered more to have a fully ideologically devoted political class by his side rather than a high number of party members that do not share his vision. In economic matters, Xi took the helm of the reforms into his own hands, distancing himself from the traditional practice of multi-individual governance characteristic of his predecessors. The current leader in Beijing consolidated his power by reducing the Standing Committee of the Politburo from nine members to seven and chairing almost all the committees responsible with important economic policymaking. Xi's own vision for economic reforms sometimes collides with Chinese Prime Minister Li Keqiang. The latter comes from the technocratic clique of the Chinese Communist Party, often in opposition with many decisions coming from the more ideological side of the same party to which the vice-premiers Han Zheng and Hu Chunhua belong and to which President Xi, of course, is part of. If the technocratic side is much more concerned with economic growth and speaks directly and openly about the difficult economic situation in which China finds itself today, the ideological side is more inclined towards party control and regime security and often presents the population with an eternally confident and optimistic image of an ever-prosperous nation. During the pandemic, the technocratic side often questioned the zero-Covid policies of the ideological side and chaired by President Xi who in turn urged the Chinese population to trust his decisions.

But the ''emancipation'' of the Chinese Communist Party and the increase of party order and control over all social and economic matters was not the only legacy of the Xi administration. Another important feature that characterized Xi's leadership is his redefinition of national security. In a famous speech addressed in 2014, President Xi announced that ''China is facing the biggest internal and external challenges in its history'', an aspect that required a comprehensive reorientation of the national security strategy of the People's Republic. In this redesign of national security, Xi appealed to nationalism, calling a large swath of Chinese population to onboard on a long path towards the Great Chinese rejuvenation. In calling for a reorientation of Chinese national security and reminding the great threats facing the country, Xi blurs the line between external and internal dangers. Often under Xi, internal repressive measures are motivated by the presence of external factors. The transformation of the restive Xinjiang province into an ultra-surveilled prison was reasoned as a response to the threats of extremism, separatism and terrorism that flourished locally among many Uighur groups with external support. In many provinces, the long arm of the Party was motivated by the threats of a ''colour revolution'' and the danger that a rising Christianity might pose to the social order. In Hong Kong, the national security law imposed by Beijing on the city was aimed to impose the Party's will regardless of the local laws and regulations. All in all, President Xi used the national security reassessment to institutionalize the Communist Party's paranoia about the dangers that could damage its political control. The national security paradigm was less about a framework for addressing the internal and external threats facing the Chinese nation and more about the Party's own survival.

Externally, China reengineered under President Xi Jinping. When Xi came to power, his mission was to increase China's position abroad by positioning the emerging country as a global actor worthy of a place at the big table of global governance. But this position was less about China growing in importance by playing by the rules of the current world order, and more about China ensuring its growth at any cost given the new situation in which a rising China is no longer as encouraged and regarded as a win-win situation as before. Xi Jinping put forward a complex agenda through which China would become a great power by the time the People's Republic celebrates a century since its establishment in 2049, but this great rejuvenation would be constrained by the external environment in which China finds itself, with a more open global economy than in previous decades but now more closed for China.

It is not that the outside world denies doing business altogether with China, but it is a gradual closing of the door in the western capitals compared to the traditional business engagement with Beijing. China is still at the centre of not only regional but also European and American supply chains with large Western companies using the existence of a cheap labour force in China to outsource a wide range of production in Chinese factories. The 'made in China'-inscribed products have become the new norm. China is the main sole investor in the Middle East and the most important trading partner of 11 states from the Middle East. Through its Belt and Road Initiative (BRI), Xi's masterplan that will remain his main foreign policy legacy, China has financed infrastructure projects from South Asia to the Middle East. It boosted its diplomatic stance towards Southeast Asia (ASEAN) particularly with Cambodia, Myanmar, Laos and even the Philippines under former President Rodrigo Duterte. China uses the Trump-era disinterest in Asia (economically speaking), and the fractions with the European Union countries (militarily speaking) over the American security commitment towards Europe and the defence spending sharing inside NATO, to increase its engagement with both sides. China joined the Regional Comprehensive Economic Partnership (RCEP), a free trade agreement among the Asia-Pacific nations effective from January 1st, 2022, it showed great interest in participating in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the rebranded Trans-Pacific Partnership that the Trump administration abandoned in early 2017, by formally applying on September 16 and requested on October 31, 2021, to participate in the Digital Economy Partnership Agreement (DEPA), along with Singapore, New Zealand, and Chile, showing that China attaches equal importance to digital commerce. Beijing leveraged its deep economic ties with Berlin to induce a sense of urgency for a bilateral investment playbook between the People's Republic and the European Union. During the final days of the German EU Council Presidency, Berlin persistently pushed for the conclusion of the Comprehensive Agreement on Investment (CAI). China even started to play a more active role in the financial system. Together with the other members of the BRICS (Brazil, Russia, India, China, South Africa), it established the New Development Bank, or simply the BRICS Bank. China uses its financial pull at the regional level by launching the Asian Infrastructure Investment Bank (AIIB), a regional investment bank aimed at improving economic and social outcomes in Asia. If the BRICS Bank has a modest membership of only 9 participating states (5 of which are BRICS members), the AIIB boasts a participation of 105 states). All this shows that the global economy and its actors are not completely closed to China. But Chinese President Xi Jinping does not play by actual facts but by signs, and they were enough to show that there is a grand shift in the Western mood on doing business with Beijing. This constrained the Chinese leader to act now to secure Chinese economic growth because of and not despite possible economic setbacks caused by a sudden disengagement with the outside world. President Xi is what scholar Jude Blanchette in ''Xi's Gamble'' published in Foreign Affairs, ''the man of the system'', a leader so in love with his own vision of political-economic governance that he cannot accept any deviation from its path, even when the economic situation requires it. This made the ideological side of the Chinese Communist Party led by Xi to sometimes disagree with its technocratic counterpart headed by Prime Minister Li Keqiang, especially on the ''zero-Covid'' policies promoted by the Secretary General.

All China's economic initiatives of the last decade and the growing commitment it pushes with the outside world does not come as a consequence of the continuity of the West (and Asian regional players) in embracing a rising China as a win-win cooperation and even their support for Chinese integration in the international system as an important economic asset, but rather Chinese insistence out of fear and frustration to remain engaged with a more hostile and confused outside world on the true benefits of a rising China that, according to them, does not play by the rules of the current international economic system and often acts against international law, especially in the South China Sea. Chinese investments as part of the BRI are less about bringing development and economic growth to the recipient states, and more about securing new markets for Chinese exports in case the western ones are to be closed. The BRI is less about bringing connectivity inside recipient countries through financing the construction of infrastructure and more about connecting China with the outside world through new routes. The cases of Sri Lanka and Pakistan are important in this matter. In their economic development strategy, both Pakistan and Sri Lanka put all their eggs in the BRI basket in the hope that they have found the perfect recipe for a safe and sustainable economic transformation. Both found out (even if their political leaders are less likely to admit it in public) that in business with China, the consequences are greater than the gains.

Take Sri Lanka. Following the end of the Civil war in 2009 there was a euphoria among the officials of the Rajapaksa regime given by the victory against the Tamil Tigers. The regime felt the moment of a new era in the development of the state after almost three decades of internal turmoil and violence. Very soon, China was at the roots of this transformation. The excessive borrowing on behalf of the government in Colombo as part of the Chinese giga-project, BRI, increased Sri Lankan foreign debt. The Rajapaksa regime believed that as far as tourism, exports and remittances will go forward, the island nation will be able to pay the interest rates on the debts through foreign reserves. But the revenues from foreign reserves could not keep up with the growing debt. The epicentre of the debt crisis came in 2020 when the pandemic crisis reduced exports and tourism in Sri Lanka while the remittances declined as a consequence of a macroeconomic misleading of the Rajapaksa regime to keep the exchange rate fixed inducing many Sri Lankans who worked abroad (mostly in the Persian Gulf) to transfer money through unofficial channels that granted favourable exchange rates. Two years later, all remittances in South Asia increased, except in one country: Sri Lanka. This caused the credit rating agencies to downgrade Sri Lanka to the level of insolvency, thus closing Colombo's access to international capital markets. Sri Lanka was collapsing in a vicious spiral of rolling debt. With no possibility to issue bonds, Colombo was forced to pay its debts and public expenses from the rapidly draining foreign exchange reserves. In April 2022, the historical minimum level of the foreign exchange reserves turned the economic crisis into a humanitarian one as Sri Lanka could no longer pay for its imports of the most urgent commodities such as food, fuel, and medicines. Power cuts and long lines at gas stations have become the new order in Sri Lanka while the public hospitals lack the equipment and medicine to treat the patients. While the Rajapaksa governance was to be blamed for the economic and humanitarian crisis of the last two years, China also has a good share of the guilt. The relationship between Rajapaksa and Beijing was toxic from the beginning. On the one side, the Rajapaksa governance was obsessed with a rapid transformation in Sri Lanka and saw China as the only one capable of investing in the regime. China did not stand aside. However, the transformation was unsustainable as Rajapaksa allowed Chinese financing in sectors that proved to be unproductive for the national economy such as infrastructure and real estate. China financed the construction of infrastructure giants such as Mattala Rajapaksa International Airport and Hambantota Port. For Beijing, the unsustainability of such projects was less a concern as both mega-projects allowed China to keep a presence on Sri Lankan territory, especially in the case of the latter as the failure to generate traffic and thus revenues, the Hambantota Port was to be leased to China for 99 years as Colombo could not afford to pay back the debt owned by Beijing after years of tax breaks to the Chinese projects involved in the development of the port. Now China acquired a strategic asset at the Indian Ocean, and an important one in ensuring trade routes both for Chinese exports to regional markets, and the most sensitive imports such as energy and food to China. The development of the Hambantota port as part of the BRI ended as an economic liability to Colombo, but a huge political asset to Beijing. On April 12th, the Sri Lankan government defaulted on all its debt for the first time in the island nation's history. Worse, China once seen as a partner in the economic transformation of Sri Lanka was reluctant to negotiate any debt restructuring. China's BRI really transformed Sri Lanka, but for the worse.

The economic situation in Sri Lanka may prove to be a microcosm of a much larger crisis that is knocking on the door not far away in Pakistan. Just like Sri Lanka, Pakistan has become dependent on Chinese loans and has put its entire economic development strategy on Chinese investments. And remnant to Sri Lanka, these investments proved disappointing while the loans toxic even for a much larger economy and population than Sri Lanka. At the base of the Sino-Pakistani relationship is of course the BRI mega-project, and not just any one, but China's largest project/investment in a BRI member country: the 2015-launched China-Pakistan Economic Corridor (CPEC), an infrastructure initiative of 62 billion dollars (a fifth of Pakistan's GDP) through which China pledged to finance railway routes, a metro system in Lahore, power plants and hundreds of miles of fibre-optic connectivity between the two countries. The pearl of this project is the port of Gwadar in the restive region of Baluchistan, which Beijing has undertaken to transform into the largest maritime hub on the Arabian Sea. But seven years later, CPEC is far from achieving the promises made, and this is most visible in Gwadar. As a consequence of the establishment of the CPEC, China not only became ubiquitous in Pakistani national politics, but Chinese businesses involved in the project were granted tax breaks, with revenues that were more than welcome in Pakistan instead being indirectly transferred to China. Moreover, the CPEC projects involved the use of many inputs that would be imported from China, creating a favourable trade balance in Beijing but negative in Islamabad. Even from a social point of view, CPEC did not help to improve the unemployment rate in the recipient country, the Chinese companies involved in the project mostly using labour brought from China instead of the local one. Regarding Gwadar, just like Sri Lanka`s Hambantota Port, the Pakistani city-port failed to attract much revenues as, leaving aside the Chinese shipment, the maritime traffic remained reduced. In 2017, the port would be leased for 40 years to a Chinese state company that would receive 90% of the profits generated by the port's activities, leaving a Pakistani state starved for hard currency with only a small fraction. Worse, Beijing also failed to keep its promises to Islamabad to keep Gwadar port supplied with water and power, leaving the Pakistani government in charge of overall supply, while China provided water and electricity resources only to Chinese firms operating in the port. Since 2016 (one year after the launch of CPEC), Pakistan's finances are more fragile than before, with a foreign debt almost double compared to the pre-CPEC period, in the amount of 131 billion dollars (a quarter of it owned by China). With a strong presence in Gwadar and as a patron saint of Pakistani finances that remain dependent on further borrowings from China to service the already high foreign debt and public expenditures, in many Western governments and in New Delhi the alarms have sounded regarding a potential use of China's Gwadar port not only for commercial purposes but also for military commands, complementing the only Chinese maritime base located outside the Chinese borders in Djibouti. Even if Beijing and Islamabad denied such an outcome, the US and India might question what will happen when Beijing uses the economic crisis in Pakistan and its position as a safe boat for rescuing Pakistan from a possible default, to insist to the government in Islamabad to allow China a naval military presence in Gwadar in exchange for more substantial financial aid or as simple blackmail of not closing the tap.

Through the BRI, China not only ensured that it would always have a say in Sri Lankan and Pakistani political decision-making, but through this debt trap diplomacy it 'de-facto' acquired two important port openings to the Indian Ocean securing its trade routes for the time being and its continuous geographical openness to the outside world.

A similar motivation pushed the BRI-involved projects in the Middle East, a region strategically important for an energy-hungry China willing to secure good terms with the political guardians of the Strait of Hormuz and the Suez Canal, important gateways for the passage not only of oil and gas to China, but also Chinese export of commodities to Europe. For example, the only place in the world China has a military base, Djibouti, was strategically picked by Beijing due to its location near the Bab al-Mandab Strait which connects the Red Sea and the Gulf of Aden with an opening to the Arabian Sea and further on to the Indian Ocean. The 25-year Strategic Partnership that China signed with the Islamic Republic of Iran in March 2021 inked more Chinese investments in the Iranian energy sector for more Iranian oil and gas shipments to China. Many observers wrongly concluded that Chinese interest in the Middle East was part of President Xi's hegemonic masterplan to remove the US from international governance. In fact, it was more about China ensuring its continued benefits offered by hyperglobalization, rather than Beijing trying to dethrone Washington from the same region that dethroned the US now for its foreign policy miscalculations.

But a declined China is trying to expand its influence outside the borders through other means than the Belt and Road Initiative. The diplomatic boost with Southeast Asia, especially Cambodia, Laos, Thailand, and Myanmar, is not only about securing new markets for Chinese exports and trade routes for Chinese sensitive imports. Southeast Asian nations have an advantage today in offering cheaper labour than China. The labour standards (wages, labour security, maximum hours of work, etc.) in China have attracted large Western companies to outsource many operations in Chinese factories, turning the People's Republic into the largest manufacturing location in the world. But today the wage increases in China are precipitating the big corporations to reconsider their supply chains in Asia away from China and towards the Southeast Asia leaving Beijing not only with capital outflows that could lead to an increasing unemployment rate in China (especially among low-skilled labour), but also without political leverage in business with the West. Turning its attention to Southeast Asia became a concern of major importance for President Xi in getting on good terms with Asian supply chains hub of the future. The same regional economic reconfiguration has precipitated Beijing to show its interest in the large trade blocs in Asia-Pacific. China joined the Regional Comprehensive Economic Partnership (RCEP) in the hope of securing new markets in the region for Chinese products, but also in order not to be left behind with the new economic order in Asia. Given its political and economic clout at the regional level, Beijing hopes that through its participation in the RCEP it will be able to influence the Asian economic architecture in its favour. RCEP is all the more important in this regard as the ASEAN states are members of the free trade agreement. What a better way for Beijing to influence the regional supply chains reconfiguration than through its participation in an economic agreement that includes ASEAN. Chinese interest in joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is motivated by the same economic ambitions. But the membership in RCEP and CPTPP is not limited to economics. The leadership in Beijing hopes that any future political isolation of China will be economically impossible given Chinese participation in the two largest free trade agreements in the world, simultaneously. And such concerns are not only Asia-focused. Chinese push for the conclusion of the Comprehensive Agreement on Investment (CAI) with the European Union and inclusion in the Digital Economy Partnership Agreement (DEPA), along with Singapore, New Zealand, and Chile, are about economic benefits of engagement with the outside world, but more about locking the Chinese economy at the centre of the ongoing economic order for many years to come.

In failing to achieve this, China has come with a back-up plan: to alter the current economic order by offering institutional alternatives (be they military or economic) and by reducing dependence on economic forces outside China's borders through an industrial revolution at home (a departure from the economic and political scripture of Deng Xiaoping who pushed the People's Republic to the invisible hand of market forces and more economic integration with the outside world). With a membership of more than 100 participating states, the China-backed Asian Infrastructure Investment Bank (AIIB) is gradually looking like a real alternative to the Western-dominated West Bank and the IMF (particularly at the regional level). At home, an industrial revolution is in the making. President Xi's economic and political governance relies on industrial policy as an important tool of economic statecraft. In 2015, Beijing launched a complex strategy of boosting the industrial capacity of the People's Republic with trillions of yuan spent on policy programs, companies and industries considered strategic in building an industrial powerhouse in China. At the core of these ambitions was the 'Made in China 2025', an initiative to increase China's production capacities in many key industries. The Chinese intentions behind this industrial revolution at home are to reduce China's dependence on imports, to respond to the low level of productivity in China, and to provide a stimulus for the growth of Chinese exports to the new markets secured by BRI and RCEP.

All in all, on the surface, all these ambitions may portray a rising China confident in its capabilities and willing to assume its leadership in global governance. In reality, these actions show nothing more than Chinese insecurity in the future given its economic decline and political aversion in the West. China is continuously striking blindly in the hope of securing its stay in the match. It must do that now while it still can. According to Xi, it has everything to gain in trying but a whole to be lost in abandoning. For the West, especially for the US, this is far from good news. A blind China is a sea more dangerous and unpredictable than a rising one. In the short term, Washington can be satisfied with the fragile position of its Asian competitor, but in the long term it must pay greater attention than before when China was kept under control by a stable economic growth and continued integration into the global economy. The toxic combination of a faltering economy and a world economic order working against you through an increase in American anti-China protectionism and a rising awareness on Beijing within the European Union by labelling China ''an economic competitor and a systemic rival'', makes China over-worried, frustrated and paranoid about the possibility of a quick economic heal provided by the current economic system. Given that continuous economic growth and poverty reduction brought in the past legitimacy to the Chinese Communist Party, President Xi Jinping will try to do everything possible to keep China anchored to foreign capital and commodity markets, to secure the necessary trade routes for the imports of energy and food, to keep the supply chains home, and to forcefully integrate China in the new Asian economic order, even at the price of facilitating some economic crises in other regional states. And given that decades of continuous economic growth raised the expectations among the Chinese population followed by a sudden hardship, President Xi will try to do everything to keep order home, even at the price of establishing an aggressive surveillance system and an overreaching and repressive regime.


The Psychology of Nation States

'The Peaking Power' Trap, or the 'Decayed Power' Trap implies that political and economic aggressiveness on behalf of a great power is more likely when this emerging nation reaches its peak followed by a continuous decline. The frustration and fear factor are triggered, and the reactions are much stronger, unforeseen, and uncontrollable. The emerging superpower is in a hurry as the once predator could now become the prey. The so-called great power competition with the hegemon and the status quo is applied not as a result of the challenger's ambition to dethrone the leader, but as his desperation not to show any weakness. Such a paradigm did not start with China, it is a well-known pattern in the psychology of nation-states and such examples are plenty in history. Let's start with the current hegemon itself, the United States which following a decline at the end of the 19th century after its post-Civil War reconstruction boom finally ended, it became more aggressive at home by suppressing strikes and civil protests, and imperialist abroad by building a strong massive naval force for the conquest of new territories and increasing investments in Latin America for the conquest of new markets. Due to a similar decline at the end of the 19th century, Tsarist Russia became more assertive at the beginning of the 20th century, it improved the military forces for the conquest of East Asia by occupying Korea and Manchuria. Investments in the construction of the Trans-Siberian railway line in the same period to link European Moscow to Asian Vladivostok was aimed to support the Russian territorial expansion in the Far-East. One century later, Federal Russia began to rebuild its sphere of influence by launching the Eurasian Economic Union and invading Georgia and Ukraine following the fall of energy prices immediately after the financial crisis of 2008. Wilhelmine Germany supported Austria-Hungary to go to war with Serbia following the assassination of Archduke Franz Ferdinand of Austria by Serbian nationalists, even at the price of a war in the east with Russia. Germany later invaded Belgium at the cost of a war in the west with Great Britain and France. This came because of Kaiser Wilhelm II's anxiety about Germany's position in the early 1910s. Following the German unification in 1871, the 'Kaiserreich' became the European centre of iron and steel production suppressing the position of Great Britain. Militarily, it built a strong navy threatening the supremacy of Great Britain at sea. Geopolitically, it sought a sphere of influence in Central Europe, a German ''Mitteleuropa'' upsetting Russia. It established colonial ambitions overseas, disturbing Great Britain and France. But once the Triple Entente between Great Britain, France and Russia surrounded Germany, the Kaiser felt cornered and afraid. Economically, the Entente instituted an embargo to prevent Germany from accessing resources. Militarily, their armies began to outrank the German military forces. It was such a fear and frustration moment that made the Kaiser risk everything in what was the First World War. Japan followed a similar path. After the Meji Restoration of 1868 that produced a modern economy and military force in Japan that helped win the war with China in 1895 and Russia in 1905, ended in the late 1920s when the economic growth plummeted to low levels. Economically, the 1929-1939 Great Depression closed the markets to Japan causing unrest at home. Militarily, Japan began to feel the threats coming from an over-nationalist China to the south and an over-expansionist Soviet Union to the north. Consequently, Japan put all its resources for a military expansion abroad and an autarkic economic model at home. He built a sphere of influence in the Asia-Pacific by transforming Manchuria into a puppet state (Manchukuo) in 1931, invading China in 1937, and collecting colonies in Southeast Asia for new markets and natural resources necessary for the national expansion of the military and autarkic economic model. By invading China, Japan worried the USSR, by colonizing Indochina and the entire Southeast Asia coastline, upset Great Britain and France, and by asserting its dominance over the Pacific alarmed the United States. Even liberal France tried to rebuild its sphere of influence in Africa through troops deployment and military interventions following the end of the French post-war economic boom in the 1970s.

Now it is the turn of Xi Jinping's China to confirm that in the psychology of nation-states, the more enduring the economic decline of an emerging power lasts, the bigger are the chances for that challenger to the status quo to turn more assertive at home and aggressive abroad. No other emerging power in the past has easily accepted the rapid transition from the peak of the ascendant to continuous decline. And there are plenty of reasons to believe that the People's Republic of China will not do it either. Under President Xi Jinping, China asserted its claims over large swats in the South China Sea against the Philippines, Malaysia, Vietnam, Brunei, and Taiwan. It is accused of militarizing artificial islands in disputed areas in the South China Sea to gain military advantage. In the East China Sea, it came into conflict with Japan over the contested Diaoyu Islands (known in Japan as the Senkaku Islands) following the 2012 Tokyo's nationalization of the islands chain, to which Beijing responded by sending coast guards and navy patrols to the area. China increased its harsh tone towards Taiwan by stating that unification will be achieved peacefully, if possible, forcibly if necessary. Beijing plays intimidation with Taipei by sending planes to fly over Taiwan's airspace and repeated incursions of People's Republic ships into the Taiwan Strait. Diplomatically, it pressures the few partners that Taiwan has diplomatic relations with to switch the diplomatic recognition towards mainland China in exchange for substantial economic advantages. It aggressively asserts its ''One China Policy'' over all nations -including partners- as a mandatory condition for dealing with Beijing. In the Pacific, China is making more and more entrances by signing a security agreement with the Solomon Islands, which has sounded the alarm in Canberra, Wellington, and Washington. Just like pre-World War II Japan, China today is increasing its military power by allocating more and more resources to the defence sector, and is seeking to project more naval power in the Pacific and Indian Oceans by establishing control over a chain of ports that it could serve China for dual-use (commercial and military), especially in cash starving states like Cambodia, Sri Lanka (Hambantota Port), Pakistan (Gwadar) and Solomon Islands, in addition to the already existing Chinese naval base in Djibouti. For fear of losing access to foreign markets as it happened to Imperial Germany, China sought to always guarantee their availability and openness by financing multi-continental investments through the Belt and Road Initiative. And for fear of being economically isolated like the Kaiserreich, Beijing pursued continuous economic integration with the Chinese market and economy at the core of the RCEP and possibly CPTPP somewhere in the future. After all, the more integrated regional economies are with China, the greater are the risks for the entire economic framework if you shut Beijing down. And like France after the 1970s and Russia after 2008, China sought to enrich its sphere of influence in Asia-Pacific, precipitating conflicts with India in South Asia and Australia and the US in the Pacific, and even tensions with Russia in Central Asia. China's belligerent behaviour of the last decade was not only visible through actions outside Chinese borders. Domestically, under Xi Jinping, China was easily turning into a police state, with spending on internal security, surveillance, local militia and increasing the capabilities of the police force. In ''China's Inconvenient Truth'' published in Foreign Affairs, scholar Elizabeth Economy was stating that ''in 2019, China spent $216 billion on domestic public security, including state security, police, domestic surveillance, and armed civil militia-more than three times government spending a decade earlier and roughly $30 billion more than is designated for the People's Liberation Army''. For fear of social unrest, political disobedience, lack of control from the centre and the possibility of foreign interference, Beijing has tried to limit the display and practices of cultural peculiarities and customs in Xinjiang, Tibet, and Inner Mongolia, imposing uniformity and forced order. In Xinjiang the Chinese Communist Party used the fight against terrorism, extremism, and separatism as reasons for turning the entire province into an ultra-monitored digital prison. According to Elizabeth Economy, ''the province is China's 21st largest by population but ranks third in public security spending''. In Hong Kong, Beijing 'de facto' eliminated the 'one country, two systems' narrative that turned the city into an autonomous Special Administrative Region since 1997, by imposing a security law through which the Communist Party could practically bypass the local laws.

All these actions reinforce the theory that China changed its behaviour in foreign and domestic affairs with the beginning of the economic decline. When the People's Republic had double-digit annual growth, it reinforced its peaceful rise as an advantageous outcome to the outside world. And the world was more than happy to welcome China's way up towards integration within the international system. According to this narrative, the West thought that Beijing will always behave like accepting the status-quo of the current world order as a result of which China itself benefited in removing the largest population in history from poverty. But what the West, and the outside world did not expect, is what will happen to China when its economic growth suddenly stops, and the current status-quo will no longer seem conducive to a possible recovery. A change of regime is unimaginable in China, and the humiliation in front of the West, especially the US is seen as a dead end for the Chinese Communist Party after years of asserting that the outside world should make room for China at the big table. What Beijing has chosen to do is to change the political-economic framework through which China depends on the outside world for a new era in which the outside world depends on China. Unfortunately, this is a long path for China, and as seen in the last decade, it is an expansionist, envious, assertive, and aggressive one, all the qualities of an entity with which the international community must deal with high tenderness.



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