Too late, China wakes up to the threat from within

In 2022 China's population fell for the first time since the Great Famine
In 2022 China's population fell for the first time since the Great Famine - Paula Bronstein/Getty Images

China, China, China. Scarcely a day passes without some new scare story about China. The Middle Kingdom was struggling with its image overseas long before Covid, but the pandemic cemented attitudes in the West. Ever since, and with plenty of justification, its every move has been regarded with growing “reds under the bed” paranoia. The feeling is mutual.

The mood has darkened further in the past week. British democracy is under threat from Chinese cyber attacks, the Deputy Prime Minister, Oliver Dowden, told MPs this week in imposing sanctions on a number of Chinese officials. If that’s what standing up to China means these days then the central committee doesn’t have a lot to worry about.

Rather more seriously, the US and Japan are meanwhile planning the biggest upgrade to their security alliance since the mutual defence treaty of 1960.

Not to be outdone by the US ban on exports of hi-tech chips to China, Beijing responded this week by saying it will be phasing out even the low-tech variety on all government computers and servers, replacing foreign chips with its own home-grown ones.

And then of course, there is China’s de facto alliance with Vladimir Putin’s Russia, forming a new axis of authoritarian powers with an overtly anti-Western agenda. The rupture with the West seems virtually complete.

Years of integration into the global economy, in the hope that it might make China more like us, have backfired and are now going powerfully into reverse.

But does the nature of the threat fully justify all the noise which is made about it? In military terms, possibly, even if China plainly poses no direct threat to Europe, and unlike Putin, has no plans to lay claim to any part of it.

It does, however, pose a clear and present danger to Taiwan, where President Xi Jinping would plainly like to crush the life out of this vibrant, free enterprise economy in the same way as he has in Hong Kong. His rhetoric is bellicose and hostile, and we must therefore assume he means what he says.

In economic terms, however, the China threat is receding fast. After decades of stellar growth, China’s medium to long-term economic prospects are at best mediocre and at worst grimly dispiriting.

Now gone almost entirely is the idea of China as an unstoppable economic leviathan that will inevitably eclipse the US and Europe. Already it is obvious that this is not going to be the Chinese century once so widely forecast. Instead, Western commerce is looking increasingly to India as the economic superpower of the future.

Nor is this just because of the immediate causes of China’s economic slowdown – a woefully unbalanced economy which in recent years has relied for its growth substantially on debt-fuelled property development.

For China is indeed, to use the old cliche, getting old before it gets rich. Demographic factors alone are highly likely to floor President Xi’s grandiose ambitions for economic hegemony before they can be realised.

The fundamentals of China’s predicament, in other words, do not support the narrative of democracy under threat from an insurgent totalitarian rival.

There’s been a lot in the papers about demographics over the last week following a new study, published in the Lancet, on declining fertility rates. At some stage in the next 60 years, the global population will peak, and then fast start contracting.

The birth rate is projected to fall below population replacement levels in around three-quarters of countries by 2050, with only a handful of mainly Sub-Saharan nations still producing enough babies to ensure expanding populations by 2100.

In China, however, it has already started, with the population falling in 2022 for the first time since the Great Famine of 1959-61. This wasn’t just a one-off blip: last year deaths continued to significantly outnumber births.

There may be a slight pause in the decline this year. Some couples may have delayed their plans for children in anticipation of the Year of the Dragon, synonymous in Chinese mythology with good fortune.

Any relief will be only temporary. According to projections by the Shanghai Academy of Social Sciences, which correctly forecast the onset of Chinese population decline, it’ll essentially be all downhill from here on in, with the population more than halving between now and the turn of the century.

This is a huge fall, with far-reaching implications for economic development and China’s superpower ambitions. What’s more, there is almost nothing the Chinese leadership can do about it, beyond imprisoning China’s fast-declining cohort of women of child-bearing age and forcing them to breed.

Across much of the developed world and beyond, the birth rate has long since declined below the 2.1 offspring per woman generally thought to be the level required to maintain the population. But thanks to its dictatorial one-child policy introduced in 1980 to curb China’s then almost ruinous birth rate, China has a particularly acute version of it.

China abandoned the one-child policy – limiting urban dwellers to one child per family and most rural inhabitants to two – in favour of a “three-child” policy in 2016, but too late.

Even if women of child-bearing age could be persuaded to have more babies, there are simply not enough of them any longer even to maintain today’s population, let alone increase it.

The one-child policy may have perversely further accentuated this deficiency because of the Chinese preference for male offspring over female, though most studies on this are inconclusive.

In any case, China finds itself classically caught in a “low-fertility trap”, the point of no return, where precipitous population decline becomes inevitable.

The implications are as startling as the statistics themselves. The Shanghai Academy of Social Sciences forecasts that the working-age population will fall to 210 million by 2100, having peaked in 2014, and the ratio of working-age citizens to notionally non-working from 100 to 21 today, to 100 to 137 at the turn of the century.

One thing we know about ageing populations is they like life to be as comfortable and settled as possible. They also don’t like fighting wars, which have historically required a surplus of testosterone-fuelled young men desperate to prove themselves on the battlefield.

The turn of the century is of course still a long way off; there is easily enough time for several wars in between. The nature of warfare has also changed. It no longer requires the bravery of the young.

Even so, totalitarian dictatorships may well struggle with selling the multiple other hardships of war to an elderly population. Putin may seem to disprove this observation, but in doing so he is also demonstrating anew the futility of expansionist warfare. They make a desert, and call it peace.

A couple of other points seem worth making about our propensity to exaggerate the Chinese threat. Anyone would think that China is already a dominant force in the UK economy. It is not; in fact it is still only our fifth-largest trading partner after the US, Germany, the Netherlands and France. Even on imports alone it’s not as big as the US and Germany.

Whether because of the growing diplomatic standoff or other factors, moreover, this position is eroding. The size of trade with China fell last year. The same is true of direct investment by China in the UK economy, which was just 0.3pc of total foreign direct investment in 2021.

We worry about China’s imagined ability to close down our critical infrastructure, but should that really be allowed to influence decisions on whether the Chinese battery company EVE should be building a new gigawatt factory at Coventry Airport, or for that matter whether super-tariffs should be charged on Chinese EVs?

Should they exist at all, these risks can surely be managed. In any case, no nation that hopes to trade with others would deliberately turn the lights off, even if it could. In over-reacting to the Chinese threat, we only shoot ourselves in the foot.

China has lied, copied, stolen and cheated its way up the economic league tables, but ultimately it is a closed economy which increasingly repudiates foreign influence and thereby severely limits its own powers of innovation.

The danger is that now at the peak of its powers, it hubristically lashes out. But in the medium to long term, the demographic die is cast, and it spells a future of waning influence and economic heft.

This article is an extract from The Telegraph’s Economic Intelligence newsletter. Sign up here to get exclusive insight from two of the UK’s leading economic commentators – Ambrose Evans-Pritchard and Jeremy Warner – delivered direct to your inbox every Tuesday

Broaden your horizons with award-winning British journalism. Try The Telegraph free for 3 months with unlimited access to our award-winning website, exclusive app, money-saving offers and more.