Two lessons for China on how to avoid a Soviet-style collapse in its new cold war with the US
Minxin Pei says Beijing is on track to lose its new cold war with the US, as it is failing to recognise and rectify the two mistakes that proved fatal for the Soviet Union: economic mismanagement and imperial overreach
But Chinese leaders also highlighted other important factors, not all of which China’s leaders seem to be heeding today.
To be sure, the Communist Party has undoubtedly taken to heart the first key lesson: strong economic performance is essential to political legitimacy.
And the party’s single-minded focus on spurring GDP growth over the past few decades has delivered an “economic miracle”, with nominal per capita income skyrocketing from US$333 in 1991 to US$7,329 last year. This is the single most important reason why the Communist Party has retained power.
But overseeing a faltering economy was hardly the only mistake Soviet leaders made. They were also drawn into a costly and unwinnable arms race with the United States, and fell victim to imperial overreach, throwing money and resources at regimes with little strategic value and long track records of chronic economic mismanagement.
As China enters a new “cold war” with the US, the Communist Party seems to be at risk of repeating the same catastrophic blunders.
In any case, the issue is not the amount of money China spends on guns per se, but rather the consistent rise in military expenditure, which implies that the country is prepared to engage in a long-term war of attrition with the US.
Yet China’s economy is not equipped to generate sufficient resources to support the level of spending that victory on this front would require.
If China had a sustainable growth model underpinning a highly efficient economy, it might be able to afford a moderate arms race with the US. But it has neither.
All of this will drain the Communist Party’s limited resources. For example, as the old-age dependency ratio rises, so will health care and pension costs.
Moreover, while the Chinese economy may be far more efficient than the Soviet economy was, it is nowhere near as efficient as that of the US.
The problem for the party is that state-owned enterprises play a vital role in sustaining one-party rule, as they are used both to reward loyalists and to facilitate government intervention on behalf of official macroeconomic targets. Dismantling these bloated and inefficient firms would thus amount to political suicide.
Yet protecting them may merely delay the inevitable, because the longer they are allowed to suck scarce resources out of the economy, the more unaffordable an arms race with the US will become – and the greater the challenge to the party’s authority will become.
The second lesson that China’s leaders have failed to appreciate adequately is the need to avoid imperial overreach.
About a decade ago, with massive trade surpluses bringing in a surfeit of hard currency, the Chinese government began to take on costly overseas commitments and subsidise deadbeat “allies”.
Despite early signs of trouble – which, together with the Soviet Union’s experience, should give the Communist Party pause – China seems to be determined to push ahead with the initiative, which the country’s leaders have established as a pillar of their new “grand strategy”.
An even more egregious example of imperial overreach is China’s generous aid to countries – from Cambodia to Venezuela and Russia – that offer little in return.
Like the Soviet Union, China is paying through the nose for a few friends, gaining only limited benefits while becoming increasingly entrenched in an unsustainable arms race. The Sino-American cold war has barely started, yet China is already on track to lose.
Minxin Pei is a professor of government at Claremont McKenna College and the author of China’s Crony Capitalism. Copyright: Project Syndicate
