Will China dominate the 21st century?

Well, even though we're often told that we're living?in a Chinese century and China will keep rising forever, I think that future historians are going to say that 2020s was the decade that China's epic rise finally came to an end.

But what fueled the meteoric Chinese rise at first?

The interplay and coexistence of four main factors: a conducive security environment, a relatively capable government, a demographic boom, and resources galore.

First and foremost, for much of the last five decades, China has enjoyed its most secure geopolitical position in modern history. This is crucial because it is surrounded by 19 countries, many of which are powerful, hostile to China, unstable, or a combination of these.

The second factor that China really needed for its rise was a decent??government. So in 1976, Mao dies, and China's new leaders basically say, let's not do another?cultural revolution. So they started to reward lower level Chinese leaders for good economic?performance, not just blind loyalty to the Chinese Communist Party. They also allowed quasi-private markets and industries and this big boom of economic?activity took place. Disappointingly, it has not only plateued but it seems to be reversing, if we take into account and compare China's GDP to that of US.

A third crucial factor was the greatest demographic dividend in human history. For a significant portion of the last 40 years, China had approximately 10 to 15 workers supporting every elderly retiree—two to three times the global average. This remarkable phenomenon was the unrepeatable result of China's unique population history.

In the 1950s, Mao inherited a country devastated by decades of war and strife. Seeking to transform China into a superpower, he incentivized Chinese families to have large numbers of children, causing the population to surge by 80% within 30 years. However, concerns about overcrowding led the Communist Party to implement the one-child policy.

For much of the last 40 years, this baby boom generation was in the prime of its working lives, with relatively few dependents to care for. As a result, this population was perfectly positioned for economic productivity. Demographers estimate that this demographic bubble alone accounts for at least 25% of China's rapid economic growth during this period.

The final factor crucial to China’s rise was its abundant natural resources. Until relatively recently, China was nearly self-sufficient in essential resources such as water, food, and energy. This self-sufficiency significantly lowered the cost of economic growth, as raw materials were readily available and inexpensive.

But now, each of these assets is becoming a liability, beginning to weigh China down.

To begin with, China is running out of resources. Half of its rivers have disappeared, and 60% of its groundwater is so polluted that the Chinese government has deemed it unfit for human contact. This means the water cannot be used for agriculture or industry, let alone for drinking. Beijing, for example, has as little water available per capita as Saudi Arabia.

The situation is similarly dire with energy resources. China has exhausted much of its exploitable oil, and even coal—once abundant—is becoming scarce. As a result, raw material costs in China have risen substantially in recent years, significantly increasing the expense of economic growth. Producing each unit of GDP today is three times more expensive than it was in the 2000s, and this cost continues to climb. In addition to this, it is worth noting that Chinese economy currently needs almost 12 units of capital in order to produce 1 unit of output.

Simultaneously, China is facing a demographic decline. The baby boom generation is now retiring, placing an immense burden on the smaller one-child generation. Over the next decade, China is expected to lose more than 70 million working-age adults while gaining over 130 million senior citizens.This shift is akin to removing an entire France of workers, consumers, and taxpayers and replacing it with a Japan of elderly pensioners—all within ten years. The previously favorable worker-to-retiree ratio of 15 to 1 is projected to collapse to just 2 to 1 by the late 2030s, with only two workers available to support each retiree.

Addressing these issues will become increasingly challenging, as China is now governed by a leader who prioritizes political control over economic efficiency. The zero-COVID lockdowns and the suppression of Hong Kong are among the most visible examples. Additionally, subsidies are directed toward state-connected firms, while the anti-corruption campaign has stifled lower-level officials, discouraging experimentation and entrepreneurship. Many fear disrupting patronage networks or drawing scrutiny that could result in becoming targets of anti-corruption probes.

China is increasingly losing the preferential access it once had to advanced economies' markets, technology, and capital. The United States is actively engaging in a trade and technology war against China, with the European Union and Japan gradually adopting similar policies. As a result, China now faces a growing number of trade and investment barriers that were virtually nonexistent a decade ago.

Simultaneously, China’s security landscape is becoming more precarious. This map of expanding U.S. military bases illustrates a strategic maneuver that Xi Jinping has referred to as "all-around encirclement" by the United States. The challenges reflect a broader geopolitical shift that threatens to isolate China economically and strategically.

China's economic boom is now drawing to a close, creating significant repercussions for many countries that had tied their fortunes to its rise. China accounted for over 40% of global economic growth in the 1990s and 2000s. From soybeans to computer chips, cars, pharmaceuticals, and machine tools, China’s immense demand transformed its market into a gold mine for nations worldwide. Imports as a share of China's economy rose substantially, further driving its influence.

China's insatiable demand for resources also spurred a global rise in commodity prices. This, in turn, indirectly benefited countries that did not trade directly with China but gained from higher prices for their exports. For example, Russia experienced a resurgence as China's rise created unprecedented demand for its oil, gas, weapons, and machine tools. Similarly, numerous other economies were propelled forward by the ripple effects of China's extraordinary growth.

Simultaneously, China was not merely purchasing goods; it was also extending loans abroad. As it accumulated wealth, China redirected its financial resources into international lending, primarily to enable countries to hire Chinese firms for infrastructure projects. These projects included roads, bridges, telecommunications networks, and even soccer stadiums.Over the past two decades, China has been responsible for constructing one out of every three infrastructure projects in Africa, solidifying its position as a dominant global lender. However, this era has come to an end.

So what's next?

As China's economy slows and it focuses on trying to stabilize its own economy—sometimes at the expense of putting other economies at a disadvantage—more and more countries are beginning to see China less as a profitable economic partner and more as a potential threat, both economically and, in some cases, geopolitically. This shift is putting significant pressure on China. It is not only grappling with a slowing economy but also facing increasing geopolitical pushback.

My concern is that China is becoming a classic peaking power, which, historically, has been the most dangerous type of country in the world. Over the past four decades, rapid economic growth has propelled China forward, equipping it with the financial resources and military strength to make significant moves on the international stage. This growth has also fueled the ambitions of China's leaders, who believe this could be their century and feel the urgency to act on that vision.However, slowing economic growth and increasing international pushback are now providing China with a strong motive to act more aggressively in pursuing its lofty ambitions.

On top of that, four things are particularly worrying. First of all, we can discern the emergence of a still nascent fascism, with the worship of Xi Jinping at its epicenter. He is portrayed as the third pillar of a "holy trinity." The narrative goes: under Mao, China stood up; under Deng Xiaoping, China became rich; and under Xi Jinping, China is becoming mighty again. Another issue is the escalation of hyper-nationalism, accompanied by the brutal repression of minorities.

In addition, there is the development of an Orwellian surveillance state, capable of tracking every movement of Chinese citizens to enforce discipline. Finally, the most dangerous concern is China's military buildup, the largest peacetime expansion since Nazi Germany's pre-WWII era. According to American intelligence sources, China spends around 700 billion dollars annually on its armed forces.

At the risk of sounding alarmist, it seems that China is no longer content to rely solely on economic carrots to secure concessions from other countries. Instead, it sadly appears increasingly willing to wield military sticks to coerce compliance.