One of the questions on the minds of most China watchers these days is how Beijing will behave externally when it faces a far more difficult internal environment. Of the well-recognized challenges China will encounter in the coming years are its deteriorating economic dynamism, a structure of decision-making with diffused power and uncertain authority, rising nationalism, growing demand for political reform, and widespread popular disenchantment with the status quo.
In totality, these internal difficulties will reduce the resources available to maintain and expand China’s influence around the world, constrain the Chinese military’s ability to accelerate its modernization, and make Chinese leaders more reluctant to assume greater international or regional responsibilities. Most worryingly, erratic behavior driven by a mixture of lack of leadership experience and political security will most likely mark Beijing’s foreign policy conduct in the coming years.
Given the high profile China has assumed in projecting its economic influence around the world, particularly in resource-rich developing countries, one might dismiss as fanciful the suggestion that looming economic hardships at home may severely limit Chinese capacity for establishing itself as an economic alternative to the West. But a closer look at how China has been funding its investments in Africa, Central Asia, and Latin America would show that such investments are not only expensive, but also very risky. The grants and concessionary loans China has made to various countries to gain their goodwill have totaled at least tens of billions of dollars (these are reported figures; nobody knows the real amount). They were made when China enjoyed double-digit growth and had ample cash to throw around. But as the Chinese economy decelerates and less money flows into Beijing’s coffers, the Chinese government will obviously have less funds to sustain such economic and diplomatic offensives. Politically, continuing a lavish foreign aid program when its own people are struggling will surely arouse fierce criticisms from the public. Not too long ago, the Chinese Foreign Ministry was denounced bitterly when it was revealed that China donated safe school buses to Macedonia when its own schoolchildren have to ride in unsafe vehicles.
China’s risky foray into developing countries will face another hurdle. Most of the big-ticket projects China has supported in these countries are funded by loans from China’s state-owned banks. Based on previous experience, many of these projects are likely to fail. As Chinese banks are themselves expected to struggle to deal with a wave of non-performing loans at home, the last thing they want to do is to keep funding these high-risk, low-return projects abroad. So it is a foregone conclusion that a weaker China at home means a less influential China abroad.