Is the Chinese Dream Turning into a Chinese Nightmare for Beijing?

Is the Chinese Dream Turning into a Chinese Nightmare for Beijing?

Far from being astride the globe, the “China Dream” globally—China’s economic power, political attraction, and standing—are all eroding.

The question “are the United States and China in a new cold war?” is not particularly challenging. The answer is yes. A more intriguing question might be, “can the United States and China avoid the mistakes of the previous Cold War?”

One of these mistakes was a fear-driven credulousness; a tendency to take all boasts and claims of the rival power (think Nikita Khrushchev’s pronouncement of “We will bury you!”) as accurate, and in doing so, miss a chance to craft sensible, non-escalatory responses. Currently, after Xi Jinping’s visit to Moscow and boasts about China being ready to “stand guard over the world order,” it might be worth taking a closer look at China’s foreign policy environment. Do its boasts match reality, or is China’s global position weakening like a seaside home at high tide?

Far from being astride the globe, the “China Dream” globally—China’s economic power, political attraction, and standing—are all eroding. Several key indicators reveal that, in the epic clash with the United States and the “collective West,” China is weaker than at any time in the last ten years.

Consider the economic dimensions for starters. A key instrument of great power influence has long been foreign direct investment (FDI), something that is also crucial for China’s own economic health. Spurred by its 2001 “Go Out” policy and supercharged with the Belt and Road Initiative (BRI) in 2013, Chinese outward FDI grew steadily, from $10 billion in 2005 to more than $170 billion by 2017. Since then, four of the last five years have seen drops in outward FDI—including a 15 percent fall in 2022, according to the American Enterprise Institute. Chinese investment into Europe, previously a choice location because of its high value-added manufacturing capacity and weak regulation, fell sharply as well. Once eager partners like Germany, Italy, and the EU itself have adopted or strengthened investment screening mechanisms and blocked key Chinese acquisitions. A mutual investment treaty that is supposed to address chronic business complaints about Chinese practices and restrictions has stalled in the European Parliament due to widespread Chinese human rights violations and tit-for-tat individual sanctions. Viewed in the other direction, European investment into China dropped steadily after 2018 until rebounding last year. But as Rhodium Group figures show, FDI inflow to China has become concentrated to the point where almost 90 percent of European FDI in China comes from only four countries. During the coronavirus pandemic, the Rhodium report notes, “virtually no European investors that were not already present in the country have made direct investments.” The impact of European investment, which had in 2018 accounted for 7.5 percent of Chinese GDP, fell to 2.8 percent three years later.

The most serious challenge to Chinese economic clout has come from the United States. Heightened tariffs and restrictions put in place during the Trump administration have continued under Joe Biden. Reviews of foreign (read: Chinese) investments have broadened, as have policies blocking the sale of high-tech goods to China—not only from the United States, but also from companies in other countries whose goods have U.S. components. Washington redoubled its efforts to block Huawei and TikTok, along with passing legislation to subsidize U.S. production of high-tech goods at home and direct “friendshoring” investments to reliable allies and partners.

As an economic colossus, China has alternatives, especially in Asia, Africa, and other places where it claims to offer an alternative development model. But here, too, China’s presence has run out of steam. Annual investments in the countries of the BRI, once the flagship vehicle for the extension of Chinese influence, are today less than half of what they were only five years ago. And most of that is in countries with serious debt issues. As a report in Foreign Policy put it, “China can make friends or break legs. It can’t do both.”

In some places, the Chinese “model” proved more destructive than instructive. Beijing’s bullying of Sri Lanka into handing over the Hambantota port that it built with borrowed Chinese money has not exactly burnished Beijing’s reputation as a guardian of a new world order. In fact, according to Pew Research, favorable views of China have dropped sharply around the world—a fall reinforced by China’s “digital authoritarianism” during coronavirus, its draconian and unsuccessful lockdown policy, and its support for Russia’s invasion of Ukraine.

In Europe, which is generally less strident than the United States, China is on the verge of trading its once flourishing ties with the world’s most advanced economies for the cheap oil and the desperate embrace of what Alexander Gabuev calls its “new vassal,” Russia. At the EU-China summit in April 2022, the president of the European Commission, Ursula von der Leyen, was blunt: “China, as a permanent member of the UN Security Council, has a special responsibility. No European citizen would understand any support to Russia's ability to wage war.” She is right. In February 2023, a report by the Munich Security Conference showed that across the globe—including in India and Brazi—two-thirds of those surveyed felt that China’s support for Russia's invasion of Ukraine made them wary of Chinese ambitions.

Among the EU’s new East European members, Beijing’s much-touted “CEE+” framework has foundered on China’s willingness to see Ukraine’s sovereignty ravished and its bullying of states that veer even a little on Taiwan, like Lithuania. China has also forfeited one of its more important European trade and investment partners in Ukraine itself. At one point. Volodymyr Zelensky offered Ukraine as “China’s bridge to Europe,” and Chinese companies began the construction of the largest wind farm in Europe near Donetsk and the refitting of the port of Mariupol, now in ruins.

If weakening the Western alliance structure is one of Beijing’s aims, it is now more distant than ever. Ukraine and Moldova have been advanced to candidate status for the EU, and NATO, the very embodiment of Western global domination in Beijing’s view, has been given new life, strength, and members by the actions of Xi’s “best friend” in Moscow. Worse than that from China’s point of view, the alliance has now incorporated China’s own neighborhood into its security stance. In 2022, NATO formally declared the Indo-Pacific to be part of its “shared security interests.” Under President Joe Biden, the United States has significantly increased the prominence of policy initiatives in this region, such as the Quadrilateral Security Dialogue or Quad (composed of India, Australia, Japan, and the United States), and taken actions—like selling nuclear-powered submarines to Australia and adding U.S. bases in the Philippines—that support a more muscular U.S. presence in the region.

Even the EU—which is certainly not a military alliance—has adopted the strategic aim of insuring an “open and rule-based” South China Sea—a direct rejection of China's unilateral claims to virtually all of it—and backed up this rhetoric with action. This month, Italy—the only G-7 country to sign on to the BRI and once the most open to Chinese investment—announced the deployment of one of its two aircraft carriers to the region and confirmed a tripartite deal with Japan and the UK to develop and produce a new generation fighter plane.

Nowhere has the rise of China been greeted with more alarm than in Japan. It was then-Prime Minister Shinzo Abe who first put forth the notion of a “Free and Open Indo-Pacific,” now widely adopted, as a notion to counter China’s influence. More recently, Japan has doubled its defense budget, reconceptualized the notion of what “defense” means, and opted for new, higher-quality weapons. While some of this comes as a response to North Korea’s menacing actions, Japan’s new national security strategy, adopted in December 2022, makes clear that China represents “the unprecedented and greatest strategic challenge.”

A broader unwelcome development for China is the comparison offered in the United States and elsewhere between Russian actions in Ukraine and possible Chinese actions against Taiwan—a comparison rejected by Beijing. As an alarm bell, the sound could not be clearer. “Ukraine today could be East Asia tomorrow,” said Japanese prime minister Fumio Kishida, who just concluded a high-profile visit to Ukraine.

The news is not all bad for China. Foreign trade is up—including with its number one partner, the United States. Beijing scored a significant coup by facilitating the recent deal between Saudi Arabia and Iran, Honduras has changed sides, and European leaders still head off to Beijing, with groups of businessmen in tow. But the overall worsening international setting cannot be encouraging for Xi and the Chinese Communist Party, which must at the same time reckon with a dramatically slower growth rate at home, the consequences of a disastrous coronavirus policy, and a population that is both declining and aging.

Brave words and boasts are required when authoritarian leaders need to use nationalism to stay in power at home. But they need not be swallowed whole by outside observers in the face of contrary evidence, nor by policymakers trying to ensure that the new Cold War stays cold.