President Xi's Bluffs Have Been a Disaster for China

Chinese President Xi Jinping speaks after reviewing the Chinese Navy fleet in the South China Sea.
In this April 12, 2018, file photo released by Xinhua News Agency, Chinese President Xi Jinping speaks after reviewing the Chinese People's Liberation Army (PLA) Navy fleet in the South China Sea. (Li Gang/Xinhua via AP)

Joseph V. Micallef is a best-selling military history and world affairs author, and keynote speaker. Follow him on Twitter @JosephVMicallef.

Xi Jinping assumed the office of president of the People's Republic of China on March 14, 2013. He is also the general secretary of the Communist Party of China and chairman of the Central Military Commission, and chairs various other party and governmental commissions charged with supervising foreign affairs, financial and economic matters, and governmental reforms.

He is arguably the most powerful Chinese leader to emerge since Deng Xiaoping a generation earlier. In 2016, China's Communist Party designated him a "core leader," a title previously held by Mao Zedong. In 2018, China's state constitution was amended to abolish term limits for the presidency.

Since becoming president, Xi has instituted a series of far-ranging measures designed to further centralize his power while at the same time tightening party discipline and curbing dissent throughout China. He launched a wide-ranging anti-corruption campaign, although it's unclear whether its purpose was rooting out government corruption or merely a pretext to purge the government and the party of his opponents.

More importantly, Xi launched a series of interlocking programs to expand Chinese economic, political and military influence throughout the world, in general, and East Asia and the Western Pacific, in particular. These programs include: the continued buildup and modernization of the Chinese military, including the militarization of the South China Sea, The Belt and Road Initiative, and a campaign, China 2025, designed to make the country the leading technological power in the world by 2025.

Related: Beijing's 'One Belt-One Road' Strategy: Why Geography Still Matters

These programs were often couched in the rhetoric of Chinese nationalist aspirations and government claims that it was restoring China's historic role in the world. Xi's plans were often described with the slogan "Chinese Dream," although the specific content of Chinese Dream was never actually defined.

These far-ranging ambitions were bound to impact Sino-American relations on multiple levels: political, economic and military. They did, leading to a sharp deterioration of Sino-American relations and countervailing responses by the United States. Xi's "The Chinese Dream," however, was little more than a bluff. It is rapidly turning into a nightmare and, so far, has been a complete disaster for China.

The Legacy of the 2008 Financial Crisis

Its revolutionary roots and communist rhetoric notwithstanding, China's Communist Party derives its legitimacy from its ability to manage China's economic growth and, by extension, improve the living standards of China's population. As an export-led economy, the 2008 financial crisis hit China particularly hard. Beijing responded, as did most governments, including the U.S., by increasing government spending, easing credit terms and encouraging business lending. It also attempted to stoke internal consumer demand to compensate for reduced exports. The strategy, in large part, worked, avoiding a major downturn in the Chinese economy and preventing large-scale layoffs.

The result, however, were some significant economic dislocations. Much of the credit expansion went to large, often poorly run, state enterprises. While ample credit ensured they would stay in business and preserve jobs, it also resulted in highly leveraged balance sheets -- in some cases, balance sheets that could be kept solvent only by ever larger infusions of credit.

The credit expansion also fueled a property bubble in China's coastal cities. It was spurred further by the growth of China's largely unregulated, informal, shadow banking sector. Home equity is the main component of the household assets of China's middle class. That's true of many western countries also. In China, however, the property price bubble, as measured by the ratio of average household income to property prices, is among the highest in the world. That makes Chinese property prices particularly vulnerable to a downturn.

Take Shanghai, the most expensive city in China. Apartment prices in Shanghai run about $700 a square foot. A 1,000-square-foot apartment will cost about $700,000. That same apartment cost under $50,000 25 years ago. More than 90% of Chinese middle-class families own their own homes, so the price appreciation of real estate in China's coastal cities has been a major source of their wealth. The average salary in Shanghai is around $13,000 a year. That puts the cost of the average apartment in Shanghai at almost 54 times the median salary. The multiple of median salary to housing prices is 30.4 in China's Tier 1 cities and 16.1 in China's Tier 2 cities.

By comparison, the average ratio of median income to housing prices in the U.S. is between three to four times. The ratio exceeded five times, for the first time in history, in 2007, just before the 2008 crash in property prices. Currently, it is at roughly 4.3 times, although the ratio in cities like New York or San Francisco is typically much higher. In New York, for example, average house prices are about 30 times the average income.

Xi was appointed president of China because he was seen as a strong leader who could implement the reforms needed to rid China's economy of these imbalances. To his credit, he attempted to do that, although weakness in China's economy, in part as a result of American imposed tariffs, has forced Beijing to repeatedly reverse course and expand credit in order to stoke demand.

At the same time, however, the Xi government introduced a series of foreign policy and military initiatives designed to project Chinese power and influence around the world. In retrospect, these proved to be ill-timed.

The Return of the Middle Kingdom

Starting in 2013, Beijing began creating and militarizing man-made islands on various reefs and rocky outcroppings in the South China Sea. There has been a decades-long dispute between China and its maritime neighbors over conflicting claims to the South China Sea. China's actions have been criticized by the U.S. and its allies. Starting in 2015, the U.S. began conducting Freedom of Navigation Operations in the region designed to demonstrate its rejection of Chinese claims. Both Great Britain and France have conducted similar operations.

China's aggressive posture in the South China Sea has resulted in a military buildup among the countries that dispute China's territorial claims. It has also spurred a greater degree of military cooperation among those countries, including such unlikely partners as the U.S. and Vietnam and the Philippines and Japan. More importantly, it has precipitated Japanese re-armament and the emergence of a loose coalition of countries centered around Japan, Australia, India and the U.S. intent on challenging China's military expansion. It has also prompted a re-deployment of American military forces to the Western Pacific. The recognition of China as a near-peer rival of the U.S. has also justified a significant increase in U.S. defense spending.

China's new real estate in the South China sea is of questionable value. According to the United Nations Convention on the Law of the Sea, man-made islands do not qualify for territorial waters or exclusive economic zones. Moreover, in the event of an armed conflict between the U.S. and China, however unlikely that event would be, the man-made islands would prove to be indefensible and easily neutralized. Beyond their propaganda value as a symbol of Chinese sovereignty and power, the islands serve little military purpose.

Likewise, in 2013, Beijing launched, with great fanfare, its Belt and Road initiative (BRI). The program is designed to create and improve land and maritime links across Eurasia and the world's oceans. Often termed the "new silk road," the program has since expanded to include proposed maritime routes across the Russian Arctic.

The Initiative is nothing less than an attempt to reorient the economics of Central Asia and many of the countries around the Indian Ocean toward China, while at the same time creating transportation links across Eurasia that would offer an alternative to the vulnerable maritime links that currently connect Chinese industry with overseas markets.

At the heart of the program are Chinese loans to develop transportation infrastructure, especially maritime facilities. The emphasis on maritime infrastructure, and Chinese acquisition of port facilities in several countries, has prompted criticism that such facilities could be made available to the People's Liberation Army Navy, especially those facilities in the Indian Ocean.

The BRI, moreover, has been criticized for its onerous terms as little more than debt imperialism. Several countries, Pakistan, Myanmar, Kazakhstan and Malaysia, have rejected or backed away from Chinese plans to invest in infrastructure projects.

The Initiative may prove to be too big even for China's deep pockets. It may also saddle Beijing with large, uncollectible loans to many developing countries. Moreover, it has spurred Indian diplomatic initiatives in Southeast Asia, the "Look East" policy, and Central Asia, and greater engagement along the Indian Ocean littoral. It is also sparking greater U.S. engagement with Central Asia, most notably Mongolia.

Land transportation links across Eurasia may be free of the threat of interdiction by the U.S. Navy and are faster than maritime routes, but they will also be expensive to build and maintain, come with significant political risk and will be more expensive than maritime transit.

Finally, Beijing's "China 2025" initiative to make China the leading technological powerhouse is unrealistic. True, China is well on its way to becoming a leading developer of new technology and leads the world in the number of STEM (science, technology, engineering and math) graduates. Its level of spending on research and development, moreover, is among the world's highest, and represents a disproportionate amount of the world's new patent applications. Still, it is a long way from technologically superseding the U.S. and Europe.

It was inevitable that China would move up the value-added manufacturing ladder. In doing so, it also emerged as a significant economic and technological rival to the U.S. and Europe, a development that has military implications as well.

While China 2025 may spur Chinese pride and nationalist sentiments, that explicit a challenge was bound to precipitate a response from the U.S. It did. China's policy of forcing technology transfer by western firms to Chinese partners as a prerequisite for access to China's internal market, and its failure to curb the theft of western technology by Chinese firms, was bound to eventually reach a tipping point. The combination of China's technological ambitions, and the Trump administration's aggressiveness on this issue, brought it to a head sooner than might have otherwise been the case.

The bottom line is that China's aggressive military, diplomatic and economic strategies have brought a counter-reaction from the U.S. and its allies rather than intimidating them.

These actions have complicated Xi's attempts to address the structural weaknesses in the Chinese economy. They have also resulted in many issues becoming linked together, further complicating their resolution. Nowhere is this more apparent than in Hong Kong. One of the factors limiting Beijing's freedom of action in Hong Kong is the knowledge that any kind of military crackdown on the protesters would complicate the resolution of the U.S.-China trade dispute.

Was the Xi government's aggressive foreign posture an attempt to hide or deflect China's internal weaknesses? That's understandable but, if so, it came at the price of making those internal weaknesses harder to resolve.

China's relationship with the U.S. is arguably Beijing's most important foreign relationship. The U.S. is China's largest trading partner, and the U.S. military is the only force that can challenge China. Managing Beijing's relationship with Washington is one of the Chinese government's most important tasks. The Trump administration's aggressive stance has certainly aggravated the situation but so, too, have China's belligerent policies.

Judging by the current state of U.S.-China relations, so far, the Xi administration's ambitions have been a disaster for China.

-- The opinions expressed in this op-ed are those of the author and do not necessarily reflect the views of If you would like to submit your own commentary, please send your article to for consideration.

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