CHINA'S COMING DECLINE

Rightsizing the PRC threat

By THÉRČSE SHAHEEN
May 25, 2023 1:51 PM

Demographic-driven economic challenges aren’t the only problems China faces. Lack of access to natural resources is another. One of them is energy, of course, and China’s embrace of Russia is partially explained by the need for low-cost oil and gas. But even more fundamental is the water challenge. With 20 percent of the global population and about 7 percent of the world’s fresh water, China has a water crisis. Even the coming population decline will not materially alleviate its unmet need for water and energy. The water crisis is not a new problem; Mao knew from the beginning that access to water for China’s population would be a grave challenge. Not much has changed since. Premier Wen Jiabao in 2005 acknowledged that water scarcity was a threat to “the very survival of the Chinese nation.” Policies to meet the threat have included massive government projects to transport water from southern China to the populated areas in the north. China also diverted large amounts of water from cross-national rivers, causing tensions with neighbors including India and the Southeast Asian countries. A major government program of tunnels, canals, and reservoirs intended to divert domestic water to where it is needed has displaced populations and caused social and economic tension. In the early 2000s, the government instituted price controls to hide the true cost of water, a policy that only discourages conservation in agriculture, industry, and household use. That drawback, together with the effects of climate change and China’s poor record of industrial water management overall, has kept the nation’s water projects from yielding much so far. Per capita water supply is about half the U.N. threshold for water scarcity, which also exacerbates China’s food-insecurity challenges. Internal production accounts for just 50 percent of the food the population needs to meet minimum, globally accepted standards. And China is dependent on imports of seeds and fertilizer even for this low level of production.

As for China’s economy, Western observers tend to believe that the CCP has many levers to pull. It does not. As always with Chinese economic data, it’s impossible to know what is true and what is state propaganda. But even accepting that some economic growth has resumed after the ending of zero-Covid shutdowns, we should note significant constraints. Not only total population and consumer spending but the other main elements of GDP growth — government spending, net exports, and investment — all face downward pressure.