China in 2024 – Chair’s speech to NZIIA Nelson branch

In February 2024 New Zealand China Council Chair John McKinnon gave an address on “China in 2024” to the Hawke’s Bay branch of the New Zealand Institute of International Affairs (NZIIA). This speech to the Institute’s Nelson branch updates and extends John’s comments, four months on.

I want to approach this subject from three angles – the people, the economy, and the government. And wrap up by saying what all that means for this country’s relations with China in 2024.

Before heading into my speech proper, let me say something about the New Zealand China Council. The Council was established in 2012, so 12 years ago, to provide a forum for the exchange of views and experiences amongst those with a significant stake in New Zealand’s relations with China, and to provide an opportunity for there to be a public non-government voice on that relationship. Recently we have issued reports on science collaboration, Chinese language learning, the prospects for New Zealand’s food protein exports, amongst others. Next week we will be issuing a report on New Zealand’s imports from China. Our members include corporates such as Fonterra and Zespri, professional service companies, government departments, the creative sector, NGOs, Chinese communities and more. Our funding comes from our members, either through subscriptions, or in kind. During COVID our interactions with counterparts in China were perforce on line but we are now resuming face to face contacts. I visited China in May and June 2023, our executive director visited again in November last year and April this, and I hosted an in-person dialogue with Chinese counterparts in Wellington in May.

Let us begin with the people.

There are of course many of them: 1.4 billion at last estimate. And that is a lot. India may now have more people and China’s population may be declining (more on this later) but it is still a substantial population. The next most populous nations in the world after India and China, are the United States, Indonesia and Pakistan, but even the USA at Number 3 comes in at best at just over a quarter of China’s population. China officially counts 56 nationalities, but one of these, in Chinese terminology the Han, is what we generally know as Chinese and that is over 90% of the total population. Of course given the absolute numbers, even the so called ‘minority’ nationalities can be numerous. Some of these are very well known to people in this country – Uyghurs at 11 million, Tibetans at 7 million. But in China itself they are dwarfed by the Han. This is one reason why, unlike the former Soviet Union, China is not a federal state.

But, some of you may say, what about the Cantonese, the Shanghainese and other such groups? The political reality is that they are all deemed to be ‘Han’. The cultural reality is that they are bound together by a common written language and increasingly by a common spoken standard. This is not a recent phenomenon. For as long as China has been a unified country – even by the toughest criteria 600 years – there has been a need to have one form of the Chinese language which is mutually understood, and that, by a process familiar elsewhere, has been the speech of the capital – Beijing.

And for even longer there has been a single written form of the language. It is hard for non-Chinese to comprehend this, the closest analogy for many of us are our numbers – 1, 2, 3, 4 etc. When these are written as numbers as opposed to words, they can be read by French speakers, or German speakers, or for that matter Chinese speakers, but voiced entirely differently. What is plain on the page is completely incomprehensible when spoken. In an official meeting room in Shanghai there was a notice which said, in Chinese, please speak ‘Putonghua’. It was not directed at foreigners like me, but at Shanghainese who might find it easier to slip into their mother tongue, as opposed to speaking the national standard.

I won’t confuse you further by going into details, suffice to say that while Cantonese, Shanghainese and many other speech forms have millions of speakers, the standard national language, that which is taught, broadcast, and heard in movies is what is officially called ‘Putonghua’ – the common speech, elsewhere known as Guoyu, Huayu, Zhongwen, or often in foreign languages (and misleadingly, in my view) Mandarin – and it is based on the speech of Beijing. It is what makes it possible for a person from one end of the country to speak to a person from the other end, although neither of them may be familiar with the respective local speech form.

When the People’s Republic of China was established in 1949, its population was about 600 million. Mao was a great believer in a large population, and that combined with better health care and a decrease in infant mortality rates, saw the population reach almost a billion when he died in September 1976, and that despite the disruptions of the Great Leap Forward and the Cultural Revolution. In 1978 the famous, not say infamous one child policy was adopted – every married couple (with some exceptions) could only have one child. The rate of population growth slowed, probably more so in the urban than in the rural areas, but it did ensure that the current population of China has peaked. The one child policy has been relaxed in recent years as China is confronting a phenomenon which other countries in Asia have faced – a declining and ageing population. The number of live births per annum have dropped from 17.86 million in 2016 to 9.02 million in 2023. And despite encouragement being given to have more children, urban dwellers like their peers in other countries have discovered that children are expensive and that it maybe be better to have fewer rather than more. These are all of course individual decisions – but the aggregate effect is clear.

China as I said is not alone in confronting this phenomenon. Japan, the Republic of Korea and Singapore all have declining populations, internationally defined as a population with a ‘replacement’ rate of less than 2.1. The problem is not of course the absolute numbers, which in China are still remarkable, but the proportion of productive to non-productive individuals.

While I have cautioned against generalisation, it is probably reasonable to say that for most people in China the present is a better place than the past, and there is an expectation that the future if not better at least won’t be worse. The past contains the cultural revolution, the great leap forward, the “century of humiliation”, natural and human disasters such as floods and famines, and many more besides. For the dwellers in cities such as Shanghai and Beijing, these are all a world away from the future facing, fast paced life that they lead. Embracing the new is ubiquitous in China, and the sheer numbers at play mean trends can gain huge momentum in a very short space of time. Many Chinese are first adopters without even knowing the term.

And they are as nationalist as any other nation. They take pride in what China is achieving, and they are conscious that it is playing catch up with richer, more developed nations such as those in North America and Europe – and ourselves. They may not be interested in all dimensions of China’s external policies, but they are likely to support any action which looks to enhance China’s standing in the world.

The economy

China’s economy is huge, but what is of more moment is its gross domestic product (GDP) per capita, and its external trade. The first tells us what the size of China’s economy means to an individual in China. The latter tells us the extent to which China is integrated with the global economy.

GDP per capita tells an amazing story. In 1976, when Mao died, China’s GDP per capita was US$165. Now it is US$12,500. China speaks often of having lifted 700 million people out of poverty in three decades. We may quibble over the figures, or what is used to define ‘poverty’, but the achievement is visible throughout the country. People live better, dress better and above all eat better than they used to. They have more choices, and until COVID put a dampener, they could travel as tourists as far as they wished, to almost every country in the world, including New Zealand. There is much debate also as to whether the Chinese economy will overtake that of the US in the next few decades – indeed if the size of an economy is calculated through purchasing power parity [PPP] it already has. But I suggest that the better indicator is in GDP per capita and in that respect China still has a long way to go to attain the US level of $67,000. (New Zealand’s, by comparison, is US$47,000).

Generalisation is especially tricky here. The large cities in the east are much more prosperous than those inland. And everywhere the super-rich are much richer even than rich listers in this country. China’s Gini coefficient – the standard measure of income equality – has shot up from 0.16 in 1979 to the current 0.46. In other words there are now far greater extremes of wealth in China than there were when ‘reform and opening up’ started. Yet what is remarkable is less what has happened in Shanghai and Guangzhou, than in so-called Tier 3 and 4 cities. On our website you can find our executive director’s report of a visit he made to the city of Dezhou in Shandong province in November last year, a city hitherto unknown to me and probably even to many in China, with a mere 6 million people. New Zealand produce could be found but what was available in shops was much more local than imported. A market worth exploring, or not – only time will tell, but the consumer trajectory in places such as Dezhou is more likely to be up than down.

For many decades now China has been a power house of manufacturing, and a major trading partner of many countries. The former is changing as China is moving up the value chain with services now constituting a larger part of the Chinese economy than before (now over 50%). But even so, China’s investments in infrastructure and education, its internal supply networks, will continue to give it an edge over competitors in developing countries for some decades to come. And investment in manufacturing has held up, despite the ravages of COVID. Automated production is increasingly replacing factory floors of migrant workers, and products have become more sophisticated.

As you have probably heard ad nauseam, China is New Zealand’s largest economic partner by quite some distance. What you may not know is that New Zealand is not alone in this. Indeed for some 130 countries in the world China is the leading trade partner. This says much about the magnetic attraction and size of that economy. China’s appetite for what the world produces is huge. Its exports are correspondingly large but it may be worth noting here that New Zealand is one of the few countries with a trade surplus with China – in other words we export more to China than we import from China. It is the scale of this which makes me doubt that strategies to reduce those figures will work. Diversification is good, and something many businesses do as a matter of course. But businesses do not sell to China because they love the country. They do so because they get a better price there.

The figures are astonishing, but this does not mean that China is not facing challenges now and in the future. Some of these are well known – the scale of youth unemployment, the housing ‘bubble’, the medium and long term effects of COVID. Others are inherent in the way in which China organises its economy – such as the role of SOEs, or the tackling of corruption.

The high level of youth unemployment is especially puzzling, given the decline in China’s overall population and the proportion of its working population. China has started releasing youth unemployment figures again, having recategorised and thereby reduced the startling figures from 2023 [21% when last published]. But even so, the figures are still high. The desire of parents to ensure their offspring – often of course an only child – attend university, when China’s economy requires a supply of vocationally trained skilled workers, is one contributing factor.

The housing bubble resembles that which afflicted Japan in the 1990s (although the asset price bubble in Japan was much higher than that in China) – investment funds flooding into real estate as a seemingly assured source of capital growth. That bubble has burst, but one significant dimension is that the financial system was not as entangled with the housing market as those markets were in 1990s Japan. This is not much consolation to those who have seen their savings dissipate. But it does mean that the collapse of firms such as Evergrande is less likely to have system wide effects on the Chinese economy.
COVID had a devastating effect in China, very damaging to individual businesses and to families, and with a dampening effect on consumption. The abrupt change of course in November 2022 was overdue, but could not make up for business closures and family losses. When I visited China in May 2023 it seemed as if the country had turned its back on COVID. Later in 2023, the outlook did not seem so positive, and the future much less certain.

In July the CCP will convene the third plenum of the current Central Committee. Third plenums are generally the moment at which directions for the economy are confirmed or new directions announced. This third plenum is later than the norm. I do not know what it will say, but I commend it to your attention as an authoritative statement of future direction in the Chinese economy.

There are thus many issues confronting China, and with others they have led punters both within and without China to downgrade growth estimates for the Chinese economy to 5%. Of course, as I have said often enough, the absolute figures are still impressive. But if China and the world has become used to China growing at 10%, then a drop to 5% is hugely significant.

The government

The People’s Republic of China was proclaimed on 1 October 1949. This year the 75th anniversary of that event will be marked. The role of the Chinese Communist Party (CCP) in bringing this about was acknowledged at the outset and continues to this day. “No Communist Party, no new China” shout the slogans throughout the country. And it is no less than the truth. The reach of the Communist Party is pervasive. Every level of government, every business, every institution has its party group or cell. The Party is the wiring which keeps China together and while its mode of operation is alien to us, for most Chinese alive today, it is all they have known. For all those younger than in their late 70s, they have known no other China throughout their lifetime.

The survivability of Communist party rule for so long tests political analysts outside China. It seems almost against nature. Yet it is not an accident. The survivability of the party has two dimensions – being keenly alert to popular sentiment, and being unwilling to tolerate dissenting views. Both are important. The former has underpinned the leadership’s emphasis on a strong and prosperous economy, since 1978 given effect through the policy of ‘reform and opening up’, and which despite all the trials and tribulations of recent years has continued. The phrase ‘rich country, strong army’ was originally coined in Japan, but it was naturalised in China, and pithily sums up the objectives of China’s current leadership. Being rich may be good in itself, but its end goal is to ensure that China will never again be the plaything of other powers, as it saw itself as being in the so-called ‘century of humiliation’. My sense is that most Chinese share these aspirations, even if they might disagree as to how to attain them.
The treatment of those who disagree with the course the leadership has set is the point at which China diverges most sharply from this country. There is no concept of a ‘loyal opposition’. Whether it is dealing with ethnic minorities or religious believers, let alone those who directly challenge the rule of the Communist Party, the leadership is consistent in its approach. The self-identification of party and state means that any threat to the party can become a matter of national security and be treated accordingly. That does not exempt those in control of that sector from scrutiny. Some of the highest profile individuals who have fallen from grace are in the People’s Liberation Army or the national security apparatus. The charge is often corruption, and the fear is that, as with the governing Nationalist Party (KMT) before 1949, this could be the achilles heel of CCP rule.

China’s interaction with the world outside China reflects these two approaches – benefitting economically from its integration into the global economy, while determinedly maintaining its autonomous status in the world. Outside China there may have been many who assumed that China was converging in its political as well as economic policy to something more akin to what we are familiar with in the west. They may have been right to a degree, but what we can say more categorically is that that was never the objective of the Chinese leadership, at any time. Many, in China and without, smile at the phrase ‘socialism with Chinese characteristics’ as a euphemism for China embracing the market economy and turning its back on socialism. But it would be a mistake to downplay the ‘Chinese characteristics’. Whatever China does, it does in its own way.

China’s increased presence in the world has many aspects. Some are deep rooted in China’s history. Others are a function of the immense increase in China’s wealth, and with that its power, in recent years. It may help to distinguish four domains through which China seeks to expand its influence.

The first is those areas in which China says that it has sovereignty, and in which therefore it sees itself as having unfettered rights to act as it wishes. From China’s perspective these areas include Hong Kong, islands and reefs in the South China Sea, and Taiwan. Much attention has been given in recent years to what has happened in these areas. I do not wish to state the pros and cons on each of these issues. But I will say, because recent coverage is not always clear on this, that China’s position has not changed since 1949, indeed many of the claims China makes were made by its predecessor Republic of China before 1949. What has changed, and significantly, is China’s capability to give effect to these claims. We can see that most clearly in the South China Sea, but it is also true of many other issues.

And what of Taiwan. Again, Beijing’s position vis-à-vis Taiwan has not changed since 1949. It regards the island as an inalienable part of the territory of the People’s Republic. It is evident, and not just through the elections earlier this year, that many people in Taiwan do not see Taiwan’s current and future status through this lens. I am more confident than many that the leaders in Beijing will not act precipitately on this matter, relying on the emphasis that is given to ‘peaceful reunification’ in Chinese statements. A conflict, even a muted one, across the straits would be a disaster for all. Let us all hope that wiser counsels will prevail in both Taipei and Beijing, and that a mutually acceptable outcome will be found.

The second domain is the wider Asia-Pacific, or as it is often called now, Indo-Pacific region. Here China wishes to be able to act autonomously, not necessarily deferring to other powers. China’s publicly expressed hostility to AUKUS is one of the sharpest edges of this approach. New Zealand’s approach to AUKUS is the subject of debate within this country, and has yet to be determined. For many countries adjacent to China, such as Japan, the Republic of Korea, and the Philippines, China’s approach has been problematic, and in part as a result they have drawn closer to each other and to the United States. For others, such as the island countries of the Pacific, China can seem an attractive alternative or addition to existing linkages.

This of course engenders interest in New Zealand. New Zealand’s strong preference is that powers external to the regions close to us, and obviously that includes China, operate within the regional frameworks and arrangements already established. For the South Pacific it is the Pacific Islands Forum, a grouping of sovereign and freely associated states. A number of agreements have been reached under its aegis, such as the 2000 Biketawa Declaration and the 2018 Boe Declaration. China has been a dialogue partner of the Forum since 1990. For Antarctica, the framework is the 1959 Antarctic Treaty, with its demilitarisation provisions. China has been a consultative party of that treaty since 1985.

The third domain is the wider world. Internationally, China has been active in putting forward alternatives to the current international order. I say ‘alternatives’ rather than ‘substitutes’, as China is well aware that in many respects it is a beneficiary of the current international order. But it is also well aware that it was not ‘present at the creation’. Some of what China sees as the inequities which flow from that have been dealt to – so that since 1971 the government in Beijing has been a permanent member of the United Nations Security Council, with all the formidable powers attached to that status. And it is one of the five named nuclear powers in the 1968 Non-Proliferation Treaty. China has been a strong public advocate of the multilateral trading system at least since it joined the WTO in 2001, music to New Zealand ears, although that does not mean that China is any less fervent than others in its framing of that advocacy within its own national interests. New Zealand, as you probably know, has a free trade agreement with the People’s Republic, concluded in 2008, and upgraded in 2022. The last negotiated safeguards on dairy products were removed at the beginning of this year – 2024.

And finally there is the fourth domain, Chinese communities in other countries, which has been featured of late, so far as this country is concerned, in recent journalism. That China reaches out to shape opinion in the world beyond China is not in itself surprising – most countries do that. But if such activity crosses a legal line, then that is of concern. New Zealand had no tolerance for illegal interference in the affairs of our residents and citizens. The prime minister said that he raised foreign interference with visiting Chinese premier Li Qiang in Wellington last week. The Chinese authorities naturally deny that any such activities take place. You will have to make up your own minds on that, based on what you have read in recent articles and statements by government agencies.
China is not ‘like’ us, or many other ‘Western’ countries. But the relationship which looms larger for China and the world is that with the United States. I was in China, in Qingdao as it happens, in December 1978, when the establishment of diplomatic relations between China and the United States was announced. Ever since then, relations between the two countries have been on a roller coaster, and that roller coaster seems to currently be in one of its downward phases. This matters to both those countries, but it also matters to those such as ourselves, whose outlook will inevitably be shaped by the temperature of that relationship. It has been China’s fate, since at least the 18th century, when Voltaire used his understanding of a secular meritocratic China to criticise contemporary political arrangements in France and elsewhere in Europe, to be a target against which Westerners could project their own debates. This makes China’s emergence as a powerful country, with its own voice, peculiarly difficult for outsiders to accept. So much so, that there are voices out there who latch onto any weakness in China, and there are plenty, to predict that China will ‘fail’, in some way or other. I do not believe this to be so, and even if it were, it would not be a welcome prospect. A powerful China may have its challenges, but a weak and fractiously divided China would be much worse.

What does this mean for New Zealand?

Well, if you have been following what I am saying those implications should be clear, but let me for convenience spell them out anyway.

1. China is not going away. There may have been a period between 1950 and 1980 when China either isolated itself from the world, or was isolated by the world, but that now seems an episode, rather than a long run reality. China’s size, both its population and its economy, mean it will be part of our world, and part of the whole world, for as far into the future as we can see. Whatever we think of China, whatever the nature of our relationship with it, we will be connected with it. This is perhaps why, in the Asia New Zealand Foundation’s just published annual New Zealanders’ Perceptions of Asia and Asian Peoples survey, 82% of New Zealanders identified China as the Asian country which has the greatest influence on New Zealand.
2. China will remain a major economic and commercial partner for New Zealand. When I started my last assignment in China, in 2015, China was neck and neck with Australia as a major trading partner. Now it has pulled well ahead. On the latest figures, our two way trade with China is worth close to 40 billion dollars, about 27% of our goods exports go to China, and China is the largest source of imports. This exposure to China worries many, although it is still much less than our exposure to the United Kingdom in the 1950s. Looking across the Tasman, we can see how trade has been used for political point scoring, and that is reason to be concerned. But even if calls for diversification of trade are heeded, and the percentage of our exports that go to China drops, it is unlikely to drop below 20%. That China is so big, pays well, and has high demand for the goods and services that we produce, are likely to be enduring features of that economic nexus.
3. China is already a significant voice in regional and global affairs, and will continue to be. Global issues – climate change is the most oft cited – cannot be addressed without China being part of the solution. The establishment of new international frameworks to govern activities on the oceans or in outer space cannot come into existence without China’s participation. The style of China’s interaction with the world may change from time to time. But whether articulated in emollient tones, or by ‘wolf warriors’, China’s national objectives will not change. As with all other nations, it wishes to be prosperous and secure, and security includes the perpetuation of China’s current political and social order.
4. And that is where China most markedly diverges from this country, and where we cannot expect any convergence in the forseeable future. Leaving aside obvious differences of size, China is not on a path to become more similar to New Zealand in its political, legal and social arrangements. Beijing and Shanghai may resemble New York and Paris, and in some respects they do, but in many respects they do not, and by that I do not mean that you can taste a wider variety of good Chinese food in those cities than in New York and Paris. There will be occasions, in terms of how China operates internationally or domestically, when New Zealanders will be affronted, and New Zealand governments will have to register those views with China. This is not comfortable for either side.

It is a commonplace to speak in terms of an economic relationship with China in contrast to a security relationship with the United States, or with western countries more broadly. There is an element of truth in this but it is not the whole truth. The United States and western countries more broadly (such as Australia, Japan, the United Kingdom, the European Union) are significant economic partners for New Zealand as well as security allies. And our relationship with China, if it is to work, has to rest on solid political foundations as well. That is far from meaning always agreeing with China, but it does mean not allowing our differences of view to define our relationship. Mutual respect, consistency and transparency are vital assets for a country such as ours, afloat on the ocean of international affairs. And no more so than in our relations with China and its 1.4 billion people.