30 April 2024

After more than two decades of robust economic growth, the Chinese economy is entering a phase of slower growth. Mounting debt, an asset bubble exacerbated by poor governance, excessive savings due, in part, to an inadequate social safety net, collapsing consumer demand, capital misallocation, industrial over-capacity and a rapidly aging population have collectively weakened Chinese output and demand and lowered that country’s long-term growth prospects. 

Western governments, concerned by China’s military build-up and ever-more aggressive posture in the Indo-Pacific, are reassessing their economic ties with Beijing. China’s central role in global supply chains has become deeply concerning, particularly in the wake of the Covid-19 pandemic when China slashed supplies of a range of critically needed products and locked down globally consequential ports. This, in turn, triggered a global supply crisis, drove prices ever higher and further exposed significant structural vulnerabilities within both the Asian and global trading systems. 

Mounting tensions between Taiwan and the People’s Republic of China (PRC) and China’s increasingly bellicose threats to overthrow the current status quo pose a very serious challenge to the Indo-Pacific and, indeed, global security. Taiwan itself sits astride one of the world’s busiest commercial shipping lanes, and a major disruption in these waters would be devastating. 

Strategists discern close links between mounting tensions in these waters and the war in Ukraine. China has closely followed developments in Russia’s war. It wants to know whether international solidarity with Ukraine will prove durable or if Russia can show strategic patience, wait for the international community’s support for Ukraine to wither and then essentially move in for the kill. If China judges that Russia’s strategy has been rewarded, it will be tempted to pursue a more aggressive path to achieve its aims in Taiwan. In the high stakes game of deterrence, therefore, the battlefields of Eastern Ukraine and the Straits of Taiwan are inextricably linked.

There is also a growing sense that the region’s traditional hub-and-spoke security architecture is no longer sufficient to maintain regional order in the face of a more aggressive and military capable China. Denser security links among those countries in the region concerned about China’s aggressive military and mercantilist economic policies are now required. 

For their part, North American and European leaders have recognised that they must collaborate more closely with their Asian partners to achieve greater situational awareness and collaborate where possible. NATO has also deepened its dialogue with its regional partners in Asia. Allies have a strong reason for collaborating closely with like-minded partners in the Indo-Pacific to manage strategic competition, reduce the risk of dangerous escalation and address a range of shared challenges like energy security, cyber threats, the proliferation of weapons of mass destruction, climate change and, more generally, threats to the international rules-based order.

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