Wolf Warrior 2.0: Rising Chinese Assertiveness As A Response To The PRC’s Economic Slowdown

Severely impacted by its zero-Covid policy during the pandemic and the subsequent myriad of economic obstacles, the economy of the People’s Republic of China (PRC) appears to have stagnated, raising concerns about economic turmoil’s impact on the country’s foreign policy. The PRC’s recent behavior in the Indo-Pacific suggests that its efforts to mitigate the effects of this economic slowdown have taken the form of antagonistic foreign policies. Meanwhile, attempts to address stagnating growth have emboldened the Chinese Communist Party’s (CCP) nationalist rhetoric and combative foreign policy. This risks laying the foundation for conflict in the region.

Setbacks in the PRC’s Economy

In 2022, the PRC’s Gross Domestic Product (GDP) growth fell to 3%, the first time in decades that it has not outperformed the global average. While the country’s GDP has grown by 4.6% for the past two quarters of 2024, this remains below the government’s 5% target and pales in comparison to the 9% growth recorded before Covid-19.  The PRC is no longer attaining the rate of growth sustained for the past few decades, which the CCP has relied on to maintain power. 

This slowdown has complex causes which may prove difficult to address. Firstly, it is rooted in fundamental structural issues in the economy. The PRC’s growth in the past decade has been fueled by overzealous investments in infrastructure and property, where debt accumulation has created an unsustainable bubble. The stagnating property market created by this has caused developers and construction firms in the country to default on loans and caused overcapacity in related industries.  Perceived as a “can’t-lose investment”, the PRC’s property market holds 70% of Chinese wealth, meaning that falling property prices threaten the life savings of many. The PRC’s workforce is shrinking due to its aging population, broadening the number of people relying on retirement savings and a social safety net. Secondly, to address the PRC’s growing socioeconomic inequality, the CCP has cracked down on the private sector—specifically in finance, healthcare, and private education—under the banner of “common prosperity” which calls for greater wealth distribution. The chill caused by these crackdowns has reverberated through the Chinese economy and spurred restraint in business investments and capital flight. 

Since its gradual reopening from the COVID-19 pandemic, the PRC’s disappointing economic performance has created uncertainty amongst its citizens and undermined confidence in the economy and the government. Since 2021, the crisis of confidence amongst investors has caused the PRC stock market to lose $7 trillion, with an even more staggering figure of $4.7 trillion in wealth lost from the housing market in the same period. The pessimism has suppressed the country’s already-low domestic consumption rates, accentuating its economic problems. Some China watchers have labeled the country as a power in decline and warned that it may enter a ‘peaking power trap’ in which it will be pushed into fighting the United States politically and economically to stave off decline.

The Immediate Foreign Policy Effects of the PRC’s Slowing Economy

In response to these economic slowdowns, Beijing has taken a series of more aggressive foreign policy moves toward Southeast Asian States, which are intended to cushion the impact of economic woes—but may have unintended consequences     

Southeast Asia is a reliable overseas market for PRC construction firms with overcapacity.  The PRC’s economic strategy prioritizes government subsidization of industrial production. Current domestic demand and consumption fail to match output, leading to an excess of goods that then flood foreign markets. Under the PRC’s Belt and Road Initiative (BRI), foreign infrastructure projects enable these firms to offload their surplus and are often funded by loans from the PRC. Existing BRI projects in parts of the Global South have received close to $1 trillion in loans which suffer from a high risk of defaults. In their most recent search for foreign markets, PRC firms have targeted Southeast Asian states as there is a lower risk of default due to the more stable political environment. The rising middle class of the countries in the region serves as an important market for Chinese companies hoping to overcome low domestic consumption. Chinese businesses have flooded the markets of Southeast Asian countries such as Malaysia, Thailand, and Indonesia with their cheaply manufactured goods. This has soured the PRC’s relations with these states as the influx of the PRC’s goods undermines trading partners’ domestic industries.                 

Southeast Asia has precious natural resources such as lithium, nickel, and copper which are critical to the PRC’s long-term economic goals. The PRC has sought to diversify its sources of economic growth and move up the value chain by dominating the consumer electronics and battery sectors. Party officials have pinpointed this strategy as a high priority to achieve continued growth. PRC firms have thus dominated the resource industries of Southeast Asian countries. This is most evident in Indonesia, where PRC firms account for a huge proportion of Indonesia’s nickel processing industry. For instance, 90 percent of nickel smelters in Indonesia were built by PRC firms such as Tsingshan Holding Group and Zhejiang Huayou Cobalt. Exercising their monopoly over the demand for nickel in Indonesia, PRC firms have pressured Indonesian miners to sell the mineral at below-market prices. Beyond the exploitation of the nickel market, the PRC’s dominance has also caused Indonesian-processed nickel to be shut out from other foreign markets––including the United States. The United States banned the import of minerals produced by firms with more than 25% PRC-based ownership, to reduce dependence on the PRC and exclude it from their electric vehicle supply chain. The PRC’s actions fostered Indonesia’s dependence on the PRC and alienated it from the West, exemplifying how the PRC’s response to its economic slowdown may increase global bifurcation. 

The PRC has sought greater control over the South China Sea to secure access to natural resources such as oil and natural gas–– crucial for its manufacturing sector. Given the importance of the South China Sea to international shipping routes, greater control over the maritime area would boost the PRC’s trading power and overall economic strength. Since 2022, the PRC has gone beyond reclaiming islands within the South China Sea by positioning anti-ship and anti-aircraft systems, new fighter jets, and radar systems on the Spratly Islands. This stands in contrast to prior assurances from President Xi that the islands would not be militarized. Growing tensions in the region in 2023 even prompted the foreign ministers of the 10 ASEAN member states to urge “self-restraint in the conduct of activities that would complicate or escalate disputes.” However, recent incidents between the PRC Coast Guard and Philippine government ships suggest that tensions are unlikely to abate anytime soon.

The PRC’s strong self-preservation instincts and domineering tendencies explain why it has antagonized relations with its neighbors in its efforts to mitigate the impact of its slowing economy. Amidst pushback from Southeast Asian states and the deterioration of the PRC’s economic conditions, it would not be surprising to observe tense developments in the region. Worse still, the CCP may resort to other means of deflecting the widening implications of its economic slowdown.

Turning Towards Nationalism in the Longer Term

Economic growth has been a key pillar of the CCP’s legitimacy since Deng Xiaoping’s time. Robust growth is central to party legitimacy for the CCP—slowing growth erodes their hold on power. As early as 2016, analysts warned about the PRC’s employment of nationalistic foreign policies to protect the CCP’s legitimacy against the effects of its slowing economy. CCP rhetoric around the country’s ‘century of humiliation’ in which its territorial disputes with its neighbors and the issue of Taiwan are seen as “wounds from this humiliating past” are prime examples of this behavior. This is complemented by President Xi’s slogan of the ‘great rejuvenation of the Chinese nation’, where the party is positioned as a force to restore the PRC’s rightful place in the world. Such a turn towards nationalism was in full display in the late 2010s when the PRC reacted to its perceptions of the increased international threat posed to the country by pursuing wolf-warrior diplomacy, embracing a more confrontational tone on the international stage. 

Although the PRC has toned down on its wolf-warrior diplomacy, its statements on the reunification with Taiwan, which it sees as a renegade province, continue to embrace antagonistic and nationalistic rhetoric. Since 2022, the PRC has increased the frequency of military exercises around the island. In his 2024 New Year’s address, President Xi declared that reunification was a “historical inevitability.” Some have warned that the PRC’s elevated pressure on Taiwan indicates a higher likelihood of a military confrontation to reunify the island. 

To be sure, there has been pushback against the notion that the CCP will resort to conflict as a diversionary tactic from the country’s economic troubles. President Biden posited that the PRC’s economic troubles left President Xi with “his hands full.” Other experts argue that it is irrational for the CCP to engage its military in a war that has an uncertain prospect of success, as this could cost the party its vital support base. While there are merits to these arguments, Indo-Pacific experts highlight that public opinion exerts a great influence over the CCP. Based on this, they expect the drumming up of nationalist sentiments to drive the party into adopting more aggressive responses to regional crises, including the use of military force. This is concerning. The CCP may be compelled to act by forces that the party itself once deliberately cultivated but now have escaped the CCP’s control. This illustrates the real risk that the PRC, along with the other powers involved, might stumble into a war.

The Growing Threat of the PRC’s Economic Slowdown

The PRC’s slowing economy has received the attention of political analysts over the past year, yet ambiguity remains over what this entails for its foreign policy. Its slowing economy can be linked to antagonistic foreign policy actions adopted to mitigate its impacts including dominating the markets of its neighbors and abusing its monopoly to demand below-market prices, straining regional relations. Beyond economics, the PRC’s slowing growth threatens the CCP’s political legitimacy and has incentivized it to strengthen nationalist sentiments. While the floundering economy may restrain the party from escalating its rhetoric into full-scale conflict, nationalism cultivated by the CCP may prove difficult to control. The PRC’s leaders may find themselves compelled—by the very nationalist forces it had unleashed—into conflict during periods of high tensions. While the idea of a PRC in decline might seem welcoming to the West, it might also herald a period of heightened tensions and uncertainty. Given the possibility of hostile relations triggered by the PRC’s slowing economy, this is not a development that should be overlooked or underestimated.

Views expressed are the author’s own and do not represent the views of GSSR, Georgetown University, or any other entity. Image Credit: Canva Images