China's slowdown and the incentives for war

Answering the looming question that's on a lot of people's minds.

By now, China’s slowdown has been covered from almost every possible angle. If you’re following the story, by now you’ve read not just about the details of the economic crisis itself, but also about the roots of the problem, the headwinds going forward, the political and social effects in China, and the effects on the rest of the world. But there’s one important question that I haven’t seen anyone else cover yet, and which many people have been asking me about. So I thought I’d write a post about whether China’s economic troubles will prompt it to start a war.

Obviously, whether China decides to start a war is heavily dependent on lots of political factors that I’m not really equipped to analyze. Whether Xi Jinping thinks a war would help shore up his legitimacy in the face of various policy failures, or whether Chinese nationalistic sentiment demands that the leadership take aggressive action, or whether China sees a closing window of opportunity for retaking Taiwan are all questions that I just don’t know the answer to.

But what I can do, at least to some extent, is think about the economic costs and benefits. Obviously leaders’ decisions on war and peace are not always motivated by rational economic calculations — we all know the story of WW1 — but at the same time, costs and benefits probably do matter to some extent. I can see at least three factors that seem like they could plausibly affect Xi Jinping’s mental calculus here: the end of catch-up growth, the need for stimulus to fight the economic downturn, and China’s increasing economic self-sufficiency.

Unfortunately, all of these factors seem to point in the same direction: an increased risk of bellicosity and conflict. So this is going to be a scary post rather than an optimistic one. I don’t want to be alarmist or claim that war is coming; I think there’s still a good chance that Xi refrains from starting a war. But I think it’s important to recognize the economic factors involved, and be prepared for increased risk.

War isn’t a threat to catch-up growth if catch-up growth is over