[Global Focus] The Dream of a 'Global Junghwa' Fades Amid China's Economic Decline

As China's economy, which has experienced rapid growth for 40 years, enters a path of decline, the dream of becoming the world's number one hegemon through 'Global Zhonghua' is also fading. China has been focusing all its efforts on building an anti-American front to dismantle the power held by the United States as the sole hegemon, but recent rapid spread of economic crisis theories signals weakening cohesion within the anti-American camp led by China.

"China's good days are over"... Ambition to surpass US GDP grows more distant

In 2010, Goldman Sachs, the largest US investment bank, predicted that China's gross domestic product (GDP) would surpass that of the United States in the late 2020s, possibly as early as 2019. This forecast advanced the surpassing point by about 20 years from the original projection (early 2040s). At that time, China's GDP was only 45% of the US, but China was in a high-growth era with GDP growth rates exceeding 10%. Other forecasting institutions also predicted that within decades, China's economy would quantitatively rival or surpass the US. In fact, as of last year, China's GDP reached $17.96 trillion (approximately 23,790 trillion KRW), climbing to 70.5% of the US's $25.46 trillion.

However, such forecasts have dimmed due to the recent economic crisis. A clear example of this crisis is the Chinese real estate market. Starting with Evergrande, China's second-largest real estate developer two years ago, the industry's top company by sales, Country Garden, has faced default (debt default) risks. Subsequently, large real estate companies like Wanda and Yuanyang have also faced domino default risks, showing signs of bubble collapse. The downturn in China's real estate market is expected to enter a prolonged phase. Juan Ots, a Chinese economist at UK-based Fathom Consulting, pointed out, "Today, China resembles Japan after the bubble burst in the 1990s." Researcher Zhong Yuan said, "This economic crisis has exposed fundamental and structural problems in China's economic growth model built up over years."

The real estate market has played an important role in China's economy, accounting for 30% of GDP. However, as the market, supported by massive debt-driven investment and real estate bubbles, reached its limits, the crisis spread to the financial sector supporting the real estate market, causing a chain reaction affecting the entire Chinese economy. According to statistics from the Bank for International Settlements (BIS), as of the end of September last year, China's debt-to-GDP ratio was 295%, higher than the US's 257%.

Besides the real estate market crisis, the declining share of exports is also a negative signal for China's economic growth. China surpassed Germany in 2010 to become the world's largest export economy, with exports accounting for about 30% of GDP that year. However, this share has now dropped to 20%. Zhong Yuan and Jo Liu, international economic researchers at the Council on Foreign Relations (CFR), assessed that "China's economic growth has already peaked."

The shift of companies away from China to avoid supply chain risks highlighted by the COVID-19 pandemic, moving to countries like India, is also hampering China's economic growth. There are even evaluations that China's status as the 'world's factory' has already shifted to India. Investors are also turning away. Foreign direct investment (FDI) in China dropped sharply by 48% to $180 billion last year compared to the previous year. Consequently, the share of FDI in GDP fell below 2%.

As key economic indicators such as exports, inflation, employment, consumption, and production deteriorate, global investment banks are lowering their growth forecasts for China one after another. JPMorgan Chase lowered its forecast for China's economic growth rate this year from 6.4% to 4.8%, and Barclays from 4.9% to 4.5%, making it difficult for China to maintain the government's target of '5%.'

BRICS: 'Economic Interests' Rather Than 'Anti-American Camp'

This economic wave is also causing cracks in China's position in the international community. The China-led economic bloc 'BRICS,' which opposes the US-led Group of Seven (G7), is a representative example. China planned to expand its influence by accepting as many friendly countries as possible as new members at the BRICS summit that ended on the 24th, but faced opposition from existing members like India and Brazil, resulting in only six out of 22 applicant countries being admitted. It seems unlikely that China will achieve its goals at the next summit scheduled for October next year. With existing members engaging in 'middle power diplomacy,' aligning and realigning according to their own interests, the likelihood of siding with a China losing economic power is low. Foreign Policy noted, "India and Brazil are cautious and opposed to accepting countries that have clearly shown policies opposing the US-centered order," adding, "With Russia isolated internationally and China facing economic recession, the benefits of joining BRICS are diminishing, making it difficult to attract new members."

The goal of BRICS is also being shaped by 'economic interests' rather than 'anti-Americanism,' contrary to China's original intentions. While member countries, composed of emerging nations, agree on increasing economic influence in the international community through BRICS unity, there is no broad consensus on China's anti-American stance. Even Brazil's President Luiz In?cio Lula da Silva, who is pro-China, stated on the opening day of the BRICS summit, "BRICS is not a rival to the G7, nor is it building a competitive system with the United States."

[Image source=Reuters Yonhap News]

Foreign media also report that discussions on introducing a 'BRICS common currency' did not take place at this meeting in the same context. BRICS officially declared a 'de-dollarization' movement through the Sanya Declaration in April 2011, but there has been little progress since. Enoch Godongwana, South Africa's finance minister and chair of this year's BRICS summit, told Bloomberg News in an interview, "The issue of a BRICS common currency was not even mentioned in informal meetings." He explained that establishing a common currency would require setting up a central bank, which implies losing independence in monetary policy, and no country is prepared for this. Foreign Policy described, "Experts are very skeptical about whether a BRICS common currency can bear fruit."

Discord is also emerging in China's ambitious Belt and Road Initiative (一帶一路). Italy, the only G7 country closely aligned with China and participating in the Belt and Road, recently announced its intention to withdraw. Yoon Sun, China director at the US think tank Stimson Center, pointed out, "In 2019, amid the US-China confrontation, Italy, a G7 member, joined the Belt and Road, and China celebrated it as a 'major political victory.' In that sense, Italy's withdrawal must have dealt a significant blow to China's pride and is a great humiliation for China."

This content was produced with the assistance of AI translation services.