China's Taiwan And South China Sea Ambitions Cannot Hide Big Problems At Home

China's ambitions to take over the South China Sea and enforce the One-China principle with Taiwan can appease its nationalistic base.

But they cannot hide or solve big problems at home, like the property bubble, which is beginning to threaten its banking system, according to Juscelino Colares Schott-van den Eynden, a professor of law and political science at Case Western University.

"Without question, Xi Jinping and the Chinese Communist Party are ramping up bellicose rhetoric to distract international attention and condemnation from their well-established record of human rights violations and growing economic problems," he said. "A credit-fueled real estate bubble now threatens China's banking sector and sheds light on the misallocation of resources by a government hellbent on attaining high-growth targets to critical voices.

"The coming Winter Olympics are part and parcel of this strategy to show uncompromising power to domestic and foreign critics. And the fear of a boycott may be the last deterrent against the Chinese Communist Party's use of force against its neighbors and, more likely, Taiwan, which the CCP views as a renegade province."

Then there's the slowing of the Chinese economy, coupled with rising material prices that are beginning to exert inflationary pressures.

"Although headline GDP growth looks set to comfortably hit the official target of above 6% for 2021, China's post-pandemic recovery has encountered stronger headwinds in recent months," said Dr. Guo Yu, lead Asia-Pacific analyst at Sibylline Ltd. "Soaring gas and coal prices have triggered an energy supply crunch, fueling inflationary pressure, while restrictions imposed following a resurgence of COVID-19 infections (and the zero-case strategy) have disrupted economic activities in Q4."

Maintaining high growth was always a top priority for the Chinese government. It helps solve many problems, from employing its labor force to generating revenue for government coffers. But these days, maintaining high growth has an added significance because of the upcoming CCP national congress.

"Further loss of growth momentum will likely prompt policymakers to rein in the deleveraging drive and boost public/infrastructure investment in the coming months, leading to further monetary easing," adds Dr. Yu. "The added political significance of the CCP's upcoming national congress will likely dictate a risk-averse approach on macroeconomic policy for 2022. Avoiding major shocks to socioeconomic health will be crucial for the CCP's stability-above-all stance."

Maintaining high growth is essential for addressing another problem, the soaring debt, which officially is a small number: 66.8%. But unofficially, it's anyone's guess, due to government worship of banks, which give loans to government-owned contractors, government-owned mining operations and steel manufacturers.

The government is both the lender and the borrower as one branch of the government lends money to another branch of government, as was the case in Greece. And we all know what happened to that country when the debt came due.

Pursuing grand ambitions cannot hide China's domestic problems for very long. And it can lead to dangerous miscalculations and actions, which can change the course of history.