Minxin Pei, professor of government at Claremont McKenna College and the author of China’s Crony Capitalism, opined on 5 September in Project Syndicate that China is losing a new Cold War with the United States. He argues that "like the (former) Soviet Union, ..... they are paying through the nose for a few friends, gaining only limited benefits while becoming increasingly entrenched in an unsustainable arms race with the US." Much play is made of China's "unsustainable" economic model driven by inefficient state-owned-enterprises and the country's "imperial overreach" in the form of the Belt and Road Initiative, which is beginning to hit the rocks across the globe.
While much of the good professor's warnings are not without merits, jumping to the conclusion that China is beginning to lose a barely-started new Cold War with the United States seems somewhat premature.
First, while China's military spending has risen by leaps and bounds in recent years, it is broadly in line with the dramatic growth of its economy. According to the Stockholm International Peace Research Institute (SIPRI) , it is estimated at 1.9% of its 2017 GDP, still behind corresponding percentages of India (2.5%), France (2.3%), South Korea (2.6%), Turkey (2.2%) and Australia (2.0%), let alone Russia (4.3%) and Saudi Arabia (10%). Even allowing margins of under-estimation, the true picture is not as unstainable as depicted.
Second, unlike the past, military rivalry does not depend on quantity or even technological dominance. It's enough to possess a survivable nuclear second strike as in the form of nuclear-armed hypersonic weaponry and sufficient deterrence in the form of Anti-Access/Area Denial (A2/AD) capabilities in areas where they matter to China.
Third, the Belt and Road Initiative no doubt faces teething problems. But it meets a massive need for infrastructure and regional connectivity to fulfill capacity-building and economic transformation of many host countries. Moreover, in response to legitimate concerns, more projects are jointly managed with international institutions including the United Nations, paying due regard to governance and the environment. In Asia at least, many are co-financed with the Asian Infrastructure Investment Bank (AIIB) comprising 86 Member States across the globe, including major Western allies. See Swiss Re Third Quarter 2018 Update on B&R projects.
Fourth, while slowing, China's economy is now showing real signs of transformation, according to Martin Wolf of the Financial Times of 4 April, 2018. By the end of 2017, thanks to China's largest and fastest urbanization in human history, private consumption is contributing 59% to GDP growth, significantly higher than investment, while the contribution of net exports dwindles to single digits. Interestingly, by some estimates, by 2015 the share of household disposable income and labour compensation were already higher than in Japan and South Korea. Deleveraging is continuing while overall indebtedness seems to have peaked. Unlike the US looming debt crisis, which will deepen as interest rates are on an upward cycle, China has very little national debt. Much of its debt is owed by state-owned-enterprises, which are backed by their massive assets and China's gigantic foreign currency reserves. While reform of state-owned enterprises seems to have stalled, they are becoming much less inefficient and are being more held to account. In any case, China is not convinced that one-size-fits-all privatization is the key to China's development model. Partially-privatized state-owned enterprises (as listed companies) may continue to serve China's national interests better as national champions.
Nevertheless, as the world has become much more inter-connected and inter-dependent, a prolonged Cold War is mutually destructive. What is more, it could make avoiding the Thucydides Trap that much more difficult.