China is staring economic stagnation in the face and the ruling Chinese Communist Party is panicking. The segment of society the CCP fears most – its younger people with their Internet capability and changing political and cultural outlook – represent a critical demographic the Party finds itself increasingly beholden to. Foreign Affairs reports.

Author and academic Daniel Lynch says the end of China’s rise does not mean the country will collapse. The dramatic shift the country is experiencing is more comparable to Japan’s deflationary spiral out in the 1990s after a phenomenal rise than the dissolution of the Soviet Union. However, says Lynch, Chinese society is far stronger relative to the state than it has been during previous periods of economic slowdown, particularly one as serious as the current cycle, and reining in political dissatisfaction through coercion and violence will prove more difficult for the party.

China: Still powerful but less potent

By Daniel Lynch, published by Foreign Affairs on January 11, 2016

For the past three months, uncertainty over the course of Chinese development has intensified, with a steady flow of mostly bad economic news: yet another plunge in the stock market, which was already crumbling and kept afloat only by massive state intervention; mounting corporate debt; and a hemorrhaging of foreign exchange reserves, to name a few. The reality is that China is staring economic stagnation in the face, and the ruling Chinese Communist Party (CCP) is panicking. The party appeared to have acknowledged the seriousness of its economic woes, which can only be worsened by a declining and aging labor force, when it announced in late October that it would replace its decades-old one-child policy with a two-child policy in March. China desperately needs more young people not only to fill the factories and staff the offices and schools but also to increase consumption so that the country can shift from an investment- to a domestic consumption–led model of economic development.

But such a strategic shift cannot possibly succeed in time to prevent China’s rise from ending. Not only must there be a period of time after slashing investment (which is only barely beginning now) to allow private consumption to step in to fill the void in demand, but slashing investment itself will also reduce demand for consumption in absolute terms; people will lose their jobs, and the already heavily indebted corporate sector will earn less money to invest in sectors that genuinely need investment. No country in history has relied as heavily on investment to both fuel GDP growth and maintain the existing structure of GDP in China.

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Daniel C. Lynch is an Associate Professor of International Relations at the University of Southern California and is a member of the USC US-China Institute Executive Committee. Lynch is the author of two books: Rising China and Asian Democratization: Socialization to “Global Culture” in the Political Transformations of Thailand, China, and Taiwan (Stanford University Press, 2006) [paperback edition: August 2008)], and After the Propaganda State: Media, Politics, and “Thought Work” in Reformed China (Stanford University Press, 1999). He has published scholarly articles in such journals as The China Quarterly, International Studies Quarterly, Pacific Affairs, and Asian Survey. Lynch’s current research focus is how Chinese elites are envisioning the future of China’s domestic politics, international relations, economy, environment, and culture.