China, which for the lion's share of the COVID-19 pandemic was heralded as the model in dealing with the disease, is currently experiencing its harshest wave yet with a 7-day rolling average of just over 27,000 cases per day. A bulk of these cases are emanating from Shanghai which is under uber-strict lockdowns. Now, it would be foolish to trust any data coming out of the People's Republic given the government's propensity to embellish statistics, but given the trove of evidence currently pouring in via social media, whatever the actual number of infections is, it's clear what's happening now is the most serious event since the outbreak originated in Wuhan.

Throughout the pandemic, China has not been shy about proclaiming how successful its model has been, especially in comparison to the United States. Recall the video produced by Xinhua from the early days of the pandemic mercilessly mocking America's 'failed' response to the outbreak. Communist Party officials like Hua Chunying, China's Foreign Ministry Spokesperson, have also been in on the act of patting themselves on the back. Hua, who pushes insane amounts of English language propaganda on Twitter, crafted a Tweet last week claiming China has one of the best records for handling COVID.

If the nice spokesperson would take a trip to Shanghai, she may find that things aren't running as smoothly as her profile indicates. Distressing videos from the locked-down city seem to be popping up on US social networks every minute. They show scenes of apartment dwellers screaming in despair out of their high-rise buildings, citizens fighting for food, health workers beating individuals who aren't complying with orders, and government officials executing pets, just to name a few.

Shanghai is showing that even as the Party in Beijing, led by Xi Jinping, is trying desperately to maintain its Zero-COVID policy, its ability to govern effectively has been massively over-hyped, especially to the domestic populace. Even the most conditioned population will start to lose faith when there's nothing to eat, and right now in Shanghai, there's nothing to eat.

MORE THAN PANDEMIC PROBLEMS

It's not just the backlash to the dystopian lockdowns that Beijing has to worry about, either. Party governance as a whole is in serious trouble of losing control on two other key issues. The first is the massive real estate bubble that has been created via debt-driven growth by developers and speculative buying by individuals. Essentially, property developers like Evergrande, China's second-largest developer, took out massive debt to build large projects. They then passed the debt off to the customers by selling apartments that don't exist yet. As much as 80% of Chinese household assets are tied up in real estate, so a crash in the market would have devastating effects. The aforementioned Evergrande, which is over $300B in debt, defaulted on its payments in December of last year, and last Monday, China's fourth-largest developer, Sunac, missed its first bond payment.

The other concern that must be at the forefront of Xi Jinping's mind is China's demographic timebomb. From 1980 to 2016 China implemented the One Child Policy, which was designed to curb population growth and spur economic growth under Deng Xiaoping's planned economy. Unfortunately, what resulted were many unintended consequences that are currently threatening China's future development.

The current fertility rate in China is 1.3 percent, well below the replacement rate. It is expected to continue falling, and according to state media outlet The Global Times, the number of women aged 22-35 (childbearing age) will decline by 30 percent in the next 10 years. With China's population aging fast, it's leaving fewer taxpayers to contribute to pension funds. In 2020, there were five taxpayers per pensioner, and by 2050, it's expected to be a 2-to-1 ratio. This also means no replacement workforce will be coming in to take over for retirees, and this is especially hurtful given China's reliance on domestic manufacturing.

To combat these negative demographic trends, China has implemented major policy changes, including moving to a "Three Child Policy." However, societal constraints like education costs, lack of maternity support, and the financial burden of having to care for older relatives mean that young Chinese aren't enthusiastic about the idea of having more children. In a now-deleted Xinhua poll, 29,000 out of 31,000 respondents said they would never think of having more children. China also plans to gradually increase the retirement age, but this, too, has faced major backlash online.

A CORNERED PARTY

From the perspective of China's rivals, like the US, Japan, and Taiwan, watching this meltdown of CCP governance might seem like cause for celebration. After all, each of these countries considers China its biggest security threat, so if Beijing is too wrapped up in trying to fix domestic turmoil, then it will have to temper ambition when it comes to foreign policy, right?

Remember that Xi's and the CCP's mandate to govern is not derived from the vote of the population, no matter how many times Hua Chunying Tweets about "Chinese Democracy". To maintain legitimacy amongst the population and the Party, Xi is dependent upon sustained economic growth. For the last 30 years, this growth has allowed the leadership in Beijing to rule without substantial pushback from its citizenry. Though not ideal, it's much easier for people to shelve concerns about human rights and autonomy when their standard of living is consistently increasing.

It's no coincidence then that in 2018, when Xi Jinping removed presidential term limits, setting himself up for lifetime rule, China's GDP growth sat at an impressive 6.75 percent. Even as authoritarian policies increased dramatically under Xi, Chinese people were still getting richer, so there was no immediate motivation from the wider populace to oppose his agenda. As long as bank accounts are growing, it is palatable for Xi to amass more and more power.

However, given what we know about China's domestic instability, this gravy train of massive economic growth looks like it's getting closer and closer to running out of steam, or in China's case, coal-fired electricity. Between the Zero-COVID failure, a massive housing bubble, and a looming demographic crisis, it's hard to imagine things are going to get easier for the CCP. And when the domestic population does start turning on Party leadership, China's rivals would be wise not to get complacent.

It has become clear by now that Xi fancies himself a modern-day emperor, the leader of the CCP dynasty if you will. Like most emperors, his ego is not exactly small. When his legitimacy starts to be questioned as domestic conditions deteriorate, the US and its allies should not expect him to accept responsibility and work with the people to fix the problems. They should expect him to do what the CCP does so well: blame the failings of the Party on outside forces.

In order to deflect blame from himself for his and the Party's failings, Xi Jinping will need a target he can funnel domestic anger towards. This has been the playbook for power-hungry leaders for as long as they have existed. Examples of this diversionary foreign policy include Tsar Nicholas II using Japan as an outlet for Russia's revolutionary sentiment and Otto von Bismarck utilizing the Franco-Prussian war as a means to unify Germany.

It's not a stretch to imagine Xi using similar tactics to pacify his own population. The most likely target of his ire will be the United States and, by proxy, its Northeast Asian allies, as well as Taiwan. A likely scenario would see Xi blaming domestic failures on the unrealized unification of Taiwan and the "American Imperialists" who have propped up the "illegitimate" regime in Taipei. In order for China to realize its full potential, it must exorcise all of its enemies from the region and all remnants of American influence in Japan, Taiwan, and South Korea.

Increased aggression then should be expected not only in the Taiwan Strait but around disputed territories like the Senkaku Islands. By stirring up conflict with China's enemies, Xi will hope to move domestic anger away from the Party and onto the Americans, Taiwanese, and Japanese. The ability to offload blame for economic pain onto foreign governments not only offers the potential of relief for the Party but the potential for a motivated populace unified in accomplishing Xi Jinping's Great Rejuvenation of the Chinese Nation.

This isn't a proclamation that China will move on Taiwan in the immediate future, although in today's geopolitical climate that's certainly not out of the question. It is, however, a warning to China's enemies to not get fat and cocky as China's struggles become more apparent. Rather than restricting China's foreign policy ambitions, domestic turmoil will increase and accelerate them. It would be wise for the United States and its allies to keep that understanding at the forefront of their own foreign policy.

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