At the end of our three-part look at some of the major challenges the world and the global economy will face in 2024, we examine instability in China and the challenge of global security
As we conclude our look at six major geopolitical and economic challenges that the world will face in the coming year in a new three-part blog series, we see that while 2024 is set to be a challenging year for a host of countries, few may have as many internationally consequential difficulties as the People’s Republic of China. A combination of socio-economic and foreign policy challenges will stretch the Chinese government’s attention to an untested degree; while simultaneously armed conflict is again becoming the solution de-jour in international relations, threatening global security.
Challenge 5: Economic slowdown in China
For the first time in decades, it looks like China’s economic sprint is seriously slowing down, a worrying sign for a global economy that has been reliant on China’s nearly 1.5 billion people to propel its broader development. It is also a situation with wide ranging implications across the political and security sphere, meaning the possible ramifications of a Chinese slowdown is a necessity to understanding how 2024 may develop.
One of the most pressing issues China is facing is the rise of youth unemployment. The last release of youth unemployment data showed a jobless rate at a high of 21.3%, with a corresponding increase in the rate at which students returned to rural homes within six months of graduation, suggesting a very difficult job market. A high youth jobless rate not only slows down potential future growth and allows expensively earned skills to atrophy but could generate social pushback against a government which has a deep and troubled history around student movements.
From a more sectoral perspective, real estate, which accounts for about one-quarter of China’s GDP, is also facing a severe crisis. The debt-laden property giants Evergrande and Country Garden have highlighted a sector that had defaulted on $124.5 billion (US) worth of bonds as of October, generating fears of a domino effect on the financial system and the broader economy. But unlike many other nations’ real estate markets, China’s is also a key part of how local governments and state firms raise capital. The result is that, if the real estate sector goes bust, China could be facing a combined crisis in a large part of its economy — the decimation of its people’s savings — while at the same time seeing one of its core local fundraising elements go bust. Economic slowdowns after long periods of growth are already difficult enough as is, but this could be disastrous, turning a case of economic sniffles into a much more consequential collapse.
The risk of international contagion, of a failing Chinese economy pulling down the recovering international economy, is extremely high. As of 2023, China accounted for almost 19% of global GDP (PPP), compared to the United States’ 15% share. And because China and the United States take up an inordinate share of global GDP, a global recession could be brought about by the weakening of either country. China’s outsized share of global manufacturing puts a situation on the table where a China-centered spiraling cascade through the international supply chain could again spur a global surge of inflation.
For the first time in decades, it looks like China’s economic sprint is seriously slowing down, a worrying sign for a global economy that has been reliant on China’s nearly 1.5 billion people to propel its broader development.
Of course, the Chinese government is not ignorant of these dangers and have made large efforts trying to contain the spillover risks and prevent a disorderly collapse, but it must play a dangerous game of bailing out some players while preventing others from taking advantage of the safety net and making matters worse. Early signs are somewhat positive that China is managing the crisis, but this is a long game in which the laws of economics viciously punish even slight missteps.
This is where the security and international relations spillover beings. It is only the beginning of President Xi Jinping’s third (unprecedented) term as Chinese president, yet he has multiple ongoing and interconnected issues that he will have to balance while also defusing China’s economic timebomb. A war in Ukraine fought by one of the countries primary allies/proxies is going poorly for Russia. At the same time, China is in the middle of a growing geopolitical rivalry with the United States and other western powers, not to mention the regional powerhouses of India, Japan, and South Korea.
The economic risk for China at home and a potential for costly sparring with geopolitical rivals could go multiple ways in 2024. One possibility is that President Xi becomes less willing to push aggressively on foreign policy while domestic politics are so shaky — and there are already signs of this occurring. On the other hand, people tend to double-down when backed into a corner and an economic malaise may make other forms of growth (such as military conquest or simply more aggressive foreign policy) the only way to continue advancing China’s interests.
When it comes to the potential for an economic slowdown or a more vicious scenario, operational flexibility and situational awareness may not be enough for companies and organizations. The good news is that there is no need to wing it when it comes to dealing with such large-scale challenges. Events like China’s slowdown have had numerous warning signs over the last few years, allowing those organizations that are informed to prepare now rather than adapt later. For example, preparing a roster of alternate suppliers, identifying key areas of exposure, and having step-by-step instructions ready for when timely responses are required can be the difference between floundering in the moment and executing a vital repositioning.
Challenge 6: Wars and shadow wars
The return of warfare between equal or similar adversaries in 2022 shattered the global community’s assumption that such wars were a relic of the past. In 2023, it now appears that this new dynamic is here to stay, with countries and non-state actors more often using violence as a means of settling conflicts and reaching political goals.
Arguably the initiating dispute to this reawakening — Russia’s war in Ukraine — continues on. While international support for Ukraine was high in the wars’ initial year, 2023 has seen increasing fatigue. Aid to the country has tapered off, especially in the United States where support has become a political wedge issue that has resulted in further aid stalling and unless support from the US and NATO is vastly increased, the quagmire is likely to continue.
Arguably, the bulk of the ongoing war’s impact has already been felt, but this is merely the active conflict. However, it is accompanied by another shadowy fight taking place globally. Rather than a direct encounter, Russia often operates using ambiguous warfare, a type of shadow warfare that overlaps with disinformation campaigns, efforts to subvert elections, and other types of indirect combat that have since spread beyond Ukraine. Moldova and Serbia/Kosovo are currently seeing their domestic politics strained to the breaking point under similar tactics that could see them pulled more directly into the war, something which increases the likelihood of NATO itself being dragged into the conflict.
In addition, the latter half of 2023 ushered in a Middle Eastern situation that has the potential to not merely impact regional actors but to spiral out of control to the point where global players would inevitably be pulled in. After the October 6 attack on Israeli citizens by Hamas, the Israeli military has been embroiled in an extremely complicated and contentious situation, with fighting in the Gaza Strip, the border with Lebanon, as well as repelling rocket attacks from Yemen and conducting airstrikes in Syria, the violence has already spread far beyond Gaza.
In such a dangerous world, businesses and organizations will inevitably be swept up in some kind of geopolitical or economic fallout that will pose an existential threat.
The situation is currently being escalated by the Iran-backed Houthis of Yemen who are attacking shipping in the Red Sea, the vital shipping lane connected to the Suez Canal. The use of these proxy forces is how Iran exerts its influence without directly involving itself in the conflict and is another way of waging shadow wars that cause chaos and disruption in other countries. Even more troubling, major players such as the US and China have massive interests in the trade that flows through this area of the world, meaning that they could be pulled into a multi-axis shooting war if the conflict were to spread into areas like the Straits of Hormuz.
Any further discussion of a potential battle between the superpowers needs to include a look at Taiwan, where the question is increasingly becoming when rather than if armed combat will break out. The good news is that Taiwan is unlikely to become a battlefield in the new year but preparation for an eventual conflict is likely to be a large factor dominating local politics and security concerns. Interestingly, the prelude to a war over Taiwan’s independence is also playing out in semiconductor manufacturing. Despite Taiwan’s tense security concerns, it remains the manufacturer of the majority of the world’s most advanced semiconductor chips, vital technology for both electronics and increasingly important for advances in artificial intelligence (AI). With such a vital hub of world production in the crosshairs of a superpower conflict, it may be unsurprising that nations such as the US and China are competing to develop their own semiconductor manufacturing as well as to cut off the access of other powers.
All of these circumstances, from Ukraine to the Middle East to Taiwan, revolve around the new power axis of the 21st century, with a clash between eastern and western powers. So far this is mostly playing out in shadow wars, the efforts of misinformation around democratic elections, the trade wars involving already strained economies, fighting for natural resources and the challenging impact of AI — all of which are acting as proxies that have powerful nations once more fighting over influence. The post-Soviet era of relative peace and international order seems to have expired in 2023, with a return to the kind of jostling that defined much of the 20th century.
In such a dangerous world, businesses and organizations will inevitably be swept up in some kind of geopolitical or economic fallout that will pose an existential threat. Drafting, reviewing, and updating contingency plans and crisis-response protocols can give organizations a leg up an increasingly complex world. Going even further as to actually test such plans can teach hard lessons now rather than when organizations cannot afford to pay the cost. This grants the opportunity to focus not simply on the inevitable challenges of 2024, but the equally inevitable opportunities that all years bring.